Unit Owner Claims Against Managing Agent

Published on: July 28, 2001

A few months ago I discussed a case from a Federal Court in Illinois which held that as a result of the agency relationship between a manager and an association there was an implied obligation of indemnification. This month I will discuss whether a unit owner can properly state a claim against a manager when the essence of the claim is that there has been a failure to maintain the common elements. As a general proposition the answer is no. Of course my saying this will not prevent various unit owners’ attorneys from making such claims. Yet maybe, with some appropriate guidance, they can be persuaded to discontinue such.

This issue has specifically been addressed by the Third District Court of Appeals of Indiana in the case of Nichols v. Kirpatrick Management Co., 536N.E.2d 565 (Ind. App. 3 Dist. 1989). There the unit owner attempted to argue that damage resulting from a roof leak was due to a failure by the manager to properly maintain the roof. The Court, however, pointed out that whatever obligation existed to maintain the roof, that obligation flowed from the association to the unit owner under the governing documents, and not from the manager to the unit owner.

The Court also noted that the management contract was solely between the association and the property manager. That agreement merely established an agency relationship. It placed no specific obligation on the manager to undertake responsibilities under the governing documents. Therefore, no claim could exist under what we lawyers refer to as a third party beneficiary theory – that is, that a specific person is intended as the beneficiary of a contract entered into between two other people and, thus, can enforce it. Further, since the claim was one of malfeasance – that is, a failure to maintain – only the principle – the association – which had that duty could be sued. The claim was, thus, dismissed against the agent – the manager – who had no independent duty to the unit owner.

It is only when the manager actually performs some task, is negligent in performing that task, and that negligence causes damage to a unit is the manager exposed to liability. Then, however, the indemnity obligation of the association kicks in, whether under the management agreement or the implied obligation previously discussed. Such a situation will, however, rarely occur for only in isolated instances is it the manager who performs maintenance. Rather it is some third party contractor. Thus the manager will not be the negligent party.