Do Property Management Agreements Create a Fiduciary Relationship?

Do Property Management Agreements Create a Fiduciary Relationship?

Yes, property management agreements often create a fiduciary relationship between the property manager and the owner, requiring the manager to act in the owner’s best interest. This includes duties of loyalty, care, accounting, and disclosure, though some agreements may limit or disclaim fiduciary obligations. Whether a fiduciary relationship exists depends on contract terms, state laws, and the manager’s level of control over property decisions.

When Does a Fiduciary Relationship Exist?

A fiduciary relationship exists when one party (the fiduciary) is obligated to act in the best interest of another party (the principal) and owes duties of loyalty, good faith, and full disclosure. In the context of property management:

• The property manager (agent) typically acts on behalf of the property owner (principal) to manage the property.
• Many states impose fiduciary duties on property managers by law, regardless of what the contract states.
• The scope of fiduciary duties is often outlined in the property management agreement.

Common Fiduciary Duties of Property Managers

If a fiduciary relationship exists, the property manager generally owes the owner:

1. Duty of Loyalty – Acting in the owner’s best interest and avoiding conflicts of interest.
2. Duty of Care – Exercising reasonable skill and diligence in managing the property.
3. Duty of Accounting – Properly handling and accounting for the owner’s funds.
4. Duty of Disclosure – Informing the owner of material facts affecting the property.

Exceptions & Limitations

• Some property management agreements expressly disclaim fiduciary duties, stating that the manager is an independent contractor.
• In some cases, property managers are only obligated to act in good faith rather than as fiduciaries.
• If the agreement limits the manager’s discretion, reducing their control over decisions, courts may find no fiduciary relationship.

Bottom Line

Most property managers do owe fiduciary duties to property owners, but the specific obligations depend on:

1. The contract terms in the property management agreement.
2. State laws, which may impose fiduciary duties even if the contract does not.
3. The manager’s role and level of discretion over financial and operational decisions.