Comment on change of property manager or owner / register for cs webinars October 20, 2023

KEN KIRSCHENBAUM, ESQ
ALARM - SECURITY INDUSTRY LEGAL EMAIL NEWSLETTER / THE ALARM EXCHANGE
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Comment on change of property manager or owner / register for cs webinars
October 20, 2023

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Comment on change of property manager or owner from article on October 12, 2023

Ken
I think your response on this one, while mostly accurate, may be missing one scenario. What if (and it does happen) the "management company" signs the contract by itself, and not "as agent for," or "on behalf of" the true property owner?
You have to look at the "four corners of the agreement." For all the outside world (and especially a court) knows, the alarm company has made its agreement only with the signatory entity. I submit that in such a case, in the event of a premature cancellation, the alarm company could only pursue collection against that party. In addition, for all you know the "managing agent" in such a case actually owns or has some ownership interest in the building.
It gets even more complex when there is a claim against the alarm company by the "real owner" who will claim rights under the contract or perhaps that it is not governed by the contract at all. They could be relegated to unintended third-party beneficiary status in which case they would have no right to make a claim under the contract. I know you and I have both litigated that scenario successfully.
Bob K
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another comment
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Ken
             Boy did this catch my eye. We deal with a lot of management companies and many big properties. When I purchased a fistful of KK agreement I slept better at night, now I may have sleepless nights again, and as frequently happens, your comments scared me.
            We have had instances where owners have changed on large projects and owners have changed management companies.
            So far, we have always managed to keep in touch with the owners. Changes are coming. I do expect the 5-year rate reset on commercial mortgages will bring many changes in ownership in the very near future. In our area there has been a good deal of cheap money development but not a whole lot of tenancy growth. Shopping malls and office buildings are unable to attract tenants and remain fully occupied. Office vacancy rates are at all-time highs, Retail is dead and dying. When these mortgage rates reset many owners may be unable to maintain the cost of operations and there will be a large number of commercial properties changing hands.
              One major 900,000 sq foot shopping center we deal with has the third new owner in 5 years. This site had $65 million in mortgage and an appraised value of $30 million. We operate closely with most of our major customers and agreements with the shopping centers have been signed by the owners. In each instance, we have been able to sign a new agreement with the new owner, but your newsletter makes me fear that someday we may be caught behind the 8-ball. We are now chasing bigger and bigger projects and as such we are further and further away from the bottom-line owners. As you know we never are on a project without a signed KK contract in the file.... BUT ... where do we land when one of our owners becomes slammed with an overwhelming mortgage rate increase when they are 1-2 years into a 10 contract? A contract where we may have given a substantial discount consideration to obtain a contract with a high monthly RMR. The circumstances will force the owner to sell or even worse the property may go into foreclosure and become a bank property. There may be no one who will offer service companies a notice of ownership changes and we will unknowingly maintain service as a contracted vendor. While I have not yet had a concern about a lack of payment, it is the possibility of a disaster or a fire occurring that keeps me awake at night. Without regard to the appraised value of the shopping mall, there are untold numbers of tenants with shops and inventory adding more millions to the mix. The cost of rebuilding the mall and restoring the tenants will dwarf our insurance limit. Just defending claims of smoke damage to the inventory of 75 stores could overwhelm our insurance. Without an agreement with the current owner, I would have no protection from all of the KK agreements.
                  I am now losing sleep at the thought that somewhere along the way there may be a change of ownership which we will not be notified of and we will be happily unaware. Is there anything in the KK agreement that can provoke or force the seller (Who we signed a contract with) to become obligated to notify of a change in ownership or have liability for loss?
                   We do not like to walk away from customers like these. I have one major center that took me 20 years to land as a customer. There is now a major 1,400,000 sq foot center that is coming to contract term and is looking for a new vendor. We have learned this site is in foreclosure and is appraised at 75% BELOW the mortgage value. This would be a big RMR for me. Should I bother? Without regard to what happens to the mortgage and the ownership, the site will still need services. A new owner will still need vendors. When the ownership changes will I know? Will I be able to provoke the new ownership or bind the new owner to remain with me? Is there any way to ensure that we will survive as the vendor??
              Management Companies
             We are always aware of a change in the management companies. What if we have a project signed by a management company as an agent and a new owner is on the scene but the management company (who is our contact) never notifies us of this ownership change and we are again happily unaware?
              Is there anything we can do so I can sleep well again??
Jersey Jerry
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Response
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            There can be consequences when you are not careful about who you are contracting with.  The issue comes up frequently in collection cases when the property manager claims it was acting only as agent, or by the owner when it claims the property manager who signed the alarm contract did so without authority.  They both try getting off the hook on the contract.  K&K encounters this so often that we typically pursue a collection claim against both property manager and owner.  Why?  Because one of them is certainly liable on the contract.
                 Here’s the law, everywhere:  An agent acting with authority [express or apparent] binds the principal and the agent is not personally liable.
            An agent acting [and by that I mean, in this context, entering into an alarm / security contract] on its own behalf or on behalf of a non-disclosed or non-existent principal, is personally liable and the principal is not liable [except under some equitable theory]
            Most property managers are acting as agent for the owner.  You typically know this because the name of the property manager includes the “manager” or something like it, or it’s big enough business to be well recognized.  The mistake most of you make is not finding out who the actual owner is and requiring that the contract read XYZ Property Management Co Inc as agent for ABC Property Owner Corp.  If that’s your subscriber it’s the property manager who signs the contract.
            Sometimes it’s the owner changing the property manager.  In that case there is no need for a new contract because it’s the owner who is bound by the contract, not the property manager.  But if the owner changes then you need a new contract or the new owner needs to assume the existing contract.
I think Jerry raises an interesting and critical issue, serious enough to prompt an update in the Standard Form Agreements. I am going to add a provision that if the signing subscriber is an agent acting for a principal the agent is required to notify you if the principal changes. While I probably won't go so far as to state that if it doesn't it will be personally liable, but that is clearly the underlying purpose of the notice requirement.
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Ken Kirschenbaum,Esq
Kirschenbaum & Kirschenbaum PC
Attorneys at Law
200 Garden City Plaza
Garden City, NY 11530
516 747 6700 x 301
ken@kirschenbaumesq.com
www.KirschenbaumEsq.com