Weak Economy Heightens Liability Risks

Find out why economic turmoil leads to more court cases and what you can do about the potential risks.

July 12, 2013

A slow economy doesn’t just lower property returns; it also increases the potential risk of liability claims against property owners, says Lee Whitman, CPM, general manager at MC Realty Group in Kansas City, Mo. One factor behind the heightened risk: owners who inadvertently create an unsafe environment at a property by postponing needed repairs. The reluctance to repair is more common among less experienced investors who don’t understand the risk, says Whitman. Managers need to be proactive and work with owners either to make repairs or at least to identify potential hazards through signage and other warnings. “At least identifying situations helps show that ownership is not negligent, a frequent basis for liability claims,” explains Whitman.

A weak economy also increases the number of injury and workers’ compensation claims filed against a property and its management company, says Whitman. “More and more people are threatening lawsuits as a way to get money,” he says. Other legal issues that caused major concerns for property managers, according to the 2011 Institute of Real Estate Management Legal Scan, include debt collection suits, which increased 14 percent since the 2009 survey, and fair housing cases, which grew by 25 percent for racial discrimination and 60 percent for discrimination against the disabled in that two-year period.

What can commercial real estate managers do to lessen the likelihood of litigation? “Walk the property regularly—both outside and in the tenant spaces—and look for potential risks,” says Whitman. That way, you can correct small problems before they escalate.

Mariwyn Evans

Mariwyn Evans is a former REALTOR® Magazine writer and editor, covering both residential brokerage and commercial real estate topics.