Can I sue my property management company for failing to fully verify that a tenant was qualified before moving into my unit, when the property management maintains sole discretion on the approval or denial of applicants?

Thank you for your question. The answer is maybe. Whether you can sue your property management company for failing to fully verify a tenant's qualifications before approving their application depends on the specific contractual obligations and duties owed by the property management company, as well as whether any independent legal duties were breached. Also, every case is different, and no two situations are alike. Therefore, the only way to determine if you have a claim is to consult a real estate attorney.

If the property management company has sole discretion to approve or deny tenant applications, the terms of the management agreement will be critical in determining whether it breached any contractual obligations. 

Colorado law recognizes that every contract contains an implied duty of good faith and fair dealing, requiring the parties to act in a manner consistent with the other party's justified expectations. If the property management company acted in bad faith or unreasonably exercised its discretion in approving the tenant, this could give rise to a breach of contract claim. However, a breach of contract doesn’t automatically entitle a party to damages. Now, if the tenant failed to pay rent, was unable to pay rent, or damaged the property, for instance, then you might have damages. 

If the management agreement explicitly grants the property management company broad discretion in tenant approval decisions, and there is no evidence of bad faith or unreasonable conduct, it may be challenging to establish a breach of contract. 

In the absence of a contractual breach, you would need to establish that the property management company owed and breached an independent legal duty. Under Colorado's economic loss rule, a party cannot recover in tort for purely economic losses resulting from a breach of contractual duties unless the defendant owed an independent duty of care outside the contract. 

Colorado law imposes certain disclosure obligations on brokers and agents acting on behalf of landlords. For instance, under C.R.S. 12-10-404, a broker acting as a landlord’s agent must disclose all adverse material facts actually known to them, including material defects or environmental hazards, but they are not required to independently verify the accuracy of information provided by the tenant or conduct an independent inspection. 

Since property managers are licensed professionals, another property manager or “expert” in the field will need to testify that your property manager’s conduct was unreasonable. 

In conclusion, to determine whether you have a case to sue your property management company, it is essential to:

• Review the terms of the management agreement

• Assess whether the company acted in bad faith or breached any contractual obligations

• Evaluate whether they violated any independent legal or statutory duties

Again, each situation is different. I recommend you speak with a real estate attorney who will base their legal guidance on the contract. If you’d like to schedule a meeting with a member of our Real Estate Team, you can book a consultation online or call us at 303-688-0944.