NYARM discusses 'Ten Commandments' of building management ethics

Real Estate Weekly, June 4, 2003 by Sabina Mollotov

Why should managing agents and property owners be interested in graduating from New York Association of Realty Managers' code of ethics classes, when they're not required to have such "licenses" by law?

According to Gregory Carlson, director of management of NY Housing Cooperatives and Condominiums, the interest should be there, "because it elevates the status of the industry. A hairdresser requires a license before he can give you a $25 haircut, but managers with million-dollar contracts don't, and then there's no accountability if there's a problem."

Carlson was one of the speaker at an ethics class and luncheon hosted by NYARM at Tavern On The Green May 28. The event was the sixth in a series of ethics classes.

Also validating the importance of the ethics classes was Harry Smith, director of management of Gumley-Haft, who said, "A professional has an ethical guideline that they follow. When you graduate from business school, you're not considered a professional. Why not? So this makes you more of a professional."

Some of the issues addressed during the class were determining appropriate investments for building accounts, deciding when there is an obligation to disclose bad news about a property and dealing with problem tenants.

The ten commandments for managers are as follows:

1. Thou shalt not turn a blind eye to law-breaking landlords. "I've heard stories about managers having to close their eyes to something they know is wrong," said Carlson. "The agent knows there could be a health or safety situation but they just want to go along with the owner because they can't afford to lose the account We see this every day. I see managers leave the business for this reason."

2. Thou shalt not refrain from giving a landlord bad news. When the manager is aware of a problem that is not an immediate danger, but could still be a safety hazard, it is the manager's obligation to say something to the landlord, even if the problem could be costly to fix, like mold removal or taking measures to prevent water damage.

"The managers shouldn't bear the burden," said Daniel Wollman, speaker and CEO of Gumley-Haft, "but you have an obligation to notify the client of a dangerous or serious situation. Then the client decides how they want to deal with it, but if something happens and you didn't disclose facts to the client, then you could share the burden."

3. Although it's tempting, thou shalt not kill a non-paying tenant or resident. Even if a building resident owes $50,000 in rent or maintenance fees, managers and landlords are not allowed to go outside the "jurisdiction of the courtroom to force anything out of the entity. Cutting off cable or electricity or not opening the door for the person is considered 'self help' and we can't do that," said Smith, "Even when the person is a pain in the neck who calls and complains every day, and that's something that happens on a daily basis."

4. Thou shalt not use thy power in an unprofessional or selfish way. This means there should be no accepting of gifts or services by individuals or companies seeking business from the owner, and no doing business that could be a conflict of interest in regards to the owner. "If I want to give a job to my nephew who's as dumb as you know what, just so I can keep my wife silent, that's fine.., if it's only my money, not the owner's," explained Carlson.

Similarly, that means managers have no businesses borrowing or lending an owner's money. If a manager is given permission to invest money from a building's account, he or she must do so in the simplest, lowest-risk way possible.

5. Thou shalt treat the client as thou would want to be treated. As the NYARM ethics guidebook puts it: The manager has a duty of good faith and loyalty to the owner of the building. "When investing an owner's money, we don't profess to be investment advisors," said Wollman. "You must be responsible for the cooperation or condominium's money and not invest it in high-yielding Enron bonds."

Instead, Wollman suggests investing in treasuries and certificates of deposits in banks different from those used for the building's main account, and always keeping the investments under $100,000. "Over that amount you lose FDIC insurance," said Wollman. "It's important that you understand that and diversify or consider diversifying, but that decision should be left up to the owners of the money."

6. Thou shalt not "co-mingle" owner's funds. Even in cases where there is more than one building account from the same owner, the funds must be treated as separate and unrelated, and of course careful and detailed books must be kept for each of them.

7. Thou shalt not pretend to be something thou aren't According to the guidebook, "The manager shouldn't take on responsibilities, even at the request of the owner, if he or she has not been trained in those areas of expertise."

This means hiring experts such as engineers, attorneys or financial advisors when the requested task is beyond the manager's own skills or abilities.