A board suing its managing agent is usually a board that has already terminated the agent, hired a new one, and been handed a list of everything the new agent says is wrong with the building. The claim that follows tends to describe years of ordinary management decisions as a pattern of neglect.
These cases are defensible, often very defensible, because the agent acted within a defined scope, on a budget the board approved, with decisions the board itself made. But the defense depends on records and on early steps that are easy to get wrong while you are still absorbing the fact that you have been sued.
We defend management companies against claims by the boards they served. Call 212-233-1233 or email [email protected].
What to Do First
Before the merits, before the answer, before any conversation with the board.
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Notify your errors and omissions carrier immediately
These policies are typically claims-made and they impose prompt notice requirements. Late notice is one of the few ways to lose coverage you actually paid for, and it happens routinely because the insured wanted to see whether the matter would go away. Report it, and report circumstances that could become a claim even before a suit is filed.
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Preserve everything
Put a litigation hold in place across email, accounting systems, work orders, text messages and the building file. Suspend any routine deletion. Nothing damages a defensible case faster than records that went missing after the claim arrived, and an innocent retention policy looks very different once litigation has started.
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Read the indemnification clause before you answer
This is the step agents skip. Many management agreements obligate the building to defend and indemnify the agent for claims arising out of its performance. That obligation does not necessarily disappear because the claimant is the building itself — it depends on the wording, and it is worth knowing before you spend your own money on a defense. Tender the claim in writing and get the refusal in writing if it comes.
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Stop talking to the board
Not out of hostility, but because everything said now is evidence, and board members who were friendly last year are being advised by counsel whose job is to build a case against you. Route communications through your lawyer.
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Check for an arbitration clause and a deadline
Your agreement may require arbitration, and response deadlines in litigation are short and unforgiving. Confirm both before anything else is decided.
What Boards Typically Allege
- Breach of the management agreement — failure to perform defined duties
- Breach of fiduciary duty, particularly regarding building funds or undisclosed vendor relationships
- Negligence in maintaining the building or supervising vendors and staff
- Failure to collect arrears, pursue violations, or file insurance claims in time
- Exceeding spending authority or committing the building without approval
- Commingling or misapplication of funds, or an accounting that cannot be reconciled
- Failure to turn over complete books and records at the end of the engagement
The Defenses That Usually Matter
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The board decided it, not you
The strongest defense in most of these cases. A managing agent recommends; the board decides and funds. Where the agent advised a repair and the board deferred it, recommended a reserve study and the board declined, or proposed a vendor the board overruled, the minutes and correspondence are close to dispositive. This is why contemporaneous written recommendations are the most valuable thing a management company produces.
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You acted within your scope
The agreement defines the duties. Claims that the agent should have done things the agreement never required it to do — and that the building never paid for — frequently fail on the contract's own terms.
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Exculpation and limitation of liability
Where the agreement limits liability to gross negligence or willful misconduct, or caps damages by reference to fees, those provisions shape the case from the start and can make a large claim economically unserious.
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Contractual indemnity
Depending on its wording, the indemnity may require the building to bear defense costs, which changes the economics of the litigation considerably.
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Statute of limitations
Boards suing after a transition often reach back years. Different claims carry different limitations periods, and some of what is alleged is frequently time-barred.
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No damages
Buildings routinely allege failures without showing what the failure actually cost. Deferred maintenance that would have had to be done anyway, or arrears that were always uncollectible, are not damages caused by the agent.
Your Counterclaim
In most of these cases the building owes the agent money, and the suit arrived shortly after the agent asked for it. Unpaid fees, fees for an unexpired notice period, and expenses advanced on the building's behalf are ordinarily asserted as counterclaims in the same action. A defense that also carries an affirmative claim settles on materially better terms than one that does not — see claims against the board.
Speak With Our Firm
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Call before you respond
If a demand letter has arrived, or a board has begun asking for an accounting in a way that feels like the start of something, that is the moment to get counsel involved — not after the complaint is served. The carrier notice, the litigation hold and the tender of indemnity are all cheaper and more effective done early.
Call 212-233-1233 or email [email protected].
