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Many hopeful real estate investors are drawn to the various incentives of rental property but are deterred by the pains that may come with property management. Instead, owners elect to have their property managed by real estate agents. Real estate agents, particularly those that have experience in property management, can be a valuable partner to an individual’s real estate portfolio. These agents can assist by vetting potential tenants, getting under contract with a tenant, and responding to the tenant’s maintenance requests.
The North Carolina General Assembly, understanding that agents are sometimes significantly involved in the management of rental property, has provided additional tools for agents to assist their clients. In North Carolina, a real estate agent may bring a lawsuit against a tenant, on behalf of their client, for a summary ejectment (eviction) proceeding in Small Claims Court. This is a unique mechanism in the world of litigation, as it is usually solely the privilege of an attorney to represent their client in court. Although a landlord may have their real estate agent represent them in Small Claims Court for a summary ejectment proceeding, agents should be aware of several problems that typically arises through these proceedings. Today, we highlight three pitfalls we see property managers encounter during the summary ejectment process.
Generally, if an agent signed a complaint on behalf of their client or represented their client in court, it would be considered the unauthorized practice of law. However, an agent, who has actual knowledge of the facts alleged in the complaint, is authorized to sign a complaint for summary ejectment and/or money owed on behalf of their client pursuant to N.C. Gen. Stat. § 7A‑223. In practice, this has allowed real estate agents to attend small claims hearings and produce evidence on behalf of their client. This is only permitted where the real estate agent has actual knowledge of the facts alleged in the complaint that is filed. Additionally, it only applies to summary ejectment and/or money-owned cases, not for other property disputes that may be related to a lease agreement with a tenant.
Although most property managers are aware that they can attend Small Claims Court on behalf of their client, a mistake is often made where the agent writes in their name (instead of the landlord’s name) as the plaintiff. It should be noted that the plaintiff in a lawsuit is the alleged injured party. In a summary ejectment (eviction) case, the landlord is the alleged injured party because the landlord is the signed party to the contract and the landlord is claiming that the tenant breached the lease agreement which has caused injury to him/her. Thus, the plaintiff should be the named landlord that is on the lease agreement.
The real estate agent of the landlord is simply a fiduciary (someone entrusted to take care of the landlord’s property management affairs) on behalf of their client and therefore is not the injured party who should be named as plaintiff on the complaint. If an agent mistakenly places their name as the plaintiff in a summary ejectment case, that could potentially cause the case to be dismissed for lack of standing.
This may be the most common mistake I see for summary ejectment cases. A lot of the time an agent is doing the right things – entering into a properly executed agency relationship with their client; utilizing a lease which contains a forfeiture clause; properly accepting lease payments on behalf of their client; managing maintenance issues as they arise. The issue arises once the agent begins to fill out the Complaint for summary ejectment. The complaint for summary ejectment, unlike most complaints, is a standard form that is prefilled (for the most part) and filed to initiate the lawsuit. It looks like this:
Agents usually fill out most of the boxes correctly until block three where the complaint directs the agent/landlord to specify the alleged reason for summary ejectment. A good number of agents check Box 1, “the defendant failed to pay the rent due on the above date and the plaintiff made demand for the rent and waited the 10-day grace period before filing the complaint.” This is usually incorrect. Here is why:
Under North Carolina law, landlord-tenant law is largely governed by Chapter 42 of the North Carolina General Statutes. Chapter 42 requires that the landlord provide a 10-day notice for failure to pay rent prior to initiating a summary ejectment proceeding. A landlord, or agent, who fails to adhere to that grace period, or does not provide evidence at hearing that notice of nonpayment was given runs the risk of having their lawsuit dismissed.
If an agent is managing a property there is a very strong possibility that the lease agreement contains a forfeiture clause. A forfeiture clause allows a landlord to seek immediate possession of the property without providing 10-day notice. This is where the problem lies: if an agent uses a lease agreement that contains a forfeiture clause that allows for immediate filing of a summary ejectment complaint without notice, but the agent checks Box 1 one in Block 3 of the above complaint, the agent/landlord has waived his/her right to exercise the forfeiture clause.
In other words, a landlord/agent who brings a suit by checking the first box initiates the lawsuit pursuant to Chapter 42 of the North Carolina General Statutes which requires a 10-day notice period despite the lease containing a valid forfeiture clause.
An agent should check Box 3, “the defendant breached the condition of the lease agreement for which re-entry is specified” if the lease agreement contains a valid forfeiture clause. Checking this box and explaining in the blank section of the complaint that the breached condition is a failure to pay will allow the forfeiture clause to remain in effect and therefore not require the 10-day grace period.
Summary Ejectment is different than most civil cases. In other types of civil cases, the court goes to trial (sometimes) and if appealed, the case is heard on appeal by a review of the record. In simple terms, if a case in trial court is heard on appeal at the Court of Appeals, the Court of Appeals reviews the record of the trial court and determines if an error at the trial court occurred.
This is not like summary ejectment proceedings at all. In summary ejectment proceedings, the Small Claims Court will likely be the first court to hear the case. Parties present evidence at Small Claims Court. The unsuccessful party has a ten day right to appeal. If appealed, the case is reheard in its entirety in District Court.
Although an agent can represent their client in Small Claims Court, if the case is appealed, the landlord must either represent themselves (pro se) in District Court or retain counsel to represent the landlord on the landlord’s behalf.
If the plaintiff of the lawsuit is an entity like an LLC or Corporation, the officers of the entity are not allowed to represent the entity in District Court on appeal. The entity must retain legal counsel.
Property managers play an invaluable role in rental property operations, but navigating summary ejectment cases requires a solid understanding of North Carolina law. Missteps, such as naming the wrong plaintiff, improperly handling forfeiture clauses, or misunderstanding the appeals process, can result in costly delays and dismissed cases.
Fortunately, our office has the staff and resources available for agents and landlords to assist them in overcoming these obstacles. If you are interested in our office assisting you with a summary ejectment proceeding, please feel free to contact us.
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