Continuing the theme from our previous post, here are more items to pay attention to in your property management contracts:

Liability and Indemnification

All contracts will have a section that addresses what the management company can and cannot be held liable for. Some contracts are broader and more comprehensive than others in terms of what the firm requires the owner to indemnify them from. (Indemnify: “To compensate for loss or damage; to provide security for financial reimbursement to an individual in case of a specified loss incurred by the person.” —legal-dictionary.thefreedictionary.com)

To get an idea of what a property management company might ask you to hold them harmless from, here’s an excerpt from a contract with a fairly comprehensive liability and indemnification clause:

Liability and Indemnification:

“To indemnify and hold harmless Manager and Manager’s officers, directors, agents and employees from all claims, demands, causes of action, costs and expenses, including reasonable attorneys’ fees at all levels, and from liability to any person, to the extent based on:

1. Owner’s misstatement, negligence, action, inaction or failure to perform the obligations of this contract or any lease or agreement with a vendor;
2. the existence of undisclosed material facts about the Property;iii. Manager’s performance, at Owner’s request, of any task beyond the scope of services covered herein;
3. Manager’s referral, recommendation or retention of any vendor; orv. services or products provided and expenses incurred by any vendor. Owner is responsible and liable for all contracts and obligations related to the property entered into before or during this Agreement by Owner or by Manager under Owner’s authority under this Agreement. Owner agrees to hold Manager harmless from all claims related to any such contracts. This subparagraph (g) will survive Manager’s performance, termination of this Agreement and the transfer of title to the Property.
4. Damage to the premises or items missing, switched out, lost or damaged under any circumstances, including but not limited to, theft, vandalism, or negligence of tenant(s) or their guests”

While the contract almost always holds the property management company liable for acts of negligence, as you can see above, they are not liable for the negligent acts of those whom they hire to work on their (your) behalf. While it would be unreasonable to expect them to be responsible for all the actions of the 3rd parties they hire, they should at least be held responsible in the event that they hire someone with a history of bad work that they either knew about it or should have known about. This can be accomplished by adding a reasonable care clause like the one below:

“Arrange for all repairs, inspections, maintenance and cleaning, unless Owner has notified Manager in writing prior to the commencement of repairs to use someone else that Owner has selected, and Owner agrees that they shall pay such third party directly and shall indemnify and hold Manager harmless for payment of same. Manager will not be responsible to maintain Owner’s previously established 3rd party relationships.”

Boilerplate Legalese

The following are common clauses found at the end of many contracts.

Entire Agreement

This provision establishes that regardless of what you talked about with the property management company beforehand, this contract is the final version of the agreement and supersedes all prior written and oral proposals.

Modification

The contract should contain a clause stating that the contract can only be modified by a written agreement executed by both parties.

Assignments

Could the management company transfer their contract with you to another management company without your consent? Some contracts allow for this, so make sure there’s a requirement that your approval is a perquisite for the management company transferring or “assigning” your contract to another firm.

Time Is of the Essence

“A phrase that, when inserted in a contract, requires that all references to specific dates and times of day noted in the contract be interpreted exactly. Failure to act within the time required constitutes a breach of the contract. The general rule is that time is not of the essence unless the contract expressly so provides. As a result, with respect to real estate transactions, the modern view is that time is not of the essence unless the parties have manifested such an intent.” (answers.com)

Governing Law; Venue

This clause determines which states’ laws will govern the interpretation of the contract, and may also specify the jurisdiction (county) in which all disputes are to be initiated and resolved.

Severability

This clause allows the contract to remain valid and enforceable even if a specific clause is found to be otherwise. This way, a legal error in the contract does not require the entire agreement be done away with.

Conclusion

This concludes our overview of property management contracts, as well as our comprehensive series on what to look for when hiring a property manager. We hope that this has given you an objective understanding of the topic, and that it helps you make informed decisions that help you get the most from your property.

Let us know if there’s anything we can do to help! 

* * *

The Realty Medics are the nation’s leaders in “Rocket Science Renting”: Rocket Science Renting is about keeping your life simple by letting someone else handle the complex work of property management for you. It’s knowing that your property is running smoothly, with no hiccups or glitches. It’s hyper-responsive customer service that gives you property management peace of mind. It’s advanced technology that could only be designed by a former NASA engineer like our owner, Ben Sencenbaugh. And it’s knowing that you’re always getting maximum value and ROI for your investment.

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