Hi. I was wondering if I hire a property manager and maintain a “hands off approach” regarding property maintenance, tenant issues etc… Should the PM company have their own liability insurance? And if they do, should that protect me from liability in the event of legal action caused by a PM? I would also hope that my insurance policy would be another defense. I feel that I need to be involved and inspect the properties to be sure they are safe and comply with the laws. I don’t have an LLC but I also don’t want to cause any liability issue on my part. Any input is apreciated. Thanx.
Do not do business with anyone that doesn’t carry insurance. You should also carry your own insurance. Just remember that the PM is your agent and you are responsible for what he does.
Thanx BLL. How would it typically play out if a PM caused someone to be injured that resulted in a lawsuit? Would the PM’s insurance Co. be sued or would it involve both the PM & my insurance Co.? I feel that if I’m on top of things and be sure that the PM and I are not being negligent, I should be O.K. What do you think? Thanx.
The PM company will get sued. The property manager will get sued. The owners, managers, officers and directors of the PM company will get sued. The property owner (you) will get sued. If the property is owned by an entity, its managers, officers, owners, etc will get sued. That doesn’t mean any of them are responsible. It just means they have to pay to defend themselves and most of them will be removed from the suit. The only real culpable parties are the PM company, the PM that caused the injury, and the property owner.
Most likely, the PM will settle either out of pocket or through insurance. If that insurance doesn’t cover the damage, your insurance kicks in.
That makes sense. Thanx BLL. I plan to be very diligent in following the law. My properties will be managed in a way that would make it unlikely that I’d be successfully sued. I think proper business practice is the most important. Thanx again.
The management agreement with the professional property management company will probably have an indemnification clause that makes you responsible for paying any judgment against the PM when they were acting in their capacity as your agent.
I would recommend against such a clause in a contract. In most cases, the PM is probably the one who did something to cause the injury.
That’s a good point. I’ll have be sure they don’t try to sneak that one in there. I think that if a PM is maintaining a property for you, they should alert you of needed maintenance/repairs. If you don’t take care of it, then your negligent as an owner. Perhaps a documented inspection every 3 to 6 months of each unit will help to keep things in order.
Yes, a good property management company will advise you of needed repairs. When you either refuse to make those repairs or make the repair in a timely fashion, and, your “negligence” contributes to a tenant’s injury, both you and the property management company may will be sued.
The indemnification clause takes the management company off the hook for paying any judgement awarded to your tenant.
I doubt you will find a professional management company that will offer you a management agreement without an indemnification clause. If you try to strike it, the management company will simply tell you to take your business elsewhere.
I think it has to come down to proving exactly who was at fault. If a PM did something that caused a lawsuit, I don’t see how they would be off the hook. Otherwise, why would they need insurance? They could just write the clause in the contract. Am I overthinking this?
The property management company is your agent. They are representing you and have a signed managment agreement in which you specifically give them authority to act on your behalf in certain situations. For other situations, you give the company guidance and direction.
Since the management company is acting for you as your agent, you are ultimately responsible for the lawful actions of the management company. You can delegate authority to the company to act on your behalf, but you can’t completely delegate your responsibility.
Just how I see it.