Q. I’m just starting out as a property manager. My first client is a homeowner who plans to rent out his home while he sails around the world. He gave me a contract published by an online forms provider. What are some of the issues I need to watch out for?
A. The most important step is to take control of the business relationship, by writing the contract yourself (as the lawyers say, he who writes the contract controls the deal). It may be more convenient for you to just go through the homeowner’s agreement and make a few suggestions. But that would be a mistake, because almost every contract is written to the advantage of one side. Chances are, your homeowner chose a version that favors him.
But because a contract is already on the table, you may not be able to counteroffer this time with your own. So if you decide to start with the homeowner’s contract, here are a few issues to consider.
First, make sure that the owner agrees to carry a comprehensive general liability policy on the property, and to include you as an additional insured. Although you should by all means have your own liability insurance, being added to the homeowner’s policy may save you from having to call on your own policy in the event of a claim.
Along with insurance, make sure the agreement specifies that the owner will “indemnify, defend and hold (you) harmless” in the event your actions result in a monetary loss to you or the owner (such as a settlement or a verdict). This promise covers you in case you make a mistake in the normal exercise of the duties you have undertaken as the manager. Note that you’ll not only get reimbursed for any monetary damages you suffer, but the owner will have to defend you as well, and not attempt to hold you responsible for any monetary losses suffered by the owner.
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And let’s make sure no one gets caught up in thinking, “Why shouldn’t the manager be responsible for his own mistakes?” That question is a moral one — and indeed, in many situations, we definitely should be responsible for our behavior. But allocating coverage for mistakes, which happens when parties negotiate over who’s going to carry the insurance, is not about morality. It’s about which side has agreed to assume the risk — that is, carry the insurance — and that comes down to bargaining power and practicality. Most of the time, the most efficient path is the way to go.
Here, the landlord has liability insurance already, and it’s designed to cover accidents that happen on-site. Adding the manager, who is an agent of the landlord, adds very little risk compared with the risk factors already contemplated.
The language of the indemnity clause can get tricky. I’ve seen one that made all of these promises but ended with “except when the damage is due to the negligence of the manager.” Wait a minute, didn’t the owner also promise to add you to his insurance policy, which will cover you precisely when you negligently do something that results in damage? What one clause gives, the other takes away. See what I mean about one-sided contracts?
Make sure your duties are clearly spelled out, and pay particular attention to the issue of capital improvements. It’s one thing to supervise or perform routine maintenance; that’s what you’re getting paid for, among other tasks. But supervising a capital improvement is a bigger job. You’ll want to negotiate that separately, and have the right to either be paid separately or decline the job. You and the owner can decide ahead of time how you’ll characterize any large project. Don’t wait until the work has started to raise the subject of extra compensation.
Finally, because your owner is likely to be unreachable while at sea, consider asking for a larger-than-usual discretionary fund, so that you can respond to an urgent repair without having to wait for approval. For example, suppose the roof is torn off in a storm, and you need to hire a roofer pronto. If your owner is out of touch, you could lose valuable time (and the damage could worsen) while you wait for the OK to spend the thousands of dollars needed for repair.
For your next client, come armed with your own contract. Having a lawyer draft one that’s fair and legal, but with your interests in mind, is well worth the investment. You may need to vary its terms a bit when dealing with savvy homeowners, but that’s OK (though you should clear major revisions with your lawyer before signing on the dotted line).