Three Contract Issues Facing Property Managers

Property managers deal with contracts every day, from management agreements and vendor arrangements to leases and maintenance services. These contracts define responsibilities, establish expectations, and help protect everyone involved.
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However, unclear or outdated contract language can create serious financial and legal problems. A contract dispute may lead to unpaid expenses, damaged client relationships, liability claims, or insurance coverage complications.

Here are three common contract issues property managers should address.

1. Unclear Responsibilities in Property Management Agreements
The property management agreement is one of the most important contracts in the business. It should clearly explain what the property manager is and is not responsible for doing.
Problems can arise when agreements use vague language regarding:

• Tenant screening and leasing
• Rent collection and late payments
• Property inspections
• Maintenance and emergency repairs
• Compliance with housing laws
• Security measures
• Handling tenant complaints
• Hiring and supervising contractors

For example, suppose a tenant is injured because a broken handrail was not repaired. The property owner may argue that the manager was responsible for regular inspections and repairs, while the manager may claim the owner failed to approve the necessary work.
If the agreement does not clearly assign those responsibilities, both parties could become involved in a costly dispute.
Property management agreements should establish the manager’s authority, spending limits, reporting responsibilities, and procedures for obtaining owner approval. They should also explain how emergency situations will be handled when the owner cannot be reached.

2. Weak Vendor and Contractor Agreements
Property managers frequently hire plumbers, electricians, landscapers, cleaning companies, security providers, and other contractors. Allowing a vendor to begin work without a strong written agreement can expose both the manager and the property owner to unnecessary risk.
Vendor contracts should clearly define:

• The scope of the work
• Project deadlines
• Payment terms
• Safety expectations
• Responsibility for permits and licenses
• Procedures for approving additional work
• Insurance requirements
• Indemnification responsibilities

A vendor should generally provide a current certificate of insurance before beginning work. Depending on the services being performed, appropriate coverage may include general liability, commercial auto, workers’ compensation, and professional liability insurance.
The contract may also require the property manager and property owner to be named as additional insureds on the vendor’s liability policy. However, simply requesting a certificate of insurance may not be enough. The contract, certificate, and policy endorsement should be reviewed to confirm that the requested protection is actually in place.

Without proper insurance and risk-transfer provisions, the property manager or owner could be drawn into a claim caused by a contractor’s work.

3. Indemnification and Insurance Language That Does Not Match
Indemnification clauses determine when one party must defend or reimburse another party following a loss. These provisions can be valuable, but they can also create significant exposure when they are overly broad, one-sided, or inconsistent with the company’s insurance coverage.

A property manager might unknowingly sign an agreement requiring it to accept responsibility for losses that would normally belong to the property owner or another contractor. The manager’s insurance policy may not cover every obligation assumed under the contract.

Insurance requirements can also create problems when they are copied from an old agreement or a generic template. A contract may require limits, endorsements, or types of insurance that a party does not carry. It might also use outdated terminology or request coverage that is unavailable in the current insurance market.

Before signing an agreement, property managers should confirm that:

• The indemnification provision is reasonable and legally enforceable.
• Insurance requirements reflect the actual risks involved.
• Required coverage limits are available and affordable.
• Additional-insured requirements are supported by proper endorsements.
• Contractual obligations are consistent with the company’s insurance policies.
• Notice and reporting requirements can realistically be followed.

An insurance agent can review the coverage requirements, but legal counsel should evaluate the contract’s legal language and enforceability.

How Property Managers Can Reduce Contract Risk
Contract risk cannot be eliminated, but it can be managed. Property managers should establish consistent procedures for reviewing, approving, storing, and renewing agreements.
Helpful practices include:

• Using contracts prepared or reviewed by qualified legal counsel
• Avoiding verbal agreements for important services
• Reviewing contracts before work begins
• Requiring current certificates of insurance from vendors
• Tracking insurance and license expiration dates
• Updating agreements when laws, services, or responsibilities change
• Keeping signed contracts, endorsements, and related documents together
• Reviewing contractual obligations with an experienced insurance professional

Protect Your Property Management Business
Contracts should help prevent disputes not create them. Clear responsibilities, properly insured vendors, and coordinated indemnification and insurance language can provide a stronger foundation for your property management operation.

At Strive Insurance Group, we help property managers evaluate their insurance programs and identify potential gaps created by contractual requirements. Contact us to discuss how general liability, professional liability, cyber insurance, crime coverage, workers’ compensation, and other policies can help protect your business.