Indemnification Clause in PM Agreement

Indemnification Clause in PM Agreement

Contractor · Helena, MT · Member since 2020 · 11 posts · 5 votes

Looking to hire a PM was going over the agreement. Saw this and it kind of concerns me that basically im on the hook for any stupid thing they do. As a General Contractor when i manage a site im used to being the one on the hook for everything. Not passing the buck to the homeowner that hired me. Is this standard fare for PM's. To me it defeats the primary reason for hiring a Property manager. 



9. INDEMNIFICATION AND HOLD HARMLESS
Except for the willful misconduct of Agent, Owner shall indemnify, defend, and hold Agent harmless from all loss, damage, cost,
expense (including attorneys' fees), liability, claims, investigations and lawsuits by third parties for personal injury, death or
property damage incurred or occurring in, on, or about the Premises that are connected with the management of the property,
during the term of this Agreement or after its termination, including any liability for error of judgment, a mistake of fact of law, or
for anything which Agent may do or refrain from doing hereinafter. Owner shall pay, except as provided elsewhere in this
Agreement, all expenses incurred by the Agent, including, but not limited to, reasonable attorney’s fees and Agent’s costs and
time in connection with any claim, proceeding, or suit involving an alleged violation by the Agent or Owner, or both, of any law
pertaining to fair employment, fair credit reporting, environmental protection, rent control, taxes, or fair housing, including, but
not limited to, any law prohibiting, or making illegal, discrimination on the basis of race, sex, creed, color, religion, national origin,
age, marital status, or mental or physical handicap, provided, however, that the Owner shall not be responsible to the Agent for
any expenses in the event that Agent is finally adjudicated to have personally, and not in a representative capacity, violated any
such law, unless such acts and or omissions are outside the course and scope of Agent’s duties hereunder. Nothing contained
herein shall obligate the Agent to employ counsel to represent the Owner in any such proceeding or suit. The Owner also
agrees to pay reasonable expenses (or an apportioned amount of such expenses where other employers of Agent also benefit)
incurred by the Agent in obtaining legal advice regarding compliance with any law affecting the Premises or activities related
thereto. If Agent or Owner are called upon to respond to any such claims, each party will promptly notifify the other. Upon receipt
of such notice, Owner will promptly notifiy Agent whether Owner will undertake the defense. If Owner does not respond
promptly and assume the defense of such claims, then Agent may take such steps as Agent deems necessary in connection
with the claims.
Agent assumes no responsibility or management of personal property left by Owner at Premises. Owner shall not hold the Agent
liable for any willful neglect, abuse or damage to the Premises by tenants or vandals or others nor for loss of or damage to any
personal property of the Owner or any tenant including loss due to exchange or theft by tenants or any third party. Further, the
Owner shall not hold the Agent liable for any error of judgment or mistake of law except in cases of willful misconduct or gross
negligence.

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Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 31k+ posts · 20k+ votes
6y

@John Weiss This is standard practice for the property management industry. If you found a property management company who didn't have one of these that'd be the real red flag.

See this reply in the discussion

43 Replies

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  • Investor · Valrico, FL · Member since 2012 · 32 posts · 9 votes
    2y
    Quote from @Michael Smythe:

    @Greg Martin we don't disagree with what you've stated. Typically, this should fall under gross negligence and the PMC's E&O would cover.

    EXCEPTION: applicant sues "just because they can"! 

    We actually had this happen! 

    Applicant just out of prison, with no good credit and just a few months on the job. We asked them for a cosigner, so they sent us cosigner credit info, but no income info. Cosigner had good credit, but we asked for income info - so, we could pursue them for nonpayment and maybe garnish wages if needed. Applicant filed Fair Housing complaint for discrimination. 

    #1 - what did we do wrong?

    #2 - who pays PMC legal fees for this?

    #1 Sounds like nothing.
    #2 Are you saying the owner should pay?  I would challenge with, what did the owner do wrong?  In reality, the applicant should pay, but we know that isn't going to happen.
  • Corey ConklinPro Member
    Investor · Member since 2021 · 129 posts · 209 votes
    2y
    Quote from @Stuart Udis:

    @Michael Smythe challenge accepted :) I am not trying to give you a hard time but you need to find a new insurance broker if you are being told only a property owner can obtain general liability coverage. All businesses should have this coverage.  Again, why would a general contractor or even a sub contractor for that matter be able to get this coverage but not a PM? It makes absolutely no sense.  Here's a copy of last years policy for my construction business. It is not tied to a specific property. The only wrinkle with this certificate is the fact the city of Philadelphia, where my construction company is  licensed has to be listed as a certificate holder so that the city is then notified in the event a contractors insurance lapses. However, when the construction company performs work on a job site, the owner of the property is then added as additional insured and any subcontractors who perform work list my company as well as the property owner as additional insured. That's how the system is supposed to work.   I am sure as a PM you sub contract services for properties you manage. From what you are telling me, nobody who is performing work at your clients properties has GL insurance? That should really be addressed both for your clients benefit as well as yours.

     @Stuart Udis I thought this was pretty standard stuff and I'm glad you are clearing up the confusion. No reason a PM company can't obtain GL insurance. I'm not even sure you should be running any business without GL insurance.

    The whole saying that you should work with companies who are licensed and insured....well a GL policy is part of being insured. If they don't have it, they aren't insured and you shouldn't do business with that company.

  • Michael SmytheBusiness Member
    Real Estate Agent · Metro Detroit · Member since 2023 · 4k+ posts · 3k+ votes
    2y

    @Stuart Udis that is a policy, yes, but it doesn't show what or who is covered.

    Also, it clearly states, "Master Cert", which we already wrote about above but we'll copy it here again:

    "2) The PMC can get a Master Policy that they can add owner properties to. It's the reverse of #1 above and effectively replaces the need for an owner to get their own insurance policy. If an owner is silly enough to still have their own policy, the Master Policy company will do everything they can to put the owner's policy first in line for liability."

    Appreciate you taking this topic seriously, but you haven't met the "challenge" yet:)

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  • Michael SmytheBusiness Member
    Real Estate Agent · Metro Detroit · Member since 2023 · 4k+ posts · 3k+ votes
    2y
    Quote from @Greg Martin:
    Quote from @Michael Smythe:

    @Greg Martin we don't disagree with what you've stated. Typically, this should fall under gross negligence and the PMC's E&O would cover.

    EXCEPTION: applicant sues "just because they can"! 

    We actually had this happen! 

    Applicant just out of prison, with no good credit and just a few months on the job. We asked them for a cosigner, so they sent us cosigner credit info, but no income info. Cosigner had good credit, but we asked for income info - so, we could pursue them for nonpayment and maybe garnish wages if needed. Applicant filed Fair Housing complaint for discrimination. 

    #1 - what did we do wrong?

    #2 - who pays PMC legal fees for this?

    #1 Sounds like nothing.
    #2 Are you saying the owner should pay?  I would challenge with, what did the owner do wrong?  In reality, the applicant should pay, but we know that isn't going to happen.

     The owner will pay! Even though the owner did nothing wrong THEY ARE THE OWNER!

    Owning investment real estate comes with inherent risks - that the PMC doesn't want to assume and really can't afford to.

    Logical Property Management4.9457 Reviews
  • Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 31k+ posts · 20k+ votes
    2y
    Quote from @Michael Smythe:
    Quote from @Greg Martin:
    Quote from @Michael Smythe:

    @Greg Martin we don't disagree with what you've stated. Typically, this should fall under gross negligence and the PMC's E&O would cover.

    EXCEPTION: applicant sues "just because they can"! 

    We actually had this happen! 

    Applicant just out of prison, with no good credit and just a few months on the job. We asked them for a cosigner, so they sent us cosigner credit info, but no income info. Cosigner had good credit, but we asked for income info - so, we could pursue them for nonpayment and maybe garnish wages if needed. Applicant filed Fair Housing complaint for discrimination. 

    #1 - what did we do wrong?

    #2 - who pays PMC legal fees for this?

    #1 Sounds like nothing.
    #2 Are you saying the owner should pay?  I would challenge with, what did the owner do wrong?  In reality, the applicant should pay, but we know that isn't going to happen.

     The owner will pay! Even though the owner did nothing wrong THEY ARE THE OWNER!

    Owning investment real estate comes with inherent risks - that the PMC doesn't want to assume and really can't afford to.


     lol, imagine thinking you shouldn't have to pay just because you didn't do anything wrong. Not how it works in the real world ya'll. If you think you only gotta pay when you do something wrong, get out of real estate right now.

  • Stuart UdisPro Member
    Attorney · Philadelphia · Member since 2018 · 2k+ posts · 3k+ votes
    2y

    @Michael Smythe  I am trying my best here but your lack of understanding of how insurance works is making my job more difficult :) The certificate I shared is evidence of a GL policy that insures my construction business first and foremost. It will also cover the properties where work is performed if the property is added as additional insured and my company is the causation for a claim.  GL policies cover your normal business operations in the event bodily injury, personal injury or property damage.  Its not solely when you step foot on one of your clients properties. I believe thats the disconnect. It can protect you when your workers are loading up a work vehicle in a home depot lot, when they pick up the phone while in the office and slander someone etc. 

    @Corey Conklin You would be surprised by how few understand how to operate their day to day business appropriately with insurance, contract management etc. Even fewer understand the difference between having insurance, being a certificate holder and being listed as additional insured let alone understand the contractual relationships that should exist. Meanwhile most property owners have no clue that property managers like Michael and their staff and sub contractors are performing services on their property without appropraite insurance but want the wyoming LLC, florida land trust and separate "management" LLC to collect their rent.

  • Michael SmytheBusiness Member
    Real Estate Agent · Metro Detroit · Member since 2023 · 4k+ posts · 3k+ votes
    2y

    @Stuart Udis your GL policy covering your construction business is NOT the same as a GL policy covering a PMC business.

    As I've already stated, we can get a GL policy covering incidents at our place of business.

    We can NOT get GL coverage on for a slip & fall by a tenant at a property we have no ownership interest in.

    You are assuming I have no idea what I am talking about, when it's you that do not!

    How about we get on a conference call with YOUR insurance agent and we let them explain it to you?

    Logical Property Management4.9457 Reviews
  • Stuart UdisPro Member
    Attorney · Philadelphia · Member since 2018 · 2k+ posts · 3k+ votes
    2y

    @Michael Smythe As an example what happens if your PM contract with an owner explicitly includes snow removal as a service, your company does not clear the snow in the permissable time period and a tenant or anyone for that matter slips and falls? If the property owner is listed on your general liability policy as additional insured and the injured person files a claim against the owner,  they can absolutely call upon your carriers coverage. The contracts, duties of responsibility and insurance are all relevant but there are absolutely fact patterns where your GL policy can be utilized by the property owner for an injurty that occurss at the property where you perform services. If you do not have GL insurance, you are not properly insured its as simple as that.

  • Investor · Valrico, FL · Member since 2012 · 32 posts · 9 votes
    2y

    It's definitely interesting to see the owners concerns vs the property managers concerns in this thread.

    @Michael Smythe just to make sure we're on the same page.  So in the situation we are considering where the management company did nothing wrong and the owner did nothing wrong.  However, there is an allegation of not following Fair Housing laws.  You think the owner should be responsible for paying to defend the management company against those allegations, not the company actually in charge of advertising, screening, and managing the tenants?

  • Encinitas, CA · Member since 2011 · 192 posts · 252 votes
    2y

    Interesting how some folks like to focus on asset protection issues with entities, etc., but on issues like this one, take an attitude of "its just standard", and tend not to read the contracts they sign on issues such as indemnification.

    As a property owner, is it appropriate to add a property manager as an additional insured on your general liability policy? Sure.

    As a property owner should I agree to indemnify and hold you harmless from for everything you do regardless of fault, and give you the right to not only have me pay for your attorney, but to control the outcome? In other words be your functional liability insurance carrier for everything you do without exception and no exclusions? I think not. 

    The examples of things that can go wrong for a property owner who agrees to such language is only limited by one's imagination. But here is one example: Property manager engages in discrimination in selecting tenants without owner's knowledge. Lawsuit is filed and property manager tenders to their E & O carrier who accepts the claim. They become subrogated (steps into their insured's shoes with the ability to enforce their rights). Guess who the E & O carrier's claims department goes after for reimbursement based on the broad indemnity language quoted in this chain?

  • Investor · Bucks County · Member since 2023 · 196 posts · 157 votes
    2y

    @Michael Smythe I worked for a landscaping company during the summer when I was in college. We would always provide insurance certificates to the property owner. The owner of the landscaping company always gave us a hard time about cleaning up after ourselves and made it clear to avoid creating any tripping hazzards because his insurance premiums would skyrocket if anyone got hurt. The company didn't have any ownership interest but and he didn't want his insurance premiums to increase. You can absolutely have a lawsuit filed against you and your insurance can absolutely be used if someone gets injured even if you don't own the property. 

  • Michael SmytheBusiness Member
    Real Estate Agent · Metro Detroit · Member since 2023 · 4k+ posts · 3k+ votes
    2y

    @Greg Martin the PMC is the one usually in charge of advertising, etc.

    Even if they comply with all laws, people will file lawsuits.

    Owners do NOT pay PMC's enough to assume all this liability. 

    The property owner is an investor, which means they should take on that liability.

    Logical Property Management4.9457 Reviews
  • Michael SmytheBusiness Member
    Real Estate Agent · Metro Detroit · Member since 2023 · 4k+ posts · 3k+ votes
    2y

    @Stuart Udis man, you're changing the point we were debating!

    In your new example, we wouldn't clear the snow. We'd hire a company on behalf of the owner, and make sure the snow removal company has liability coverage.

    Maybe some PMC's would have W-2 staff remove the snow. In that case the PMC should have their own CONTRACTOR liability insurance.

    Now if the PMC neglected to have the snow removed or even if a contractor they hired didn't get it done quick enough and there was a slip & fall resulting in a lawsuit - isn't that why the owner had landlord insurance on the property?

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  • Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 31k+ posts · 20k+ votes
    2y
    Quote from @Michael Smythe:

    @Stuart Udis man, you're changing the point we were debating!

    In your new example, we wouldn't clear the snow. We'd hire a company on behalf of the owner, and make sure the snow removal company has liability coverage.

    Maybe some PMC's would have W-2 staff remove the snow. In that case the PMC should have their own CONTRACTOR liability insurance.

    Now if the PMC neglected to have the snow removed or even if a contractor they hired didn't get it done quick enough and there was a slip & fall resulting in a lawsuit - isn't that why the owner had landlord insurance on the property?


     Lol wait a min. Is Stu really thinking that the owner isn't the 1st one in the liability chain for a slip and fall? There can't possibly be people who think that a property management company is stepping into that role for the OWNER of the property? Nobody is that delusional, right?

  • Stuart UdisPro Member
    Attorney · Philadelphia · Member since 2018 · 2k+ posts · 3k+ votes
    2y

    @Michael Smythe I am not changing the fact pattern, I am merely explaining that you as a PM who subs out all services can absolutely have your GL policy called upon even if you are not actually performing the work. Impotant to note, I am not necessarily saying it will.

    Even in your version where you say you would be responsible for hiring a subcontract snow removal company on behalf of the owner what happens if the sub contractor you engage doesn't show up and doesn't maintain their insurance and your PM contract with the owner expressly states that you are responsible for securing snow removal services? Ultimately the plaintiffs attorney is going to bring in any transaction participant they believe can have responsibility and then they take inventory of insurance and focus in on the easiest mark. That's how litigation goes in situations like this. It's not about who is most at fault, its about who has the most accessible insurance. In this example it may be your PM company.

     Based on the way you describe your business if you keep your contract management in order and maintain insurance certs from all vendors listing yourself and the owner (if you are providing exceptional service to your clients) as additinoal insured, you should greatly reduce trhe risk of your coverage being called upon. Your model is actually quite similar to my last employer who owned and managed hotels. We had very few employees, and most services were performed by 3rd party vendors. Its actually companies like yours where keeping tabs on the contracts and insurance certs are most important. 

  • Corey ConklinPro Member
    Investor · Member since 2021 · 129 posts · 209 votes
    2y
    Quote from @Michael Smythe:

    @Stuart Udis man, you're changing the point we were debating!

    In your new example, we wouldn't clear the snow. We'd hire a company on behalf of the owner, and make sure the snow removal company has liability coverage.

    Maybe some PMC's would have W-2 staff remove the snow. In that case the PMC should have their own CONTRACTOR liability insurance.

    Now if the PMC neglected to have the snow removed or even if a contractor they hired didn't get it done quick enough and there was a slip & fall resulting in a lawsuit - isn't that why the owner had landlord insurance on the property?

    Whether it's the PM's own staff or a 3rd party contractor doesn't really matter to the owner of the property. If the contract between owner and PM spells out that the PM company is responsible for removing snow then the responsibility falls on the PM company. If the PM company has GL insurance then that will cover the claim.

    As the owner I understand that I will keep GL insurance on my properties no matter what. But if I hire a professional to perform work on my property, I will 100% expect them to have it as well. If it is a claim that is caused by the professional company (the snow removal example) then their insurance would cover it. This wouldn't make my insurance premiums go up due to negligence on the part of a PM company that I hired to do a job (which they clearly didn't do). Now if I made a mistake and hired a PM that didn't have general liability then yes, I would be at exposure for the claim.  

    So to answer your question. No I wouldn't want my GL to cover a PM's negligence. That's why I would want a PM company to have GL insurance. 


  • Peter TverdovBusiness Member
    Developer · New Brunswick, NJ · Member since 2015 · 1k+ posts · 2k+ votes
    2y
    Quote from @James Wise:
    Quote from @Chris Seveney:
    Quote from @John Weiss:

    Looking to hire a PM was going over the agreement. Saw this and it kind of concerns me that basically im on the hook for any stupid thing they do. As a General Contractor when i manage a site im used to being the one on the hook for everything. Not passing the buck to the homeowner that hired me. Is this standard fare for PM's. To me it defeats the primary reason for hiring a Property manager. 



    9. INDEMNIFICATION AND HOLD HARMLESS
    Except for the willful misconduct of Agent, Owner shall indemnify, defend, and hold Agent harmless from all loss, damage, cost,
    expense (including attorneys' fees), liability, claims, investigations and lawsuits by third parties for personal injury, death or
    property damage incurred or occurring in, on, or about the Premises that are connected with the management of the property,
    during the term of this Agreement or after its termination, including any liability for error of judgment, a mistake of fact of law, or
    for anything which Agent may do or refrain from doing hereinafter. Owner shall pay, except as provided elsewhere in this
    Agreement, all expenses incurred by the Agent, including, but not limited to, reasonable attorney’s fees and Agent’s costs and
    time in connection with any claim, proceeding, or suit involving an alleged violation by the Agent or Owner, or both, of any law
    pertaining to fair employment, fair credit reporting, environmental protection, rent control, taxes, or fair housing, including, but
    not limited to, any law prohibiting, or making illegal, discrimination on the basis of race, sex, creed, color, religion, national origin,
    age, marital status, or mental or physical handicap, provided, however, that the Owner shall not be responsible to the Agent for
    any expenses in the event that Agent is finally adjudicated to have personally, and not in a representative capacity, violated any
    such law, unless such acts and or omissions are outside the course and scope of Agent’s duties hereunder. Nothing contained
    herein shall obligate the Agent to employ counsel to represent the Owner in any such proceeding or suit. The Owner also
    agrees to pay reasonable expenses (or an apportioned amount of such expenses where other employers of Agent also benefit)
    incurred by the Agent in obtaining legal advice regarding compliance with any law affecting the Premises or activities related
    thereto. If Agent or Owner are called upon to respond to any such claims, each party will promptly notifify the other. Upon receipt
    of such notice, Owner will promptly notifiy Agent whether Owner will undertake the defense. If Owner does not respond
    promptly and assume the defense of such claims, then Agent may take such steps as Agent deems necessary in connection
    with the claims.
    Agent assumes no responsibility or management of personal property left by Owner at Premises. Owner shall not hold the Agent
    liable for any willful neglect, abuse or damage to the Premises by tenants or vandals or others nor for loss of or damage to any
    personal property of the Owner or any tenant including loss due to exchange or theft by tenants or any third party. Further, the
    Owner shall not hold the Agent liable for any error of judgment or mistake of law except in cases of willful misconduct or gross
    negligence.


     we always have our attorney bloody the heck out of this. Indemnification is important but it has to be even -kind of like - if I screw up on me if you screw up on you. Most PM agreements are like this and very lopsided. Some they literally could kill a tenant and you have to pay to defend them. Things my attorney typically mark up are we get rid of willful misconduct, the last sentence that we cannot hold them liable for mistake of law - umm sorry if they do not follow the law - that is on them - why are you paying them

    If you need a good attorney to review this I got one. Also make sure it goes both ways - make sure the PM indemnifies and defends you for things they do that are illegal.


     Ya'll need to focus on the real world here... Can an attorney review it and ask for changes sure, but why spend the money? A legitimate PM company ain't changing their contract for any customer. Can you have your attorney review your contract with Verizon, sure, but why? They ain't doing anything about it. 


     This. Our property management company has an indemnification clause. We aren't putting a gun to your head to use our services. You don't need to sign, you just won't get our service. Try the guy on Craigslist with no indemnification clause who works for nothing in property management, I'm sure that will turn out swell. 

  • Chris SeveneyBusiness Member
    Moderator
    Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
    2y


    I don’t think most are saying don’t have an indemnification clause they are 100% needed. They should be mutual indemnification clauses.

    Here is typical language we propose and 90% of the time it is agreed upon, as it is short, sweet to the point and protects both parties: (note I am not an attorney and recommend you always have an attorney review any items in an agreement)

    Owner hereby agrees to indemnify and defend and hold Manager harmless from, and to defend Manager against, any and all claims, charges, debts, demands and lawsuits initiated against Manager in his capacity as Manager. Owner agrees to pay Manager’s attorney’s fees related to the defense of Manager’s management of the herein-described property and any liability for injury on or about the property which may be suffered by any employee, tenant or guest upon the property. Owner agrees to maintain sufficient and prudent all risks property insurance and that the Manager shall be an additionally named insured. Owner shall provide a copy of such insurance policy to the Manager for the Manager’s records.

    Manager agrees to indemnify and defend Owner (including but not limited to any legal fees) for any willful misconduct on Manager’s part, or in response to any liability, loss, damage, costs or expenses arising out of claims or allegations based on Manager or Manager’s agent's failure to adhere to this Agreement or any federal or state laws relating to consumer transactions or the leasing of residential real property.

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