Indemnification Clauses for Property Management
Keith ThompsonPro Member
Investor · Centreville, VA · Member since 2016 · 109 posts · 65 votesIndemnification Clauses for Property Management
3 Replies
- Honolulu, HI · Member since 2008 · 3k+ posts · 2k+ votes2mo
Every competent PM has some form of indemnification clause in their agreement. To call that a "blank check" is ridiculous. The generic reason for them is that if a tenant in YOUR property trips over an offset joint in YOUR sidewalk, breaking their leg, the PM will not be responsible if they just took over management 3 months ago. Maybe, if that issue sat unrepaired for a couple years due to PM not noticing it, they would have some liability, but that would be for the insurance companies and attorneys to determine.
Many states also require the PM and licensees under them to be bonded in addition to the insurance requirements you mentioned of E&O, Commercial General Liability, and usually some kind of Umbrella, BUT, as property Owner, you also should have your own significant Umbrella in addition to your LL policy.
Generally criminal acts by the PM or their employees is NOT indemnified against.
States vary, but most require licensed PM's to "follow all applicable laws" which would include using duly licensed and insured contractors for work requiring licensing.
Spend more time learning specifics about critical processes and procedures, who, exactly, you will be primarily dealing with, and most importantly...which no one ever seems to raise here... How many units have they had under management, and for how long? Also, is Sales the primary business of the overall company, or is PM? Less than 50 units for several years, I would reject. Sales primary, but "we manage some rentals too" is also a rejection. Why? Simple, a sales commission is 10 to 100 times a rental commission for far less time and effort.
- Investor · Centreville, VA · Member since 2016 · 109 posts · 65 votes2moThanks Richard. I agree about the PM needing to have insurance. I carry insurance to mitigate the downside of claims against me, or my operations. Is it unreasonable to expect the PM to be responsible for their actions and the actions of those they employ or subcontract? If there's a carve-out for negligence on the part of the property owner, that's a reasonable point and that's what my insurance is for.
Quote from @Richard F.:
Every competent PM has some form of indemnification clause in their agreement. To call that a "blank check" is ridiculous. The generic reason for them is that if a tenant in YOUR property trips over an offset joint in YOUR sidewalk, breaking their leg, the PM will not be responsible if they just took over management 3 months ago. Maybe, if that issue sat unrepaired for a couple years due to PM not noticing it, they would have some liability, but that would be for the insurance companies and attorneys to determine.
Many states also require the PM and licensees under them to be bonded in addition to the insurance requirements you mentioned of E&O, Commercial General Liability, and usually some kind of Umbrella, BUT, as property Owner, you also should have your own significant Umbrella in addition to your LL policy.
Generally criminal acts by the PM or their employees is NOT indemnified against.
States vary, but most require licensed PM's to "follow all applicable laws" which would include using duly licensed and insured contractors for work requiring licensing.
Spend more time learning specifics about critical processes and procedures, who, exactly, you will be primarily dealing with, and most importantly...which no one ever seems to raise here... How many units have they had under management, and for how long? Also, is Sales the primary business of the overall company, or is PM? Less than 50 units for several years, I would reject. Sales primary, but "we manage some rentals too" is also a rejection. Why? Simple, a sales commission is 10 to 100 times a rental commission for far less time and effort.
I disagree about the indemnification clause not being a blank check. I've not read one yet that limits the liability or varies much from the likes of: ...hereby indemnifies... XYZ, Co. their managers, employees, contractors, agents, licensors... from and against all claims, losses, expenses, costs, atty's fees, harmless...
including but not limited to claims, suits, investigations, litigation costs, and attorney’s fees arising from any liability, claim or governmental action brought against the Agent, when carrying out its obligations under this Agreement.... That matches my understanding of what a blank check is - Blank, i.e. fill in any amount. Doesn't signing such an agreement obligate the agreeing party to limitless commitment? I haven't seen one yet that establishes a limit.
If you know of a solution that assigns responsibility where it belongs rather than reassigning it from the hired professional to the client, I'm all-ears.
- 2moDrew SygitBusiness MemberProperty Manager · Royal Oak, MI · Member since 2012 · 12k+ posts · 9k+ votes
Quote from @Keith Thompson:
My Property Manager is retiring, so I'm looking for someone to fill his shoes. Full management package & 2-units to manage. I've reached out to a few agencies, but the indemnification clause is a sticking point. I'm not writing a blank check for boundless categories of harm for them and anybody/everybody they employ to work on the properties. I expect the firm to have Business Insurance, E&O and umbrella policies for such matters.
If you were hiring a licensed professional to do work for you – your doctor, attorney, landscaper or plumber and they asked you to indemnify them against whatever goes wrong, I think you’d look for another provider too. Yet, Property management firms around here are fine asking for that. My current PM waived the clause. What am I missing? How have others handled this?
Thoughts, Solutions?
This topic has already been covered extensively on this thread:
https://www.biggerpockets.com/forums/52/topics/1278456-why-is-it-so-hard-to-find-a-good-property-manager#post_7239658
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