Property managers often sell owners on separation from tenants, anonymity (which should not be confused with asset protection), compliance & access to more responsive vendors and better vendor pricing. But hiring a PM does not automatically transfer risk. In fact, many management agreements leave the owner bearing nearly all the liability, including liability arising from the PM’s own conduct. Here are several common pitfalls commonly found in PM agreements.

1. 1. One-sided indemnification. Your agreement likely requires you to defend and indemnify the PM if a claim arises. But does it include reciprocal indemnification requiring the PM to defend and indemnify you when a claim results from its negligence, misconduct, breach of the agreement, or failure to comply with the law?

2. 2. Your insurance is expected to cover everything. Many agreements require the owner’s general liability policy to be primary, even when the PM caused the loss. The agreement should clearly identify when the PM’s insurance must respond and require the owner to be named as an additional insured on the PM’s policy.

3. 3. Unchecked authority. Are vendors required to sign written contracts, indemnify the owner, carry adequate insurance, and provide additional insured endorsements before starting work? Does the PM verify licenses, permits, warranties, and completed work documentation, particularly for plumbing, electrical, roofing, and other work capable of causing significant damage?

4. 4. Inadequate insurance requirements. The agreement may impose detailed insurance requirements on the owner while establishing no minimum limits for the PM’s own general liability, professional liability, cyber, crime, employment practices liability, or workers’ compensation coverage.

5. 5. An overly broad limitation of liability. Some agreements limit the PM’s liability to a few months of management fees, even when damages result from serious negligence, legal violations, or breach of the agreement.

6. 6. One-sided survival provisions. The owner’s indemnification obligations survive termination, while the PM’s indemnification, confidentiality, record transfer, claim cooperation, and document preservation obligations do not.

The management agreement determines whether the associated risks were actually transferred or simply handed back to the owner. Review your PM agreement carefully to identify these exposures before a claim forces you to discover them.