Property managers are increasingly facing the threat of liability associated with a contractor’s failure to properly remediate water damage, mold, or other defects within managed properties. When contractors remediate water damage, mold, or other defects, and are subsequently sued by the owner for not fully or properly correcting the same, contractors often attempt to place the liability associated with such failure on their subcontractors and, more recently, their property managers. Crafty lawyers for contractors are increasingly pointing to provisions in property management agreements which provide that the property manager is, in fact, responsible for supervising all work performed on the property as an agent of the owner. The contractor’s incentive to place liability upon the property manager, in addition to the owner, is motivated by the possibility of triggering the property manager’s insurance to obtain coverage for the defective work. This leaves property managers and contractors in confusing situations where both parties are trying to figure out who is responsible for the defective work. This also leaves the property manager in a disfavored position in having an agreement that states they’re responsible for all work performed on the property while under their management.
What should be done to prevent this exposure to liability? First, having the proper indemnity provisions in the property management agreement can greatly help in these types of situations. Properly drafted Indemnity provisions shift the liability back onto the owner and contractor and can help protect the Property Manager from being exposed to unnecessary liability. Secondly, express provisions shifting responsibility for any mold, water damage, or defective work can also help protect the property manager from any resulting litigation. You should have these provisions reviewed, updated, or added to your property management agreement with the owner.
While it is more effective to contractually guard against this type of risk in the property management agreement, another method is to issue the owner a letter when water damage, mold, or defective work occurs. This letter to the owner should state that the property manager is not an expert in water damage, mold, or construction defects, that the defect is outside the scope of the property management agreement, and that the property manager recommends hiring an expert to review and inspect the defects on the property. This letter should also contain an affirmative statement that the property manager has and will continue to provide the owner with all the information received from any contractor or inspector, and that the property manager will not be held responsible for any resulting liability. These statements define the property manager’s role as it relates to the work being performed and helps explain that the property manager is it not taking it upon themselves to remediate the mold, water damage, or construction defects. While this will not necessarily prevent the property manager from being named in any lawsuit, this letter will be a crucial element of evidence to be used by the property manager’s attorney in defending against such claims, and will shift the liability back onto the parties responsible for the defective work.
As always, Bittner & Hahs would be happy to help review your current property management agreements, draft revisions to the same to mitigate your potential liability and help draft these preventative letters to the owner.