Rent it Right
But because a contract is already on the table, you may not be able to counteroffer this time around with your own. So if you decide to start with the homeowner's contract, here are a few issues to watch out for.
First, make sure that the owner agrees to carry a comprehensive general liability policy on the property, and to include you as an additional insured. Although you should by all means have your own liability insurance, being added to the homeowner's policy may save you from having to call on your own policy in the event of a claim.
Along with insurance, make sure the agreement specifies that the owner will "indemnify, defend and hold (you) harmless" in the event your actions result in a monetary loss to you or the owner (such as a settlement or a verdict). This promise covers you in case you make a mistake in the normal exercise of the duties you have undertaken as the manager.
Note that you'll not only get reimbursed for any monetary damages you suffer, but the owner will have to defend you as well (lawyers and lawsuits are expensive), and not attempt to hold you responsible for any monetary losses suffered by the owner.
Before we move on to the next issue, let's make sure no one gets caught up in thinking, "Why shouldn't the manager be responsible for his own mistakes?" That question is a moral one -- and indeed, in many situations, we definitely should be responsible for our behavior. But allocating coverage for mistakes, which happens when parties to a contract negotiate over who's going to carry the insurance, is not about morality.
Instead, it's about which side has agreed to assume the risk, that is, carry the insurance, and that comes down to bargaining power and practicality. Most of the time, the most efficient path is the way to go.
Here, the landlord has liability insurance already, and it's designed to cover accidents that happen on site. Adding the manager, who is an agent of the landlord, adds very little risk compared to the risk factors that are already contemplated.
The language of the indemnity clause can get tricky. I've seen one that made all of these promises, but ended with "except when the damage is due to the negligence of the manager."
Wait a minute -- didn't the owner also promise to add you to his insurance policy, which will cover you precisely when you negligently do something that results in damage? What one clause gives, the other takes away. See what I mean about one-sided contracts?
Make sure your duties are clearly spelled out, and pay particular attention to the issue of capital improvements. It's one thing to supervise or perform routine maintenance; that's what you're getting paid for, among other tasks. But supervising a capital improvement is a bigger job.
You'll want to negotiate that separately, and have the right to either be paid separately or decline the job. You and the owner can decide ahead of time how you'll characterize any large project. Don't wait until the work has started to raise the subject of extra compensation.
Finally, because your owner is likely to be unreachable while at sea, consider asking for a larger-than-usual discretionary fund, so that you can respond to an urgent repair without having to wait for approval. For example, suppose the roof is torn off by a windstorm, and you need to hire a roofer pronto.
If your owner is out of touch, you could lose valuable time (and the damage could worsen) while you wait for the OK to spend the thousands of dollars needed for repair. If you have preapproval for repairs costing that much, you can take action right away.
For your next client, you'll want to come armed with your own contract. Having a lawyer draft one that's fair and legal -- but with your interests in mind -- is well worth the investment. You may need to vary its terms a bit when dealing with savvy homeowners, but that's OK (though you should clear major revisions with your lawyer before signing on the dotted line).
Janet Portman is an attorney and managing editor at Nolo. She specializes in landlord/tenant law and is co-author of "Every Landlord's Legal Guide" and "Every Tenant's Legal Guide." She can be reached at firstname.lastname@example.org.
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The real estate war zone: Part 1
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