Tuesday, July 2, 2013

Indemnification in Property Management Agreements

An important part of a management agreement between property owners and property managers is the indemnification clause, in which the owner protects the manager from certain types of liabilities. In the sample clause below, the owner indemnifies the manager against all claims except for five specific exclusions:

Owner shall indemnify and hold harmless Manager against any and all claims made against Manager arising out of the management, ownership, leasing, supervision or operation of the Property by Manager, except for claims arising from or related to (i) the gross negligence of Manager or its officers, agents, or employees; (ii) wrongful willful acts of Managers or its officers, agents or employees; (iii) acts or omissions of Manager or its officers, agents or employees which are outside of the scope of authority established by this Agreement or which are in breach of the obligations of Manager under this Agreement; (iv) misapplication of funds by Manager, its officers, agents or employees; or (v) fraud of Manager, its officers, agents or employees.

However, if the manager allegedly violates the Fair Housing Act, both the owner and manager may be sued by the aggrieved renter. While such actions may be considered gross negligence under the contract, it is wise to explicitly include a clause in the agreement of this type: “Manager will manage the property in full compliance with the requirements of the Fair Housing Act, and Manager is authorized to take those steps deemed appropriate to effectuate the purposes of the Act.”

Since Ohio courts look to the plain language of indemnification clauses (see Stambaugh v. T.C. Wood Realty, Inc., 2010-Ohio-3763 (Ohio Ct. App. 2010)), it is important for property owners to consult an attorney to ensure that they are properly protected by the management agreement.

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