Managing a property? Here’s how to reduce your risk profile
As a property manager or managing agent, your risk profile is different from that of a landlord.
The landlord owns the property, not you, so they’re responsible for insuring their property. However, you’ve been hired to act as the middle person between the landlord and the tenant, who could be an individual or a business. Your services to the owner include to:
- Advertise and source quality tenants
- Organise property maintenance, including for common areas
- Set up, monitor and discharge tenancy agreements
- Ensure tenants have access to utilities such as running water, power, and if connected, gas
- Conduct and report on property inspections
- Take and disburse funds such as the bond (or security deposit) and rent
- Organise and pay for building insurance on the property owner’s behalf.
This wide range of responsibilities increases risks to you as a professional and the business. If things go wrong, such as if a disgruntled landlord or tenant claims against you, there could be hefty legal costs. For example, a NSW court ordered a managing agent to pay $330,000 in damages to a tenant for negligence. Despite a tenant complaining for three months about a faulty light fitting, the agent hadn’t fixed the problem. The tenant fell, injured her foot and sued for personal injury. The court found the landlord had a duty of care, but apportioned liability only to the property manager. Such a payment could really affect your bottom line.
Getting a handle on maintenance
Savvy property managers practice proactive and planned maintenance, so they’re anticipating future repairs and servicing needs. They check their plan daily and document actions, including property inspections. Best practices to consider whether you’re looking after a residential, commercial or industrial site include:
- Work out your goals and objectives for your property maintenance plan
- Determine the property’s baseline maintenance condition. That involves a top-to-bottom inspection and writing up the results
- Physically identify each component of the property and give it a unique identifier if possible. For example, don’t give generic names to light fittings, instead use a descriptor, so you can quickly locate each one
- Assign responsibility and source manufacturers’ recommended procedures for maintenance
- Prioritise health and safety issues.
Reducing your risk profile
Property managers can manage their risk profile with professional indemnity and management liability cover. The landlord’s insurance for the property won’t cover you or your staff.
Check your state or territory for the required level of cover. In NSW, for example, licensees under the Property, Stock and Business Agents Act 2002, and its regulations, must have at least $1 million professional indemnity cover. That’s for a single claim. If you operate there, you’ll also need $3 million cover for the total of all claims made during each period of insurance. So, have a chat with us, as your broker/adviser, to ensure your policy has the right limit of indemnity for you.
Ensure that your limit of liability is adequate to cover the current level of damages being awarded by Courts and don’t forget legal costs. As your broker/adviser, we can advise on the appropriate limits for your business ensuring that you aren’t required to pay any shortfall.
Professional indemnity insurance typically covers you for legal claims based on your:
- Negligence in carrying out your professional services
- Misleading or deceptive conduct
- Inadequate property management
- Contravening particular statutes.
Another way to manage risks is for the business to take out management liability insurance. It’s customised cover for directors, officers and managers of firms and protects against:
- Allegations of mismanagement
- Liability concerning employment practices (such as harassment, wrongful dismissal)
- Employee fraud or dishonesty or third-party crime
- Costs if the tax office audits your business
- Expenses involving theft of your identity (replacing documents, etc)
- Statutory liability (including fines and penalties regarding workplace safety and health issues).
In other words, if your property manager is sued for something that happened while performing their job, management liability insurance should cover the company.
As your broker/adviser, we can customise insurance cover for you as an individual property manager. For real-estate businesses, we can help you with enterprise risk management. That’s where you integrate risk management into your strategic planning process to protect your business for a diverse set of risks.
Resources the Australian Government’s Department of Finance uses for property management
A popular property management app – Managed