Should I Hire a Property Management Company for My Rental Property?

Managing Risk
Turning over a facility to a management company is convenient and the benefits are plentiful. But one should keep in mind that handing over the keys means handing over responsibility—which means potential risk. Even the most experienced professionals err on occasion. Before hiring a management company, you want to know it is prepared and properly insured if an incident should occur.
When hiring a management company, treat the situation similarly to that of hiring a vendor. Have the company listed as an additional insured on your current business owner’s policy. Next, check to see if it has an adequate property-management errors and omissions (E&O) policy in force. This coverage is designed to protect property management companies if they fail to render the professional services contracted and also provides the owner assistance with defense costs associated with responding to lawsuits and investigations.
Request a certificate of insurance from the management company as evidence it is insured by a financially stable entity and carries appropriate amounts of insurance for the type of services performed. The certificate should have information on the insurer, insurance agency, types of insurance, policy numbers, effective dates, limits, certificate holders and any special provisions it may have. Check to see the policy limits are equal if not greater than your facility’s limits.
More About E&O
Here are a few reasons property-management E&O coverage works. Let’s say you bring in a management company and its contracted services include paying property taxes on your commercial building. The property manager fails to make these payments in a timely manner, and you, the property owner, are slapped with a fine and a penalty. Since the management company breached its contract by not paying on time, you would most likely make a claim with the company’s insurance company, requesting it pay the fine and penalty on your behalf.
What if you authorize a management company to have maintenance work done at your facility? Let’s say the cost of the project is $500,000, and the repair company is to be paid in increments of $100,000 as each stage is completed. However, your property manager advances money to the repair company prior to completion and neglects to identify the licensing, bonding and insurance company of the contractor.
The repair company leaves the work site prior to repairing several buildings and, because it wasn’t licensed or insured, you now have to hire and pay a new company to finish the work. You want to ensure your management company has the resources and insurance coverage to allow you to recover amounts improperly paid to the first repair company. It is never easy to point the finger and cast the blame when mishaps occur; however, when everyone involved has proper insurance coverage, the end result is less costly all around.