Risk Management

Commercial Real Estate

Risk management should be a top concern of property managers. Serving as an intermediary between tenants and property owners requires fairness to all parties involved. A number of liability risks are associated ranging from protecting the property owner to guarding the property manager’s own liability. Lawsuits are always a threat and diminishing the danger of lawsuits can be done through careful documentation, record keeping and proper handling of situations. A property owner and property manager can both be held liable for accidents that occur in their properties if an injured person can prove negligence on the part of the owner or manager. By taking steps to ensure a safe rental premises the risk of liability can be greatly reduced.

Another concern is tenant negligence. A property manager or owner may take all of the necessary precautions to ensure a safe property. Then alterations made by a tenant may set the stage for an accident and, in this case, the property owner or manager may also be held liable. A clause may be added to a lease to assign specific responsibilities to a tenant, such as clearing the sidewalk. An indemnification clause is another precautionary measure that can be put into a lease that allows for the tenant to hold the property manager not liable in situations that may result from the tenant’s own negligence.

Discrimination is also a primary concern for property managers as certain laws prohibit discrimination. The Americans with Disabilities Act provides for a property owner or agent to make any reasonable accommodations or modifications to a property for a disabled person. Handicapped ramps, parking spaces, and widening of doors are all common items that are made for a disabled tenant. The Fair Housing Act (otherwise known as the FHA), provides for property owners not being able to discriminate against a tenant. Discrimination may not be based on color, race, religion, gender, national origin, familial status, or disability. Even if a property owner provides alternative instructions to the property manager, the law must still be obeyed otherwise a violation may result in stiff penalties. Actual and punitive damages or fines can be assessed in the case of violation to either of these federal laws.

Property managers must not only aid in protecting property owners, but also themselves. A good management agreement should be put in place in order to protect the property manager. The “hold-harmless” clause should be included, which indemnifies the management company and property owner against any liability for the actions of the other party.

When dealing with outside workers to repair and maintain a client’s property then all contractors should be required to provide a certificate of insurance before going to a property and performing any work.

Being cognizant of potential risks is a key factor in mitigating risk. Furthermore, the better the record-keeping is done with as much detail included as possible, the lower the risks may be if claims can be refuted with information kept.

Unfortunately the risk is an unavoidable part of managing a property, but through minimizing and mitigating risks as much as possible you are setting the stage for lowered risks. A successful risk management program can be put in place for identifying, avoiding and controlling risks. As a property manager, owners expect that by hiring a professional they will be guarded against any wrong doings and liability issues. Risk exposure is a real concern of many property managers today, but with careful consideration and conducting of business risk can be minimized.


Only deposit products are FDIC insured.

The information provided is not intended to be legal, tax, or financial advice or recommendations for any specific individual, business, or circumstance. TowneBank cannot guarantee that it is accurate, up to date, or appropriate for your situation. Financial calculators are provided for illustrative purposes only. You are encouraged to consult with a qualified attorney or financial advisor to understand how the law applies to your particular circumstances or for financial information specific to your personal or business situation.

Back to Top