Management agreements get signed quickly. The fee and the term are negotiated, someone marks up the form the other side sent, and the engagement begins. The provisions that end up mattering most are usually the ones nobody discussed.
Every dispute we handle between a managing agent and a board runs back to this document: whether the agent had authority to do what it did, whether the building owes the agent a defense, what counted as cause for termination, and what the agent owed on the way out. A few hours spent on it at signing is the cheapest legal work in the relationship.
We negotiate and draft management agreements for managing agents and for co-op and condominium boards. Call 212-233-1233 or email [email protected].
The Provisions That Decide Disputes
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Indemnification and the duty to defend
The most valuable clause in the agreement for an agent. A well-drafted indemnity requires the building to defend and indemnify the agent for claims arising out of the performance of its duties, with carve-outs usually limited to gross negligence or willful misconduct. Two details do the work: whether the building must defend as well as indemnify, which determines who funds the lawyer from day one, and how narrow the carve-outs are, because a carve-out for ordinary negligence swallows the clause entirely.
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Scope of authority and spending limits
What the agent may do without board approval, and at what dollar threshold. A limit set too low makes the building unmanageable and guarantees the agent is technically in breach constantly; set too high, it leaves the agent exposed for decisions the board later says it never sanctioned. Emergency authority should be stated separately, because emergencies are exactly when the agent acts without a vote and exactly when it gets second-guessed.
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Standard of care and exculpation
What the agent is being held to, and what it is excused from. An exculpation clause limiting liability to gross negligence or willful misconduct changes the shape of any later claim by the board.
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Limitation of liability
A cap — often tied to fees paid over some period — and a waiver of consequential damages. Boards resist these, but they are ordinary in professional services agreements and they are what stands between a management company and an outsized claim.
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Insurance on both sides
The agent's errors and omissions and general liability coverage, and just as importantly, the building's obligation to name the agent as an additional insured on the building's policies. Additional insured status is frequently what actually gets an agent defended when a resident sues, and it costs the building nothing to grant.
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Who employs the building staff
Whether the superintendent and porters are the building's employees or the agent's changes who carries the payroll liability, who is exposed on employment claims, and who deals with the union. This should never be left ambiguous.
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Term, renewal and termination
Notice periods, whether either side can terminate without cause, what constitutes cause, whether there is a cure period, and what happens to fees on early termination. Agreements terminable on thirty days' notice for any reason give an agent very little security in a building it has invested in.
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Records, funds and turnover
Who owns the books and records, what must be delivered on termination and by when, how bank accounts and signatories are handled, and what the agent may keep copies of. This clause is dormant until the engagement ends badly, and then it is the whole dispute.
Negotiating From the Agent's Side
Boards are frequently represented by counsel on these agreements and management companies frequently are not, which is how one-sided forms become the industry norm.
- Ask for defense as well as indemnification — being reimbursed two years later is not the same as having a lawyer now
- Ask to be named an additional insured on the building's liability policies, and to receive certificates annually
- Get the emergency spending authority stated explicitly, with a dollar figure
- Tie any limitation of liability to something concrete, such as fees paid over the preceding twelve months
- Require that termination for cause be preceded by written notice and an opportunity to cure
- Provide for fees earned through the termination date, and for reimbursement of expenses advanced on the building's behalf
- Preserve the right to retain copies of records, which you will need if the board later claims you did something wrong
- Make clear that you contract with vendors as agent for a disclosed principal, and sign that way
Drafting From the Board's Side
We also represent buildings, and the board's legitimate interests in this document are not the mirror image of the agent's.
- Clear reporting obligations and access to records at any time, not just on termination
- Controls on funds: segregated accounts, board signatories above a threshold, and no commingling across buildings
- Disclosure of any affiliation between the agent and the vendors it recommends, and of any fees or rebates the agent receives from them
- A standard of care that means something, and carve-outs from exculpation for misuse of funds
- Defined performance expectations rather than a general obligation to manage
- An orderly turnover obligation with a deadline and a defined list of deliverables
Speak With Our Firm
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Review it before you need it
If you manage a portfolio, the agreements across it are probably inconsistent — different forms, different indemnities, different termination rights, some of them inherited from buildings you took over years ago. A portfolio review that identifies where you are unprotected is inexpensive and tends to pay for itself the first time a claim arrives.
Call 212-233-1233 or email [email protected]. See also taking over a building and leaving one.
