So you hire a professional management company and leave it to them to run the place. What can go wrong? Well, as lawyers, we are trained to think that everything can go wrong.
Board members and managers are both human. Mistakes can be made by anyone. You may not believe this, but even lawyers make mistakes now and then. The question is….if your management company makes a mistake and that mistake causes damage to a third person, who is responsible for it, the management company or the association?
The answer to the question may largely depend upon the wording of the contract between the management company and the association. Management companies often times place clauses in their contracts that make the association liable for the negligence of the management company and requires the association to reimburse and indemnify the management company for any damages against the management company by a third party. In fact, Florida Statute 468.4334 states:
(2)(a) A contract between a community association and a community association manager or a contract between a community association and a community association management firm may provide that the community association indemnifies and holds harmless the community association manager and the community association management firm for ordinary negligence resulting from the manager or management firm’s act or omission that is the result of an instruction or direction of the community association. This paragraph does not preclude any other negotiated indemnity or hold harmless provision.
(b) Indemnification under paragraph (a) may not cover any act or omission that violates a criminal law; derives an improper personal benefit, either directly or indirectly; is grossly negligent; or is reckless, is in bad faith, is with malicious purpose, or is in a manner exhibiting wanton and willful disregard of human rights, safety, or property.
The same statute makes it clear that the relationship between the association and management company is one of principal/agent.
When reviewing contracts for community associations, I like to put language in there that simply makes each party responsible for their own negligence. A similar indemnification provision should be included so that if one party gets sued due to the other’s negligence, the non-negligent party gets reimbursed all costs and expenses.
In any event, contracts with management companies can be tricky. You may want some legal assistance before putting your signature to paper.