Controlling risk in fee management

Developers often sign agreements with institutional owners that require them to assume potential liability far greater than the benefits to be gained from the management contract. Creatively approaching the allocation of risk in property management contracts is vital for ensuring business survival. Several techniques are available. First, the responsibilities of the manager can be limited. If drafted in a manner that will reflect actual practice, restrictions on the managers authority are a shield against liability, not an impediment to performance. Second, the risk can be shifted to a third party. The owner should be required to carry all recommended insurance coverages, with reasonable deductibles and financially strong carriers. Third, all of the elements of an indemnification provision can be negotiated. Fourth, the limitations on the applicability of the indemnity can be considered.