The Role of a Property Manager

The property management sector has undergone huge changes in recent years largely due to changes in legislation, regulations as well as the developing expectations of the residential property management companies and their customers.

In this article, Laura Wall, Senior Claims Adjuster at Zurich, and Jon Quirk, Senior Associate at DAC Beachcroft, consider the role played by property managers, the different types of claims they are facing and the potential additional duties they could face following the Building Safety Act 2022. Finally, the article considers practical steps a property manager can take to reduce the risk of professional indemnity claims.

The Property Manager's Role

The role of a property manager is varied. The exact role carried out by a property manager will depend on the type and size of the managed property, the specific terms of the lease/other overarching agreement, and the separate retainer agreed with the end client (often a residents' management company).

Broadly,a property manager will usually be appointed to assist with the management of the leasehold and freehold interests at a property or development.

Types of Claims

Given the nature of a property manager's role, claims can come in many forms. A few claims trends we see are set out below:

Failure to ensure landlord has complied with regulatory obligations and/or loss of documents allowing a landlord to demonstrate compliance. These types of claims will usually seek one or more of the following: a. lost rent, b. additional costs complying with their regulatory obligations, c. additional costs removing a tenant from a property (e.g. if the S21 summary eviction procedure has been lost as a result of those failures) and, d. abortive costs of sale and/or diminution in value in relation to the lost chance to sell the property with vacant possession.

Failing to protect deposit. A landlord will owe an obligation to tenants to ensure their deposit is protected in a registered scheme. A failure to protect deposits will expose the landlord to a claim for 1-3 times the deposit. The landlord is then likely to seek that sum from the property manager.

Inappropriate use of client account funds. Property managers will often hold money 'on trust' for their client. This means that those funds can only be used for a specific agreed purpose. Where that has not been the case, then a property manager will be exposed to a claim for breach of trust which could require them to repay the full amounts taken.

Failures in relation to utility contracts and charges. Where a property manager has assumed responsibility for dealing with utility charges, then they may be found liable for failing to secure a preferential rate at a relevant point. We expect these claims to subside given the anticipated reduction in energy costs in the UK.

Failure to Inspect. A property manager may owe inspection duties to their client in relation to general upkeep of common parts or prior to the certification of building works as practically complete.

 

Development of Role

• We now turn our attention to the Building Safety Act 2022 which is a significant piece of legislation within the construction field but also that of property managers.  This Act has expanded the role of property managers and the types of claims likely to be advanced against those professionals.

  The Act introduces a new role of accountable person for occupied high-risk buildings (two residential units which are at least 18 metres in height or have at least 7 storeys). The role will apply to any organisation or individual who owns or has a legal obligation to repair any common parts of the building - common parts will include the exterior of the building – and could therefore apply to one or all of, the freeholder, a leaseholder and/or a residents' management company.

  The current position following Unsdorfer v Octagon Overseas Ltd [2024] L & TR 22 is that a property manager is unlikely to be an accountable person. However, where a property manager's client is fixed with that role then they may (subject to any specific exclusions in the agreement) be expected to provide advice on an accountable person's obligations under the Building Safety Act. That could include the client's obligations to:

  • Ensure that, where reasonable, works are carried out 'promptly' to the common parts to eliminate 'building safety risk' (mainly fire, but will include structural issues);
  • Prepare and issue a residents' engagement strategy to relevant occupiers and owners to aid with building safety related decisions;
  • Carry out an assessment of building safety risks at regular intervals and/or at any time that the accountable person has reason to suspect that the current assessment is no longer valid (i.e. following significant building works);
  • Maintain and keep up to date a record of electronic documents relating to the building and which can be provided on request by an occupier/owner and/or a relevant regulator and/or following any change in accountable person; and
  • Identify whether they are a principal accountable person and comply with those additional duties(including registration of the building with the regulator, ongoing provision of safety case reports,and reporting systems for building safety issues).

• The regime is still reasonably novel and the extent to which claims are likely to arise and the nature of damages sought remain unclear. It is however clear that property managers could be expected to assist their client with greater inspection and document management obligations for high-risk buildings and where this has not been properly carried out then they will risk a claim for additional legal and regulatory costs which could otherwise have been avoided.

 

Ways to mitigate risk and prevent losses

There are several ways in which property managers can reduce the risks of claims which are listed below: 

• Any agreement should be in writing and must clearly define the scope of the property manager’s responsibilities. This includes a defined role, the purpose of any funds being held on behalf of the client, what should be expected in the event of an emergency and the extent to which additional charges can be levied in such circumstances. The agreement should clearly allocate responsibility for different categories of risk. For example, it should address whether occupier’s liability claims are to be managed by the property manager or the end client. 
• Agree a limit of liability. A commonly accepted approach in standard terms is to cap liability at the level of a professional's professional indemnity insurance. It may be possible for a property manager to impose a lower cap, however this will require careful consideration of a number of issues, including the client's awareness of the clause, the parties' respective bargaining positions, and any prior course of dealing or established practices. This clause should be tailored to reflect the specific risk profile of the client.
• Special care must be taken when building works are undertaken at a managed property. A property manager should consider whether they are prepared to accept some or all of the responsibility for those works. It is often possible to scope liability by requiring the client to instruct other professionals to manage and certify progress (e.g. quantity surveyors or architects). When instructing professionals on a client's behalf a property manager should ensure that this does not inadvertently introduce an inspection role which was otherwise not already part of a property manager's pre-existing duties. 
• Anyone accessing client money should have a proper understanding of how it is held (and for whom – e.g. residents' management company or leaseholders) as well as the purpose for which that money can be used. Payments should then only be made from that account following prior written agreement from the relevant party/parties. The management agreement will be a good starting point but where there is any ambiguity then individual written agreement should be obtained before transferring or using the money.
• Finally, when a building is considered as high-risk, there will additional obligations particularly in relation to inspections, fire risk strategies and record keeping. Those are significant burdens and will require a client to have access to systems which can deal with the additional work concerning retention and maintenance of documents, canvasing of occupiers, assessment of building works, and ongoing inspection duties.

Concluding thoughts

The role of a property manager has continued to develop. Absent clearly defined terms, a property manager's role could now extend to (amongst other things) compliance, risk management, inspection, document management, construction management, ongoing reporting, and resident engagement. It is therefore more important than ever for property managers to understand the nature of each of their roles and be able to properly evidence the scope of their retainer by reference to agreed written terms.

For further information about Zurich’s property manager offering, please contact one of the team:

Laura Wall, Senior Claims Adjuster – laura.wall@uk.zurich.com

• Share this article by email