How To Minimize Your Business Liability: 10 Contract Best Practices For Real Estate Owners & Managers

Ways To Reduce Your Business Risks at The Beginning Of a Contract

Property owners and managers know that having third parties present in their facility is an everyday part of business. Unfortunately, this raises the risk potential for your business. When someone slips and becomes injured, a spark causes a fire, or a drip turns into a flood, who is responsible? Your Avondale business attorney will tell you that the answer relies heavily on your business contracts, which means that drafting comprehensive contracts, having effective policies in place, and taking steps to reduce risk is imperative from the very beginning of your relationship with a third party. Consider these ten best practices for your business contracts.

10 Contract Best Practices for Real Estate Owners & Managers

Gain Legal Review of all Contracts

A signed contract may seem final, but when a claim or loss happens, the dispute is likely to head to court. A careful review of every contract, including leases and service agreements, from your Chandler commercial real estate attorney can make sure that your contracts are legally binding and will withstand court scrutiny. Your attorney can verify that your contracts are fair, eliminate potential loopholes, check for adherence to local laws, and ensure sufficient protection for your business. A legal review of your business contracts can identify and rectify any gaps before both parties sign.

Use a Standard Contract

Contracts can range from custom agreements to standard forms which cover the most common and basic provisions of operation in your industry. Although custom contracts offer many benefits to match the unique needs of your business, they can be slow and inefficient if you work with many vendors and contractors. Contract management can also be cumbersome. Finding the sweet middle spot of standard language across your agreements can increase the speed of the bidding process and reduce your employees’ workload. You’ll also find that standard contracts establish precedent, which can ease conflict resolution.

Add Your Company To a Contractor’s Insurance Policy

The goal of risk management is to assign risk responsibility to the parties most likely to create it, which in many cases is third party contractors. If your business is added as an additional insured party under a contractor or tenant’s policy, your business can be protected against claims. Your contract should specify this requirement and should include specific requirements about the type of insurance required, such as workers’ compensation, general liability, and umbrella insurance–as well as insurance specific to your type of business.

Include Indemnification & Hold Harmless Clauses In Your Contracts

Your business contracts should include indemnification and hold harmless clauses that benefit your property owners or managers. This requirement means that a third party agrees to financially restore the condition of your property after a loss. Hold harmless language releases your business from responsibility for actions performed by contractors, tenants, and other third parties.

Include a Subrogation Waiver

Subrogation is a strategy used by insurance companies to recoup a payment by legally pursuing financial compensation from another party who is affiliated with the loss. For example, if a contractor falls off a ladder provided by property management and is injured, a waiver of subrogation would prevent the contractor’s insurance company from seeking reimbursement from the property manager. Your Chandler business attorney can help you with the appropriate subrogation waivers for your industry.

Obtain Insurance Certificates From all Third Parties

It’s not enough to have your own insurance policy; everyone who works on a property should have their own coverage, which can be proven with a certificate of insurance (COI). As a business, you can obtain copies of these certificates for all third parties who are involved. Failure to obtain COIs could actually increase the cost of your company’s premiums or even prompt your insurance company to altogether cancel your policy.

Track The Effective & Expiration Dates of COIs

Provision of a COI should be part of your contract with all third parties, and your company should keep track of when that insurance coverage expires. It’s best practice to review COIs on a monthly basis, because any contractor could theoretically cancel their policy after providing you with their COI. If a loss happens after a third party policy lapse, your company could be liable and left holding the bill.

Verify Policy Limits

Your business contracts should require coverage thresholds that fit with the scope of the project. Coverage thresholds should at minimum meet those of your company, and umbrella insurance should be purchased if there are any gaps in coverage. Otherwise, your business will be liable for any loss overages.

Require Contractors To Be Responsible For Subcontractors

Many working relationships involve more than two parties. Your general contractor should be required to be responsible for any subcontractors who may be contracted to complete the job. Generally, the same rules should apply, which include insurance coverage scope, policy limits, COIs, and safe working conditions. Your Gilbert franchise lawyer can examine your contract to verify that contractors are sufficiently responsible for subcontractors.

Specify Primary & Excess Coverage

Your business contracts should indicate that the contractor or tenant’s insurance policy is primary, and that your own insurance is excess. In many cases, one party is not solely responsible for a claim, but the primary and excess coverage designations can specify which party is primarily responsible for paying damages in the event of a loss.

Manage Your Business Risks with Experienced Legal Counsel

Risk is part of life, so proper risk management is essential for your business. Denton Peterson Dunn is a trusted Arizona business attorney with decades of experience working with business contracts and other facets of business and risk management. Let us help you protect your business with our expertise and understanding of Arizona business law. Schedule your free, confidential consultation with us today and learn more about how we can be an asset to your company.


Brad Denton, Business Lawyer
 – Denton Peterson Dunn

1930 N Arboleda #200
Mesa, AZ 85213

Office: 480-660-3249
Email: [email protected]

7272 E Indian School Rd #540-132
Scottsdale, AZ 85251

Phone: 480-690-3283
Email: [email protected]