Should Property Managers Use Uninsured Or Unlicensed Contractors?
If you are a seasoned property manager or
real estate property investor,
you have probably gone through a rehab in your lifetime. If you decide to hire
uninsured/unlicensed contractors, you need to be aware of the risks that come
along with that decision.
When a licensed
general contractoris hired for a job, they typically hire sub-contractors
for some or most of the work. However, the general contractor bears the burden
and overall responsibility for licensing, permits, quality of work as well as safety
on the job site.
With that responsibility comes potential liability. That’s
the reason a valid GC will carry the appropriate amount of liability and
workers compensation insurance.
These different types of insurance policies protect the
property manager or property owner should something goes wrong. Many states will
not issue a contractor’s license if they don’t maintain the minimum level of
insurance.
Insurance protects the professional property manager from
having to bear the financial responsibilityif a job goes south or if there is
an injury on the job site.
So What Can Go Wrong for Property Managers?
Many things can go wrong on a rehab job. Think about damage
to water, gas, power or sewer lines. What about poor workmanship?The bottom
line is, all issues will be the responsibility of the general contractor. They
along with their insurance providerswill be the primary responsible parties in
the event something goes wrong.
However, if you don’t hire a licensed and insured
contractor, you become the general contractor. That means if your unlicensed
contractor hits a gas line or causes some other damage, you’re the one that
will be responsible. If a worker gets injured and you don’t have any workers
compensation coverage, you will be held liable for that injured workers’
medical bills as well as any lost wages.
Keep in mind, the typicalhomeowners insurancedoesn’t
cover you for these events. Most homeowners policies exempt damage caused by unlicensed
contractors.
Consequences for Property Managers
If you are a property owner, you should be stay clear of
property management companies that make a practice of using unlicensed or
uninsured contractor professionals. If property managers use unlicensed contractors,
they may be putting you at risk. If you’re a property manager, you owe it to
your customer (the property owner) to not place that risk upon them.
What About Hiring Friends as Contractors?
Hiring friends that are unlicensed is the same as hiring
unlicensed contractors and doesn’t make the liability or risk disappear. Friends
don’t typically enter agreements with ill intent but accidents do happen. If an
accident occurs and your friend is loaded with financial obligations for loss
wages as well as medical, sometimes friendships don’t survive.
The Risks of Hiring Unlicensed/Uninsured Contractors
If property
managers or property owners don’t hire an insured and
licensed contractor, they could potentially cost you everything you own. Worst case,
you could be sued and possibly be forced into bankruptcy.
Using an unlicensed or uninsured contractor to save some
money may be appealing in the short term but the potential risks far outweigh any
of the benefits.
About PropertyZar
PropertyZar is a real estate technology company specifically in
the web-based property management software for owners and professional property
managers. Learn more www.PropertyZar.com
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