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 contractor is 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 responsibility if 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 providers will 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 typical homeowners insurance doesn’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.
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