Property Manager Commission Revenue Endorsement
Many vacation rental insurance claims consist of water damage, fire, theft, wind, and standard liability injuries. But what about the commissions a property manager loses when a claim is filed, and the property is “uninhabitable” to rent?
The Proper Insurance policy carries a first-of-its-kind endorsement: Business Revenue, Property Manager’s Commission.
TL;DR: The Property Manager Commission Income endorsement on the Proper Policy pays a property manager their lost commission income when a covered claim takes a managed property offline. When business revenue coverage is triggered by a covered loss, the payment is split between the owner and the manager based on the manager’s normal commission rate — for example, on a $20,000 actual loss sustained with a 30% commission, the owner receives $14,000 and the manager receives $6,000. The manager’s payment is only enforceable if the property management contract specifies the arrangement in advance.
What Is the Property Manager Commission Income Endorsement?
The Property Manager Commission Income endorsement is a coverage on The Proper Policy that pays a property manager their lost commission income when a covered claim takes a managed property offline. When business revenue coverage is triggered by a covered loss, the payment is split between the owner and the property manager—but only if the property management contract specifies the arrangement in advance.
How Is a Property Manager’s Commission Paid After a Covered Claim?
When a covered claim makes a managed property uninhabitable, business revenue coverage pays both the owner and the manager—each in proportion to their normal share of the rental income. Here’s how the commission split works in practice.
During peak rental season, an owner whose property you manage carries the Proper Insurance policy and files a claim for water damage resulting from the back-up of sewers and drains. This is a covered cause of loss, and the property damage is repaired and replaced. As a result of this claim and the replacement of the property, this property becomes uninhabitable to rent for 60 days.
This property manager insurance claim also triggers Loss of Business Revenue coverage. The business revenue would be payable to both the owner and the property manager. Let’s assume the “normal commission” for the manager is 30%. If the actual loss sustained for the 60 days was $20,000, then the policy would pay out $14,000 to the owner and $6,000 to the property manager. Again, this payment to the property manager would only be enforceable if the property manager’s contract specified as such.
What Must the Management Contract Say for the Endorsement to Apply?
This means that somewhere in the property management contract with the owner, there needs to be language regarding insurance, particularly business revenue coverage, not loss of rents or loss of use.
Below is sample language that could be used:
“Insurance: In the event that the property owner carries insurance coverage for “business income” and a claim is triggered, XYZ Property Management Co. is entitled to lost commissions if the insurance policy specifies as such. Our experience thus far with insureds has been very favorable regarding this topic. First, owners thank their property manager for leading them to Proper in the first place, and second, when a claim arises, it’s usually the manager who is on-site working with the adjuster and making certain the property is up and running as quickly as possible. The commission revenue endorsement is a non-issue, and the owner is thankful the property manager’s commission was paid.”
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