What Exactly is a Caretaker Agreement?
Caretaker agreements are a tool that property owners can enter into with a caretaker to have the caretaker take care of the commercial or residential property. A deed is used to create a caretaker agreement which is recorded for permitting the recording office to obtain constructive notice of the agreement. The parties can agree to a rental payment in cash or agree that there will be no rent payable. The parties can also agree that things will be done in exchange for the rental amount, such as maintenance of the property. Caretaker Agreements can run from one day to five years. The property owner can agree to provide utilities, maintenance and groceries, in exchange for the caretaker’s work. The Agreement may provide for duties each day, weekly, monthly or yearly.
The term "caretaker" has been defined in case law as: "one employed to manage, dispose of, protect and secure the property… The term "caretaker" relates to the concept of care, not simply that of a tenant for hire." "Clearly the statutory scheme contemplates that a caretaker is a person whose responsibilities include management of a property." "The duties [of a caretaker] are not limited to ‘housekeeping’ tasks , but also encompass janitorial, environmental, and security responsibilities. The duties of the caretaker are akin to those of a property manager and not that of a tenant for hire." The Court in Tanglewood Land Company LLC, v. Maul, 2009 WL 5226817 (N.C. Sup. Ct. 2009) explained this issue as follows: The housekeeper comes when the resident is not there, cleans the house and then leaves. The ‘resident’ may have little or nothing to do with the housekeeper except to give directions about how to clean a corner of the fireplace. In contrast, the caretaker lives in the home twenty-four hours a day, is present at all times to monitor the status of the premises, protects and manages the property, and is responsible to the owner for security and maintenance. The caretaker is not living in the property as a guest and has an independent duty to the owner of the home to maintain it, while the housekeeper is there to perform tasks that the resident specifically directs.
Notwithstanding, a caretaker does not need to be on site 24 hours a day to establish the relationship. While the time spent on the property varies, what is important is that the caretaker lives at the property to carry on its business.
Essential Components of a Caretaker Agreement
While caretaker agreements may vary in terms of language and specific requirements, each should address the following key components: Caretaker responsibilities. An agreement should clearly define all of the caretaker’s responsibilities, such as daily cleaning, maintenance and upkeep of the property, animal care, winterization, snow removal, property inspections, and any other specified services. Caretaker compensation. A detailed explanation of how the compensation will be provided by the property owner should be included in the agreement. Caretaker compensation can include: Term of the agreement. The term of a caretaker agreement can range anywhere from a few weeks to a few years. A longer-term arrangement may offer the advantage of greater peace of mind for both the property owner and the caretaker, especially if the arrangement includes the caretaker living on-site. Termination. The specific reasons that the caretaker and/or property owner can terminate the agreement should be expressly set forth. While this section may seem relatively straightforward, it is important for both the property owner and the caretaker to understand fully their rights and obligations if termination becomes necessary.
Advantages for Property Owners
By choosing to enter into a caretaker agreement, the property owner is relieved of responsibility in a number of areas which will enable them to pursue other activities or enjoy a more leisurely lifestyle. The lifestyle and leisure advantages may be considerable for some owners.
After all, why have a caretaker without some benefit to the owners? Caretaker agreements are, in many cases, entered into by owners in order to allow them to enjoy their time away from property whilst also facilitating the usual caretaking duties undertaken. In larger communities, it may be that without caretaker services the community would not be usable in the same manner.
Certainly, in larger complexes with numerous facilities, the ability to utilise the facilities (tennis courts, pools, spa, gym and barbecue areas) will require that there be someone on site at all times to check that those facilities are kept in order and to monitor their use. Caretaker services are, in effect, the maintenance and management of facilities and those things which owners wish to know are safe (or generally free from interference).
The service of caretakering is particularly important in the situation where a majority of owners are not living (full-time) in the community, but still want some benefit from the facilities and some comfort from the security provided by the maintenance of those facilities.
Duties and Rights of the Caretaker
Typically, a caretaker will perform duties which may include: collecting moneys due (such as rent, service fees or charges, levies, dues and other amounts payable by a resident, tenant or lot owner); handling the day-to-day running of the property; having a key to all persons’ lots for emergencies; undertaking repairs and maintenance; supervising personnel; advising committee members and residents or owners on the affairs of the community (such as meetings or functions); enforcing the rules of the body corporate or property; undertaking any other duties as requested by the committee and outlined in the caretaking agreement.
It may be possible for the caretaking obligations in the caretaking agreement to be altered. The change may be informal (an unwritten, private arrangement) or formal (in writing). A formal finish arrangement should be in writing to avoid future disputes or allegations as to the scope of the caretaking agreement. The agreement must expressly authorise such an informal change. Changes might be structured according to a checklist of particular caretaking tasks (e.g. Security Check List). It is recommended that the checklist confirms whether tasks are compulsory and/or the frequency with which those tasks must occur. For example, "Each month, the caretaker must…" or "The caretaker must undertake the following checks at specified times (for example, each day/week/month)…"
A caretaker should have a right to reasonably request personal information about residents, tenants or lot owners, including contact details, emergency contacts and the like. This information must be kept strictly confidential, unless the caretaker for valid reasons can demonstrate that it is necessary to disclose the information.
Caretaking agreements may provide a caretaker with access to bodies corporate property, common property, resident property or property for sale (whether they are the caretaker’s own, the property of their (alleged) children or the property of other residents). To ensure that a caretaker is shielded from future liability and claims from residents, it is essential to confirm that the caretaker is only entitled to access a resident’s property after the resident:
The caretaker must also provide reasonable notice to a resident that it is necessary for the resident to move their possessions. The notice must specify the date of required removal and be provided personally to the resident or by post to the address of the resident given to the body corporate.
The requirements for providing notice should be outlined in the caretaking agreement or body corporate rules.
Legal Aspects and Common Mistakes
While caretaker agreements can be relatively simple, there are still important legal principles to be aware of from the outset. One of the threshold questions is whether the caretaker will be an employee or independent contractor: because of potential liability, property owners should carefully weigh the pros and cons before classifying a caretaker as an independent contractor. Similarly, there are a number of legal issues that may arise during the course of the relationship. For example, property owners should be cautious in the types of information they request that the caretaker provide regarding their services for purposes of state and federal fair housing or employment laws .
Mistakes can cost both landlord and tenant. For this reason, Wisconsin state law provides certain minimum requirements. While the specific terms of any caretaker relationship will be dependent on the the size and condition of the subject property, the following provisions should be included in all caretaker agreements:
All of the foregoing provisions should be incorporated into the caretaker agreement. In addition, property owners should be cautious in entering caretaker agreements with existing tenants, as tenant rights under Wisconsin law may limit or be affected by the terms of the agreement.
How to Create a Caretaker Agreement
While there are several things that I could cover in this series, one of the simplest things that I can cover is how to actually draft a caretaker agreement. While many property and business owners use standard real estate forms for these agreements, such forms are sometimes insufficient. As with other contracts, the more specific an agreement is to a precise situation, the better off the parties will be at managing their expectations and resolving disputes.
If a landlord has questions about how to draft a caretaker agreement, the first person he or she should consult is a lawyer who is familiar with that type of contract. In Minnesota, many attorneys offer free initial consultations (I’ve provided them at my Minnesota estate planning and business planning blogs). As an example, a Minnesota business lawyer could help a client prepare a handyman agreement or yard maintenance agreement using the Minnesota Association of Commercial Realtors’ Model Carried Service Agreement for a guide. As a tenant lawyer who prepares service agreements for caretakers and other service personnel in Minnesota, I can tell you that no two of my agreements are identical, as the service needs of my clients are different also.
The process of creating a custom caretaker agreement typically involves at least a verse or two on the law yourself, a few hours of research (I’ll discuss this in a future post) and a final draft that either the landlord or the tenant could end up paying $500 or $1,000 for. In my experience, the drafting process costs between $500 and $2,000, depending on the numbers of hours the parties spend talking about the particular facts of their situation with their lawyer.
Examples of Effective Caretaker Agreements
The success of a caretaker agreement often rests on the ability of the property owner and caretaker to collaborate positively so that the needs of each are met. The following case studies highlight the successes and failures of several key concepts in this area.
Showing Respect for Each Other’s Needs and Circumstances: One of the main issues for a caretaker property manager is to ensure that his or her presence adds value to the property they are managing. If an owner has expectations that the caretaker will be "on duty" 24 hours a day, the owner needs to consider if the cost of the services provided is more valuable to the company than an increase in the bottom line from lower labour costs. According to the joint position paper by the Commercial Real Estate Institute and the Real Estate Institute of New Zealand on the Role of Property Managers and Caretakers, a service apartment can be cost effective for a company located in a remote area where accommodation for management and staff members is limited. However, in an area where there is free accommodation available, or shorter term needs for accommodation (for contractors), the service apartment option may not be as appealing. In a case study involving an owner who expected the caretaker to personally attend to all issues arising during normal business hours, this proved to be too onerous for the caretaker, who responded by breaking an eight-year caretaker agreement after three years. After the caretaker had vacated the property, the owner thought it to be much cheaper to fly a manager from his other property to attend to services required at the site every couple of weeks, including litter collection, visiting tenants and handing out notices.
Maintenance and Lawn Care: A key issue in a caretaker agreement is dividing responsibilities for general maintenance, repairs and lawn care. In a case study involving a caretaker agreement between two groups representing real estate managers in New South Wales, "along with a common agreement for grounds maintenance, an additional schedule of property management services and common rates for other services were provided…" There are also three case studies involving a caretaker’s responsibilities for maintenance and lawn care. The first concerns a case where the caretaker’s agreement reads, "The caretaker shall be responsible for the daily (including weekends and public holidays) visual inspection of the common areas of the property, swimming pool building and car parking areas . Should it be necessary, the caretaker will undertake minor repair works or replace any equipment that require immediate attention." Upon reading this case study, one legal commentator suggested that the agreement between the parties was inadequate as it did not set out in any detail the obligations of the owner to undertake repairs and maintenance or the rights of the caretaker to charge for additional services and expenses. The second case involves another caretaker, who "had been engaged in the property management activities at the premises for more than a decade." She performed her duties "quietly and effectively" until after a new owner took over the building. At that time, the new owner "decided that she was no longer needed and instead agreed to a new caretaker agreement with a caretaker who did not live on the premises. Both the owner and incumbent caretaker were unhappy with the situation, and an application was made to the Administrative Decisions Tribunal to terminate the former caretaker’s agreement." The third case study involved a case where the caretaking agreement provided, "To the extent permitted by law, the manager shall not be liable in respect of any accident, death, personal injury, loss of damage to property or other liability occurring on or in the site unless caused by the gross negligence or willful default of the manager." The proprietor subsequently died, the group companies were placed into liquidation and it appeared that the $2.3 million owed under the agreement was owed to the companies’ creditors. Although the question is yet to be determined, the circumstances of this case suggest a public interest in protecting the funds owed to a bankrupt estate.
Tenants’ Rights to Attend Owners’ Meeting: Case studies involving a couple of real estate managers suggest that some proprietors may try to impose restrictions on the rights of tenants to attend owner meetings. According to one case study, "one such clause purported to limit the right of the occupants of the serviced apartments to attend owners’ meetings and vote. The court determined that such a restriction was against public policy and therefore unenforceable." Another case study involved a situation where the owner attempted to prevent tenants from attending owners’ meetings. As a result, the owner lost both the right to be appointed as manager for the site and any payments for management fees.