Construction projects can be complex, with many moving parts. Labor shortages, material costs, and supply chain troubles may mean that owners have to make difficult choices regarding the project within tight deadlines. A good team can make the process much easier—and one of the key elements of a team is the owner's representative.
An owner's representative is a professional that a property or project owner may hire to oversee construction operations from the beginning (i.e., the planning stage) to completion. If the owner lacks the time, skills, or knowledge to effectively make decisions, an owner's representative can be invaluable. They can monitor the project, make recommendations and decisions, review costs, and provide advice to the owner throughout the project.
Since the representative works for the property owner, the scope of their work and the terms of their professional relationship are typically outlined in a contract called an owner's representative agreement. As a real estate agent, here's what you need to know about owner's representative agreements.
How to Understand Owner's Representative Agreements
An owner's representative agreement is a legal document that clearly states the scope of services that an owner's representative offers. It also covers the terms and conditions of employment, termination, and compensation details. Sometimes called an owner's representative contract, this document is an integral part of the working relationship between an owner and an owner's representative. It may help prevent disagreements over payments or professional expectations that emerge later.
While a quick internet search can turn up many owner's representative agreement samples, it's important to ensure any contract is legally binding in your state/county. Experienced property owners may have previous agreements they can adapt to the new projects. First-time owners should employ legal representation to make sure the owner's representative agreement is legal and binding.
What Do Owner's Representative Agreements Include?
While details may differ depending on the specifics of the project, owner's representative agreements are likely to include the following items:
- Project description
- Owner's expectations
- Compensation for the representative
- Terms and conditions that cover termination and suspension
Let’s review these contractual elements.
Project Description and Background
A project description is a good place to start. This section may include the specifics of the project outlined in bullet points. This is particularly important for ownership groups with multiple properties. Owners may choose to employ one owner's representative per project. In some cases, they may have different expectations of each owner's representative based on the project in question. In these cases, it makes sense to include specifics on every contract, especially the address and scope of the work.
The background portion may include a reference to any relevant documents (blueprints, budgets, etc.) and the skills that the owner's representative must have. It's also a good idea to include a synopsis of what the representative will be responsible for. Additional details on that will be in the terms and conditions that come later.
Defining the Term and Scope of Services
Legal contracts between owners and the owner's representatives can benefit from a clearly defined start and end date (term) and a detailed explanation of the scope of services. These sections are normally the first two sub-headers in the main body of the agreement. Combined with the project description and background, they delineate the expectations for both parties.
Accurate information is essential when drafting the terms and scope of services. Check the dates of the term. Make sure that any budget numbers included in the scope of the agreement are accurate. Double-check addresses and timelines. Mistakes are common in these areas, and they may pose problems down the line. It's a good idea to have an attorney or compliance professional review the contract to ensure it is error-free.
The scope of responsibilities should be comprehensive. Assuming that the owner's representative understands the requirements without providing them in writing may leave the door open to misunderstandings, like overstepping duties or failing to fulfill specific responsibilities. Outlining expectations clearly in the contract helps ensure that the representative carries out their duties appropriately, which paves the way for an efficient construction project.
Owner's Responsibilities and Compensation
In addition to setting expectations for the owner's representative, an owner's representative agreement also defines the owner's responsibilities. Consider the examples below:
- Compensation: The owner's representative agreement will typically include the representative's total fees and reimbursable expenses. The owner may define whether they're paying their representative an hourly rate, a lump sum, or a percentage of the cost of work.
- Supporting materials: The owner's representative may depend on the owner to provide labor, funds, materials, documents, etc., that are integral to the project. It may help to include these details in the owner's representative agreement.
- Change of terms: The owner and owner's representative may include an option to extend or change the agreement with both party's consent.
A comprehensive owner's representative agreement may include more owner responsibilities depending on the specifics of the project.
Termination, Suspension, and Disputes
Owner's representatives are typically contract workers, so the owner's representative agreement should include the terms under which the owner hires them. Termination and suspension are two important scenarios to include in an owner's representative contract.
- Termination: Many contracts state that either party may terminate the agreement with 30 days prior notice. In the agreement, the owner may agree to pay the representative a portion of their fee for the time they've already spent.
- Suspension: This clause may state that if the owner has suspended a project temporarily, they need not pay the owner's representative while the project is on hold. This is an important clause for owners since they may be forced to suspend a project due to funding problems, legal injunctions against the property or contractor, or a merger when new partners are added to the project.
The timing of disputes is often regulated by municipal or state laws. The owner's representative agreement may include that timing, along with a process for mediation or legal action. Violation of any of the terms in the disputes section could be grounds for termination.
Insurance, Liability, and Indemnification of Owner's Representative Agreements
Owners protect their investment and project workers with insurance. The agreement can list the insurance type and the coverage that the owner has secured. This may include general liability insurance, automotive insurance, workers' compensation, and employer's liability. These coverages should be outlined in the agreement.
Defining liability at the beginning of the project helps eliminate confusion if something goes awry with the construction. It's also important to protect the employees and contractors, ensuring they will be taken care of in the event of injury or work stoppage. The liability section in the ownership agreement states who is accountable for each of these.
Indemnification is the acceptance of responsibility and waiver of liability for the actions of the owner's representative that are not in the best interest of the owners. This is a section that should be composed and reviewed carefully. It's usually included near the end of the terms and conditions before addendums and terminology. The signature lines conclude the document.
Are Owner's Representative Agreements Important for Real Estate Agents?
Real estate agents may be peripherally involved in owner’s representative agreements, so it's a good idea to gain an overview of what these documents include and why they're important. A working knowledge of owner's representative agreements may come in handy when a client needs help supervising construction work on a property, especially if they intend to be out of town during the work and need someone to oversee the project.