Professional Documents
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Damon Key Legal Alert (Fall/Winter 2015)
Damon Key Legal Alert (Fall/Winter 2015)
Providing clients
worldwide access
to sophisticated
legal advice and
exceptional service.
Inside this
Issue:
Preparing for
the ICE Storm:
Conducting an
Internal I-9 Audit
Its Planning,
Not Uncertainty:
The Importance
of Pre and Post
Nuptial
Agreements
Introducing
Ikaika B. Rawlins
and Sommerset
K.M. Wong
Robert Thomas
& Mark Murakami
Take the
National Eminent
Domain Stage
Understanding Residential
Property Management
Agreements
By Ikaika B. Rawlins
ue to the amount of time and the potential liability involved in leasing and managing
residential real property, many of our clients elect to hire professional property management
companies to perform these services for their properties. The property management agreement
defines the rights and obligations of the property owner (the Owner) and property manager
(the Manager) with respect to the property covered by the agreement. In this article, I
highlight several common provisions found in a typical property management agreement that
Owners should be aware of before entering into an agreement with a management company.
Compensation. So how much should an Owner pay for property management services?
Well, I will give you the lawyerly answer it depends! In all seriousness, the amount an Owner
should expect to pay for property management depends on a Managers reputation and the
demand for their services, the amount of additional services required beyond basic property
management, and the scope and/or complexity of the property management assignment.
The structure of compensation in most agreements, however, is fairly uniform. Generally, the
Manager will charge a one-time set-up fee per property managed, expressed as either a fixed
dollar amount or a percentage of the monthly rent (generally 15-20%), plus a monthly
management fee, which market data indicates is currently
between 10-15%. Furthermore, most agreements provide
for a fee equal to a percentage of the cost of work performed
for the Managers coordination of repairs to the property and
substantial additional consulting fees for ancillary services
provided above and beyond standard property management
services. The Owners ability to negotiate more favorable
terms than those found in a management companys standard
agreement depends on the Owners bargaining power, which
is, unsurprisingly, a function of the amount of fees that the
Manager may expect to receive under the agreement.
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Appointment of Manager and Owners Termination Rights. The typical agreement provides that the
Manager has exclusive rights to lease and manage the property for a specified period of time, with automatic,
periodic renewals thereafter. The agreement can generally be terminated by either Owner or Manager, for any
reason or none at all, with 30 days prior written notice from one party to the other; however, if the Owner
terminates before the expiration of the exclusive leasing and management period, the Owner is usually obligated
to pay the unpaid portion of the scheduled management fees. An Owner with bargaining power may be able to
amend this provision by, for example, making the Owner liable for payment of the unpaid portion of scheduled
management fees only for a termination without cause or limiting the termination fee to a specific dollar
amount.
Tenant Selection. The agreement also provides that the Manager will coordinate property showings, screen
rental applications, and select the most qualified applicant(s) for the rental unit. The determination of a qualified
applicant varies substantially from one agreement to another. In some agreements, there are no express criteria
for determining a qualified applicant, leaving the Manager with a substantial amount of discretion in selecting
a tenant from the pool of applicants; in others, strict income requirements (e.g., a 3:1 income to lease rent ratio)
must be satisfied and the Owner may have additional approval rights beyond meeting these minimum requirements
in order to qualify for the unit. Because an Owners rental property is usually one of their most substantial investment assets, it is a good idea when negotiating with a management company on an agreement to thoroughly
understand that companys tenant approval procedures and, if possible, work with the company to establish
criteria for approving tenants.
Repairs and Maintenance. Although the lease defines the scope of the Owners repair and maintenance
obligations on the property, the management agreement delegates the authority to perform these obligations
on behalf of the Owner up to a certain dollar limit (e.g., $200). If the cost of non-recurring repairs and/or
maintenance exceeds this dollar limit, the Owners approval of those repairs is required. Furthermore, it is also
common in management agreements for the Manager to have the authority to make emergency expenditures
above the repair and maintenance limit established in the agreement if, in the Managers opinion, the expenditures
are necessary to protect the property from damage, prevent injuries, avoid penalties, fines, or suspension
of services to tenants required by the lease or by law.
Mortgage Payments, Taxes, Insurance Premiums, and Homeowners Association Dues. Not everything
is delegated to the Manager under the agreement. Generally, a management agreement provides that the
Owner remains liable for paying any mortgages, real property taxes, insurance premiums, and homeowners
association dues.
Owners Indemnification of Manager. Most agreements provide that the Owner shall indemnify and hold
harmless the Manager from all costs, expenses, suits, liability, damages, and claims arising out of the leasing
and management of the property by the Manager, except to the extent due to the Managers gross negligence,
and, in that instance, damages are limited to the management fee collected. Put another way, even if the
Manager has been grossly negligent with respect to its leasing and management of the property, the Owner can
only recover up to the amount of the management fee collected.
First Right of Refusal to Sell During Management Period. In some management agreements, if the Owner
decides to sell the property at any time during the management period, the Owner will be required to list the
property for sale with the Manager. Beware of this provision! Although it is not as common as the others
mentioned above, it does appear in management agreements from time-to-time, particularly with companies
that offer below-market management rates as an inducement to the Owner to enter into this type of arrangement.
Residential property management agreements are complex documents that carry significant economic and
legal consequences. At Damon Key, we have years of experience in advising our owner clients on management
agreements and other legal issues concerning their real estate investments. Please feel free to contact us with
your real estate and business needs.
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istakes can be costly. For the 2013 fiscal year, the U.S. Immigration and Customs
Enforcements (ICE) Homeland Security Investigations (HSI) accomplishments
By Kelly Y. Morikone
included serving over 3,000 Notices of Inspection and 637 Final Orders totaling over $15
million in administrative fines. The ICE investigation led by HSI begins with a Notice of Inspection requiring the
employer to turn over all of its I-9s on file, current payroll, and other documentation. To protect your company,
we advise a periodic, annual internal self-audit of your companys I-9 forms and records to ensure compliance.
Your company should have a Form I-9 or
Employment Eligibility Verification Form (I-9) for
each current employee on payroll, including U.S.
citizens, hired after November 6, 1986. Each former
employees I-9 must be retained until the later of two
dates have passed: three years after the date of hire
or one year after employment is terminated. The I-9
is not required for certain employment categories
such as independent contractors or intermittent
domestic workers at a private household.
The I-9 consists of three parts: Section 1 Employee
Information and Attestation, Section 2 Employer or
Authorized Representative Review and Verification,
and Section 3 Re-verification and Rehires.
Section 1 must be completed, signed, and dated
by the employee on the date of hire along with the
Preparer and/or Translator Certification if a preparer
or translator is utilized. It is the employers responsibility to review and ensure that Section 1 is completed
properly and on time. If you notice errors, ask the
employee to draw a line through the incorrect information, enter the correct information, and initial and date
the correction. If there are major errors in Section 1,
such as entire portions left blank, a new I-9 can be
completed and attached to the old I-9. It is always
a good idea to write a note in the file regarding the
reason you made changes to the I-9 or completed a
new I-9 and note the date.
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Disposition of property upon separation, marital dissolution, death, or the occurrence or nonoccurrence
of any other event
Modification or elimination of spousal support
Making of a will, trust or other arrangement
Ownership rights in and disposition of death benefits from a life insurance policy
What law will apply to construe the agreement
Any other matter, including personal rights and obligations, so long as it is not in violation of public policy
or a statute imposing criminal liability
Once you and your partner have figured out what you want the agreement to cover, there is a financial
disclosure requirement. Some say ignorance is bliss, however, knowing about your partners finances and their
spending and saving habits may save a lot of heartache. In fact, the leading predictor of divorce is financial
disagreements. Luckily, one of the requirements of a prenuptial agreement in Hawaii is financial disclosure.
These disclosures generally identify all property, liability, and income of each of the parties. This is important
so both parties have all their cards on the table and are able to make a reasonably informed decision about
whether they want to enter into the prenuptial agreement.
All in all, although these agreements may seem straight forward, prenuptial agreements are highly scrutinized
by courts. Having legal advice will provide the best opportunity to ensure that your prenuptial agreement is
both fair and legally sound. An attorney can help you to ensure that the agreement says what you want it to say
and complies with the applicable state law.
Postmarital agreements are also an option. Some couples choose a postmarital
agreement because they either werent able to or didnt want to execute an agreement
prior to marriage. These agreements, like prenups, can determine the legal rights of
the spouse, either immediately or in the event of death or divorce. Sometimes these
agreements are executed in conjunction with estate plans for both spouses.
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D
6
amon Keys Robert Thomas and Mark Murakami will play key
roles at the 2015 American Law Institute-Continuing Legal
Educations Eminent Domain and Land Valuation Litigation conference
in San Francisco, February 5-7, 2015. The conference is the premiere
Robert H. Thomas
Mark M. Murakami
national program on eminent domain and condemnation law, and the
annual gathering of the countrys most experienced and successful eminent domain lawyers. The only Hawaii
attorneys on the faculty of the three-day conference, Robert and Mark will draw on their extensive experience
to help address key areas of the rapidly evolving practice area.
Robert is the Co-Planning Chair of the annual
conference, now in its 32nd year. As such, he produced the agenda and gathered the faculty (along
with his co-Chair, his colleague Joe Waldo of Norfolk,
Virginia). Robert will present the conference overview,
speak on the topic of Ethics in Eminent Domain, and
participate in the National Forum: Issues Facing
Practitioners around the Nation. He will also moderate
several panels. Mark will join two other national
experts to speak on the subject of Denominators and
Bright Lines: The Search for the Relevant Parcel in
Eminent Domain and Regulatory Takings.
Both Robert and Mark are members of Damon
Keys Real Estate and Construction Practice Groups,
and are the firms attorneys who deal regularly with
eminent domain issues. Attorneys from the firms
practice group have been involved in some of the most
important cases in the field in Hawaii and beyond.
A land use and appellate lawyer, Robert focuses on
regulatory takings, eminent domain, water rights, and
voting rights cases. He has tried cases and appeals in
Hawaii, California, and the federal courts. He serves
as Chair of the Eminent Domain Law Committee of the
American Bar Associations Section on State & Local
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Damon Key
Ohana Picnic 2014
A Time to Refresh & Build Relationships.
At Damon Key, weve built our firm on a
foundation of strong relationships. Thats
why each summer the Damon Key ohana
gathers for a time of fun and fellowship at the
firms annual beach picnic. Its an excellent
time to catch up with long-time colleagues,
as well as to meet and mingle with those
who are new to the firm. The festivities are
made complete with family members joining
in the day filled with great food, games and
conversation.
The event provides a time to refresh and
revitalize the team. Its indisputable that
getting to know each other better outside
of the office enhances working relationships
inside the office. With a growing firm, it is
essential that employees across the various
practice groups remain connected and our
annual family picnic is successful in doing
just that.
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PAID
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PERMIT NO. 985
A D V E R T I S I N G
M A T E R I A L
Legal Alert is published periodically by Damon Key Leong Kupchak Hastert to inform clients of legal matters of general interest. It is not intended to provide legal advice or opinion.