Effective restraint of trade clauses in employment or contractor agreements are a vital way to protect an agency’s rent roll portfolio when a staff member leaves, a lawyer has advised.
In a recent blog post from MA Legal’s principal, Rex Afrasiabi, the lawyer flagged that while the code of conduct of most of Australia’s real estate institutes does strongly discourage property managers poaching clients from someone else’s portfolio, in reality “it does happen frequently”.
He said the inclusion of an effective restraint of trade clause into employment or contractor agreements is “one of the most effective ways to protect your rent roll portfolio from rogue or disgruntled former property managers”.
“It goes without saying that the rent roll is the agency’s greatest asset,” Mr Afrasiabi said.
Restraint clauses can prevent property managers from working for a competitor, using your confidential information, and contacting your landlords and/or employees during or after their employment has ceased, he explained.
Traditionally, restraint clauses have been considered unenforceable, but the lawyer said restraints are upheld where real estate agencies can demonstrate the clause is reasonable.
Here are the three requirements for validity, according to Mr Afrasiabi:
• The employer must have a legitimate interest to protect.
• The scope of the restraint must be reasonable in all the circumstances.
• The assessment of what is reasonable or not is made at the time the contract was entered into, not at the time of an employee leaving.
“Careful consideration is required when preparing effective and enforceable restraint provisions in employment and contractor agreements to ensure they protect the real estate agency’s confidential information, landlords and ultimately the rent roll,” he added.
The lawyer also flagged that a further consideration employers need to make is that even where the restraint clause applicable to a property manager is deemed enforceable, the real estate agency “needs to prove the actual damage that was sustained as a result of the property manager breaching it”.
“While industry insiders and estate agents could easily determine a value, convincing a judge or a jury of that value may face its own challenges,” he said.
In his own practice, Mr Afrasiabi said he encourages restraint provisions that incorporate agreed damages clauses which allow the real estate agency and the property manager to agree in writing on potential damage costs or fees lost.
Another option available for enforcement of such clauses against rogue property managers is an “Anton Piller Order”.
Such a court order requires one party to allow another party to enter their premises to inspect, remove or make copies of documents or other items that could form evidence in an action or proposed court action, Mr Afrasiabi said.
With a strong rent roll involving significant time, money and work, the lawyer said it’s “critically important to take all necessary steps to protect this asset”.
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Grace is a journalist across Momentum property and investment brands. Grace joined Momentum Media in 2018, bringing with her a Bachelor of Laws and a Bachelor of Communication (Journalism) from the University of Newcastle. She’s passionate about delivering easy to digest information and content relevant to her key audiences and stakeholders.