There are people who own properties but don’t have time to look after them or perhaps they don’t have the knowledge and experience required to handle properties. In such cases, you can seek the services of a property management company but in doing so, you should meticulously create a written property management agreement. This ensures that you remain protected in the event that the property manager doesn’t fulfill their responsibilities.
Table of Contents
- 1 Property Management Agreements
- 2 When do you need a property management agreement?
- 3 Property Management Contracts
- 4 Responsibilities in a property management agreement
- 5 Templates
- 6 What to include in your property management agreement?
- 7 Property Management Agreement Forms
- 8 Adding a termination clause in your agreement
Property Management Agreements
When do you need a property management agreement?
There is a need for a property management agreement if, for instance, you have a property and you want somebody to manage it for you. This can either be a single individual or a company. If you work for a management company, you can use the property management contract to keep your company protected.
Having a property management agreement template makes the responsibilities of both parties very clear. Remember that not all management companies offer the same services. For example, some of these companies assume the responsibilities of marketing rental properties whereas others leave the responsibilities to the property owners.
The contract specifies the duties that the management company provides throughout the length of the contract. If you’re the owner of the property, the agreement protects your interests. But if you’re the owner of a property management company, the property management agreement form protects your interests while providing written documentation of the terms you have negotiated with the owner.
Property Management Contracts
Responsibilities in a property management agreement
As a property owner, you can delegate the responsibilities of managing the property to either a property manager or company. Make sure you read the property management contract thoroughly and renegotiate any items in the contract you’re not comfortable with. If you have reached an agreement, then you can sign the contract.
The property management agreement template should indicate in a detailed manner, the responsibilities of the property manager. Whether the property is for residential or commercial use, it should incorporate the following points:
- The responsibilities of the property manager
This includes finding tenants, collecting rents, maintaining the property, and more depending on your needs.
- The fees of the property manager
This includes how you calculate such fees if it isn’t a fixed amount. This also includes how and when you will pay the fees.
- Other services provided by the property manager
There are services that the property manager can agree to provide as needed that aren’t covered by the standard management fee. The agreement must specify the details of these additional services and their related fees.
- Limitations of the contract
There are things that the property management company won’t do. Include all of these as your responsibilities as the owner.
- Other pertinent details
In the property management agreement form, specify that there should be no contracting with other property managers or property management companies for the contract’s duration.
Also, the property manager cannot enter the premises without giving you appropriate notice first.
As the owner, you cannot sign in a tenant without the approval or involvement of the property manager.
Include a provision of providing a reserve fund that the property manager can use for daily management expenses. As the owner, you should top-up the fund whenever it’s needed.
If you plan to obtain Liability Insurance, the contract should include the coverage amount. In most agreement cases, you should include the property management company in the coverage of the insurance terms.
What to include in your property management agreement?
Every property management agreement should suit the two entities involved along with the property too. For example, a property management contract for a commercial property that houses multiple businesses needs specific considerations for the businesses that operate in the building.
Property management companies usually have a standard property management agreement template for their business dealings. You can then customize this standard contract for each specific property. Following are the basic aspects you should include:
This section includes all of the services of the agreement. It should enumerate the responsibilities of the management company. All such duties are part of the fees agreed upon within the agreement.
- Services that aren’t covered
Any services that aren’t covered by the property management company should also be clearly stipulated in the agreement. This means that the company takes no responsibility for services not covered with regard to the property.
This section covers the costs of the services covered under the agreement. These may vary depending on area or state. Some may have flat rate fees per month. When you do research on fees against the current market, take into consideration the services covered by the property management company – higher fees can sometimes be an indication of more comprehensive services. The same section also lays out the costs for additional services that you might add.
- Extra fees
There may (or may not) be a section for extra costs. You may add these if you want to engage the property management company for extra responsibilities that are not in the standard contract. Make sure to stipulate these extra duties within this section.
- The responsibilities of the property owner
This section enumerates what your responsibilities are as the property owner. Included in this same section is a clause that discusses the exact kind of insurance that you need to carry out at all times.
- The limitations of the property owner
Most property management agreement forms contain a section that governs what you cannot do as a property owner. These limitations are necessary so that the property management company can deal with all of the aspects of the daily management of the property.
- Length of the agreement
Generally, the standard length of a property management agreement is one year, even for those cases where the partnership has lasted for many years. A yearly review of the contract is important to make sure that all of the relevant issues are adequately covered. Moreover, fees may increase and you may want to add new services.
This section covers the legal liabilities and indemnifications with regards to the property. Such liabilities may include:
A clause that specifies the management company’s liability in cases where there are any personal claims or injuries against the property.
There can be cases where the management company knew about a risk and didn’t do anything to deal with it. In such a case they might have liability for it.
Also, specify in this section who gets the liability for the different situations that may arise when dealing with the property.
There should be clauses about liability when tenants break their leases which might lead to your financial distress.
- Compliance issues
When renting properties to residents or commercial enterprises, there are some legal compliance issues involved. This section determines the responsibilities of the property management company for such issues. Include in this section the details about equal opportunity housing and discussions about local laws and codes.
- Funding or advances
Discussed here are your responsibilities as the property owner which includes funding for the day-to-day management of the property or any possible emergencies, and a section on advances.
Property management companies sometimes advance money for any costs needed for the property. For this, there may be fees associated with fund repayment as well as a set of timelines as to when you must return the entire payment to the management company.
Property Management Agreement Forms
Adding a termination clause in your agreement
Another important feature of a property management agreement is the inclusion of a termination clause. It must specify when and why the property manager or the management company has the authority to terminate the contract or if you as the owner also have the same authority to terminate it. Here are some details to include in such a clause:
- Notice to Terminate
The usual notice period to terminate a contract is between 30 and 90-days. Conversely, make sure that the property management company gives you a minimum of 30-days notice to terminate the agreement.
- Fee for Early Termination
There is a need to pay a fee when you terminate the contract before it expires. This fee can vary from a couple of hundred dollars to having to pay the property management company all the fees that would have amassed over the remaining duration of the contract.
- Reason to Terminate
An agreement that doesn’t need a cause to terminate is something you might consider as this allows you to terminate the agreement without penalty as in the case of a manager cannot find a tenant within the set time period.
- Obligations Upon Termination
The agreement should also include a list of duties that you must perform upon termination and a timeframe they must get completed. For instance, one duty is for the property manager to give the property owner copies of all the tenants’ leases within 2 weeks of contract termination or that all of the money owed to either party should get paid within 30-days of the termination of the contract.