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What to Look for In a Property Management

Contract
Posted by Jordan Muela in Property Management Articles
Note: This is designed to be a helpful overview of property management contracts, but keep in mind
that I am not a lawyer and this does not constitute legal advice.
The contract you sign with a property management company should not be viewed as a mere
formality, but rather the sole determiner of what services you or will not receive, what costs you will
incur and what rights you will have in the relationship.

Choosing to not thoroughly read the contract is no different that choosing to not interview a property
manager before you hire them. The contract is designed to eliminate confusion and create a clear
mutual understanding of how the relationship will function in all foreseeable circumstances where a

dispute could arise.

Don’t let positive impressions about the company’s professionalism and ethics make you less
attentive when reviewing the actual terms of the contract.

The "fine print" may seem like a chore to read through, but not doing so can lead to
misunderstandings about the property management fees, the property management services that
are included, the way tenants are treated and what you must do and/or owe in the event you want to
end the relationship. Make sure to ask questions about anything that isn't crystal clear.
Also, don’t wait till the end of your search to ask for the contract; get a copy from each company
early on while you are still talking to and interviewing multiple property management companies.
This way you get a clear picture of what each company is truly offering early on while you have a
number of options available.
A Three Part Guide to Breaking Down Management Contracts
Most property management contracts aren't exactly what you would call spellbinding. This guide is
meant to cut through the legal jargon and help you see both what is in the contract and how it will
affect your relationship with the management company.

Remember that nothing is set in stone and if you take issue with a certain point, feel free to ask
about it and see if they are flexible. While hiring a lawyer to review the property management
contract is not absolutely necessary, it is recommended if you feel unqualified or just want to make
sure you aren't missing anything.

If you think others would benefit from this material, feel free to share it. If you want to return
later, bookmark this page at delicious for quick reference.
 1. Responsibilities and Representations
2. Contract Termination
3. Indemnification and Boiler Plate Items
Find and compare property managers from Phoenix to Los Angeles and everywhere
between. Start searching today.

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 Landlords

Essential Parts of a Property Management

Agreement
The Sections Every Landlord Should Pay Close Attention To
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Essential Parts of Property Management Agreement. PhotoAlto-Eric Audras/PhotoAlto Agency RF

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Landlords
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By Erin Eberlin
Updated August 15, 2016

When you hire a property manager, it is important that you look over their management
agreement very carefully so that you understand exactly what you are agreeing to. Verbal
agreements mean nothing if they are not actually part of the contract you are signing. Here are
six essential parts of the contract that you should examine carefully.

1. Services and Fees

2. Responsibilities of the Property Owner
3. Equal Opportunity Housing

1. Liability
2. Contract Duration
3. Termination Clause

1. Services and Fees

The first essential part of the property management contract that you must understand are the
services the manager will perform and the fees charged for these services. You need to
understand what services are included in the management fee, what services can be performed
for an additional fee and what services will not be performed under any circumstances.

Included Services:

The management fee is the most common type of fee that a property manager will charge. Pay
close attention to how this fee is broken down. If, out of three property managers, one charges a
management fee of 4%, while the other two charge a fee of 6%, don’t write the 6% managers off
so quickly.
The manager with the 4% fee may not be telling you they will charge additional fees for what
they consider to be “extra management duties” such as filling vacancies, paying
bills, maintenance issues, and eviction procedures.

You need to read the management agreement very closely to determine what services are
actually included in the management fee and what services are considered extra and require
additional payment.

Extra Services:

For services that are considered extra, the agreement should clearly spell out how you will be
charged for these duties, whether there is a flat fee, a percentage fee or if the fee will be
determined on a case by case basis before the service is performed.

Excluded Services:

Also, be aware of the services the property manager will not perform under any circumstances.
This will vary from company to company but common exclusions include refinancing a
property or extensive remodeling. Make sure they are not excluding anything you consider
absolute necessities for hiring a property manager such as finding tenants, collecting rent
or handling emergencies.

2. Responsibilities of the Property Owner

The second part of the agreement that you must understand are your responsibilities as the
landlord. This section of the contract will define what you are obligated to do by signing the
agreement and what you are prevented from doing.

Two examples of obligations of the property owner are:

1. To Set Up and Maintain a Reserve Fund – You will be expected to put a specific amount of
money into a reserve fund that the property manager can access to deal with daily
obligations, maintenance issues, and emergencies. You are also responsible for making sure that
the fund never falls below a specific amount.
 2. To Obtain and Maintain the Proper Insurance- The management agreement should specify the
types of insurance and the amount of coverage they require you to obtain. It should also note if
the property management company must be included under your coverage.

Two examples of restrictions on the property owner are:

1. Most agreements will prevent the property owner from placing a tenant in the property
themselves. This is meant to protect the property manager from having to manage a tenant that
has not been selected according to their guidelines.
2. The property owner may not enter the property unless they notify the tenant beforehand or get
approval from the property manager.

3. Equal Opportunity Housing

You want to make sure the management agreement has a section that says they support Equal
Opportunity Housing. It should say they abide by both the state and federal fair housing laws.

4. Liability

This is the essential part of the agreement that limits the property manager’s liability. It is known
as the hold harmless clause. In general, this clause will protect the property manager, except in
cases where they have been negligent.

The property manager is not, however, responsible for negligence of third parties they hire. For
example, a property manager is not responsible if they hire a contractor, and the contractor
causes damage to the property.

To protect yourself, you should make sure there is a “reasonable care” clause in the agreement.
For example, the manager will not be held liable if “reasonable care” has been taken when hiring
a third party- a.k.a they should do their research and not hire a contractor with a history of
complaints against them.
5. Contract Duration

You want to try and avoid signing a long agreement until you have proven results from, and
confidence in, the management company. Unfortunately, most management companies will not
sign a contract for less than a year. In this case, you will want to carefully review the termination
clause and make sure you are able to terminate the contract if you are unhappy with the service.

6. Termination Clause

Make sure the management agreement has a clear termination or cancellation clause. It should
state why and when the property manager/management company has the right to terminate the
contract and when you, the owner, have the right to terminate the contract.

Notice to Terminate:

You will usually be allowed to terminate the contract by giving between 30 and 90 days notice.
Make sure the agreement states the property management company is required to give you at
least 30 days notice if they decide to terminate the contract on their end.

Fee for Early Termination:

You will often have to pay a fee for terminating the contract early. This fee will vary from a few
hundred dollars to having to pay all fees the management company would have accumulated
over the length of the contract.

Reason to Terminate:

You will want to look for a contract that does not require cause to terminate the agreement. You
will also want a provision included that allows you to terminate the contract without penalty if
the management company fails to find a tenant within a specified amount of time.

Obligations Upon Termination:

There should also be a list of duties that must take place upon termination and the time window
they must be completed within. For example, the property management company must provide
the property owner with copies of all tenants' leases within 14 days of contract termination; or
that all money owed to either party must be paid within 30 days of contract termination.

Next: How to Terminate a Property Management Contract

Back to: The Complete Guide to Property Managers

https://www.thebalance.com/property-management-agreement-2124845