A Property Management Agreement is a contract between a property owner and a manager (“Agent”) who handles day-to-day operations at a rental property. This agreement provides terms employing the agent to lease, repair, maintain, and upkeep the property.
What Does a Property Management Agreement Do?
A property management agreement hires a manager to operate and rent out property on the owner’s behalf, in exchange for fees such as a percentage of revenue collected on the property (often 8-12%). While they can take on a variety of tasks, a property manager usually performs the following services for the property owner:
- Advertising leases.
- Screening tenant applications.
- Entering and managing lease agreements.
- Conducting property inspections.
- Managing landlord and tenant disputes.
- Organizing and managing property repairs and maintenance.
- General upkeep (e.g., landscaping, snow removal, etc.) on the rental property.
What To Include in a Property Management Agreement
A Property Management Agreement contains three major sections:
- General Terms – The parties to the agreement, the property under management, the length of the agreement, and compensation for management. These essential elements usually are addressed at the beginning of the agreement.
- Agent’s Powers and Obligations – Details the powers granted by the owner to the agent for property management purposes, and reciprocal responsibilities.
- Owner’s Obligations – Details the owner’s commitments under the agreement, such as providing the agent with the necessary resources to properly manage the rental property.
These are specific terms and clauses to include and a brief explanation of their purpose:
- Date – The date the agreement goes into effect.
- Parties – Identifies the owner and the agent. This section typically includes contact information for both parties. It is important to include the agent’s professional licensure information, especially in states which require professionals doing property management.
- Agent Appointment – Provides the general authority given to the agent along with details about the property subject to the agreement. Provides the full property address(es) and a description.
- Term – Specifies how long the agreement lasts, and what happens when the agreement’s term ends. The average term is 1 year, but varies.
- Termination Rights – States whether termination of the agreement is allowed and, if so, under what terms.
- Agent’s Compensation – Details fees that will be provided to the agent for their management services.
- Additional Fees – Details additional fees for certain specific situations.
- Other Compensation – Details certain actions that are not part of the agreement but may be paid upon request by the owner.
- Sale of the Premises – Indicates whether or not the agent may represent the property if the owner decides to sell.
- Agency Relationships – Details the scope of the agent’s potential relationships with other property owners, in the event of a potential conflict of interest.
- Lease Management – Empowers the agent to manage lease agreements with tenants.
- Leasing – Specifies the types of lease agreements the agent can contract on the owner’s behalf.
- Security Deposits – Details the agent’s authority to collect security deposits, and notes which party has responsibility for returning security deposits upon move-out.
- Lease Amount – Establishes the range of rents an agent is authorized to charge tenants.
- Owner Distributions – Details how distributions of income get made to the owner.
- Repairs and Maintenance – Provides the agent authority to make repairs and maintenance and provides a dollar threshold on expenses above which the agent needs written approval from the owner. This typically includes an exception for emergency situations.
- Evictions – Agent authority to evict tenants and take legal action.
- Trust Funds – Empowers the agent to deposit received funds, according to particular directions.
- Advertising – Establishes the agent’s authority to advertise rental units for lease.
- Hiring Contractors – Provides the agent authority to hire contractors for the operation and maintenance of the property.
- Payment of Expenses – Authorizes the agent’s use of owner funds to pay for relevant expenses on the property.
- Financial Statements to the Owner – Details the agent’s responsibility to provide financial statements on the income and expenses of the property.
- Due Diligence – The agent’s agreement to exercise due diligence in the performance of management duties.
- Federal and State Law – Affirms the applicability of relevant federal and state law to the performance of the agent’s duties.
- Documentation – Details the owner’s responsibility to provide all documentation necessary for the performance of the agent’s duties.
- Indemnification – Exempts the agent from liability for certain actions taken by the owner.
- Habitability – Affirms the owner’s obligation to ensure the property is habitable.
- Taxes – Assigns responsibility for the property’s tax payments explicitly to the owner.
- Financial Obligations – Specifies certain financial obligations taken on by the owner.
- Lead-Based Paint – Reiterates the owner’s responsibility for required disclosures regarding lead-based paint on property built before January 1, 1978.
- Owner Representations – Makes important representations from the owner about the status of the property and any adverse events that may affect the property.
- Equal Housing Opportunity – Requires that the property be leased in compliance with anti-discrimination laws.
- Notices – Specifies methods for sending notice between the parties.
- Arbitration – Agrees the parties will use arbitration to settle any disputes, with exceptions if relevant.
- Attorney Fees – Provides attorney’s fees to the prevailing party if there’s a dispute over compensation.
- Succession – Specifies that the agreement continues to apply to any successors in the interest of either party (e.g., if the property management company is bought out and has new owners).
- Governing Law – Selects the set of laws that govern the agreement. Can also specify a default venue for resolving legal disputes.
- Additional Provisions – Any additional terms specific to a particular property management situation.
- Severability – A standard clause specifying that the agreement as a whole continues to be valid even if a court finds any particular provisions invalid. The invalid parts get ignored, and the rest of the agreement continues in force.
- Waiver – A standard clause expressing that any failure to perform a part of the agreement should not be interpreted as waiving that performance or requirement.
- Amendments – Requires a signed writing to validly amend the agreement.
- Entire Agreement – A standard clause specifying that the entire scope of the agreement is contained within the agreement itself and any attachments.Any prior negotiations or representations, written or oral, are null and void. Any future negotiations or representations have no effect unless they fully comply with the agreement’s amendment process.
- Acknowledgments – Provides various acknowledgments for both parties.
- Signatures – Gives binding effect to the agreement between the parties, upon execution. To confirm free consent, a witness customarily also signs to verify both parties voluntarily agreed to all terms after a fair chance to review and discuss.
The parties should execute a signed copy of the agreement for both the owner and the agent.
After Signing a Property Management Agreement
After finalizing a Property Management Agreement, the first step is typically to notify current tenants that the property is under new management. This often happens through a Notice of New Management Letter. This letter introduces tenants to the new property management company, provides relevant contact information, and reassures that the leasing terms have not changed.
Benefits of Property Management
Professional property management is an efficient way to take the stress of running rentals off a property owner. With the right person operating under a comprehensive Property Management Agreement, a property owner can look forward to many benefits, including:
- Consistent Administration of Multiple Rentals – A property manager has the time and resources to ensure that multiple rental properties get handled in a consistent way. This ensures the same quality of rental experience for everyone who signs a lease.
- Reduces Effects of Distance – When an owner lives a long way from a rental property, the distance involved has adverse effects on both the owner and any tenants. Property management provides more responsive service to the tenant, and also saves the owner from potential commutes.
- Time Savings – Often the single greatest benefit of contracting a property manager is the time it saves the owner.
- Skilled Administration – Owning a desirable property doesn’t necessarily make a person skilled at the demands placed on an average landlord, like advertising a rental or handling tenant complaints. Property management can administer a property with greater skill than the owner would have otherwise.
- Easy Legal Compliance – Professional property managers have training in legal requirements for rentals. This helps ensure consistent compliance with local law, especially for property that’s subject to extra regulations like affordable housing programs.
- Stronger Finances – Property owners often simply get a better return on their time doing things that aren’t day-to-day rental management. A property manager often makes financial sense.
