A Property Management Termination Letter is a formal notice from an owner to a property management company that terminates the property management agreement between the two parties. The letter should detail the specific reasons for the termination, the date the termination takes effect, and any specific requirements for the terminated company.
Can an Owner Terminate a Property Management Agreement?
Owners often ask if they can end a property management agreement. The answer to that question is, it depends on your contract. Before a landlord considers terminating the agreement, they should thoroughly read it first.
Generally, termination depends on the terms of the property management agreement and the reason for terminating the agreement. Timing plays an important role as well. A landlord should consider these things when determining if they can terminate an agreement:
- Termination Clause – Some agreements have a termination clause. A termination clause typically allows either party to cancel the agreement, for any reason, as long as sufficient notice is provided. Typically 30 to 90 days’ notice is required but it can be a different time frame based on the terms of the agreement. Agreements with this type of termination clause are the easiest to terminate.
- Mutual Agreement – Some agreements allow for termination upon mutual agreement of the two parties. If the agreement does not have a termination clause, this may be the easiest way to terminate the agreement as long as the property management company is in agreement.
- Fixed Term Agreements – Some contracts provide a little less flexibility. In some fixed term agreements an owner cannot terminate the agreement without paying fees to the property management company. Depending on the size of the fee, and how much time is left in the agreement, it may not be worth the cost to terminate the agreement.
- Breach of the Agreement – Regardless of any termination clause or mutual agreement, a landlord can terminate an agreement if there has been a clear breach. Whether it’s failing to handle maintenance requests or to provide a monthly accounting, there are several responsibilities and obligations of the property management company that they may have potentially violated.
- Unoccupied Rental Unit – Some termination agreements allow for termination by the landlord if a rental unit has remained vacant for a certain amount of days. If a landlord has this clause they can terminate the agreement without paying any fees if the agreed upon time period has passed without the property management company finding a tenant.
Reasons Why an Owner Would Want to Terminate
Here are some common reasons in which an owner may want to terminate a property management agreement:
- Sale of Property – If an owner is planning on selling their property they will no longer need a property management company.
- Owner to Manage the Property – Sometimes an owner decides that they want to be more hands-on and would prefer to manage the property themselves.
- Consolidating Property Management – An owner may have separate properties managed by different property management companies. A decision to merge these properties under one property management company is a reason for owners to end an agreement.
- Poor Service – A company may simply be doing a poor job at managing an owner’s rental unit(s). This could be a lack of urgency in making repairs or leaving units vacant for an extended period of time. If an owner believes the company is not fulfilling the duties outlined in the agreement, they may consider terminating the contract and using a different company.
- Violations of the Agreement – Beyond poor service, the property management company may have actually violated a specific term of the agreement. For instance, not following the requirements of the Fair Housing Act.
- Bad Relationship with Tenants – The Agent for the property management company may have a bad relationship with the tenants. This may lead to tenants ending their lease terms and seeking to live somewhere else. An owner may want to terminate the agreement if these poor relationships impact the owner’s ability to receive steady rental income and applicants.
Even though an owner can terminate an agreement, it does not mean there is no financial impact. Depending on the terms of the agreement, an owner may have to, for instance, pay the property management company certain fees for terminating the agreement early. Also, be aware that the property management company has certain rights to terminate the agreement as well.
How to Write a Property Management Termination Letter
When preparing this letter, it is important to know what specific information to include. This letter should include the following:
- Date
- Property Management Company’s name
- Property Management Company’s address
- Formal greeting to the Agent of the property management company
- Purpose of the letter: termination of the agreement
- Parties to the original agreement
- Date of the agreement
- The specific property/units covered under the terminated property management agreement
- Specific time in which the termination will take effect
- Specific requirements for the property management company upon termination
- Deadline for the property management company to complete those requirements
- Friendly closing with an offer to contact the owner with any questions or concerns
- Owner’s contact information
- Owner’s signature
- Owner’s name
Depending on the situation and the terms of the agreement, there are other items an owner should consider when preparing their letter. These include:
- Terms of the Agreement – This is an important reminder that an owner must have a clear understanding of the terms of the agreement before they prepare the letter. Most property management agreements will state the amount of notice required, reasons for termination, and potential termination fees. An owner’s letter must be consistent with the terms of the agreement.
- Release of Property Management Company – An owner may include a release for the property management company in the letter to indicate that they are relieved from their duties once the termination becomes effective and they have fulfilled all of the requirements outlined in the termination letter.
- Include Necessary Information – Each situation is unique. The owner needs to make sure they include the necessary information for the property management company to properly wrap up their services. For instance, the property management company should be provided a forwarding address if payments will be going to a new management company.
- Time for Compliance – When an agreement is terminated a deadline is usually provided for the property management company to perform certain tasks to transfer back the management to the owner. If not specified in the agreement, an owner should ensure that the deadline provides the company with enough time to perform those tasks.
- Secure all Records and Documents – Before the relationship ends, an owner needs to ensure they have received all records and documents from the property management company. Those can include (1) tenant contact information; (2) property inspection reports; (3) financial ledgers and reports; (4) copies of property keys or door codes; (5) copies of tenant applications, leases, and renewals; and (6) maintenance records.
- Notification to Tenants – Either the property management company or the owner needs to notify all tenants of the change in management. If the company is not required, the owner needs to make sure that all tenants receive a written notice of this change.
Make sure the letter is professional, yet polite. While the reasons for termination may be negative, the owner mustn’t allow emotions to affect the tone of the letter.
There are legal requirements for terminating a property management agreement. If an owner has any questions, they should contact an experienced real estate attorney to discuss this further.
How to Send the Property Management Termination Letter
The owner should send the letter in a way that requires signature confirmation to document its receipt. This can be accomplished by certified mail. Even better if the owner sends it by restricted certified mail which requires the addressee to be the only person that can sign for the letter.
The owner should keep a copy of this letter filed with a notation of the letter’s delivery method and any other relevant information.
Finding a New Property Management Company
Unless an owner no longer needs a property management company they will need to make sure they have a replacement company for when the termination is complete. Property management companies handle a wide range of activities. These include:
- Collecting rent payments
- Maintaining the rental property
- Negotiating rental agreements
- Managing finances
- Ensuring compliance with federal, state, and local laws
If an owner does not have a new property management company in place, these tasks will be their responsibility. Once an owner does secure a new property management company, they will need to send their tenants a New Property Manager Introduction Letter.
