Establishing a property management agreement is an important step when learning how to become a property manager. This document effectively outlines what is expected of the manager, what is expected of the property owner, and a number of legally-binding details that will ensure a smooth transaction.
Making sure that your property management contract is airtight is to the definite advantage of all parties involved. Any ambiguities which might be contained within the contract can have huge consequences down the line. Therefore, it is a smart idea to revise your property management agreement to the finest detail, and lock into one which meets the needs of everyone involved.
Read on to learn about the 6 crucial parts you need to include when writing a good property management contract.
Services and Fees
The first crucial part of your contract is an explanation of your property management services and fees. This section of the property management contract is where you can outline exactly what services you will be offering to property owners, and present a clear idea of what these services will cost. In addition to your responsibilities, this is a great section to include two more details: what services will be provided for an additional cost, and what services will not be provided at all.
Examples of property management responsibilities could include but are not limited to: collecting rent from tenants, performing the necessary inspections, and marketing the property to potential renters. These are examples of what common property management contracts include, but can be adjusted depending on your services.
For additional landlord services — often including filling vacancies, evictions, or performing maintenance — property management fees should be stated outright and unambiguously in this section. You can choose to charge a flat fee, a percentage fee, or otherwise evaluate fees on a case-by-case basis.
Related: 10 Common Property Manager Responsibilities
Responsibilities of the Property Owner
In this section of the property management agreement, you can state clearly what is expected of the property owner. Some property owners may have an unclear idea of what functions you’ll be carrying out as a property manager, and this is exactly where these restrictions can be outlined.
An example of a stipulation which can be made to property owners is to establish a reserve fund. This would ensure that there is always disposable cash if ever needed for maintenance or day-to-day operations of the real estate property you’ll be managing. This is also crucial in the circumstance of an emergency, for which a reserve fund can make a substantial difference. In this part of the property management agreement, you can also stipulate your minimum requirements for the rental property insurance that owners should obtain.
In addition to rental property owner responsibilities, this section of the agreement can state the restrictions which will be placed on owners. For example, many property managers choose to restrict owners’ ability to find tenants, since they may not meet the guidelines set by the manager. Take this concern and others into account, and ensure that the property owner is fully aware of what is expected of them.
Related: What are the Tasks and Responsibilities Covered by Professional Property Management?
Equal Opportunity Housing
In keeping with federal fair housing laws, your property management agreement should explicitly state commitment to equal opportunity housing. The responsibility lies on both the property owner and property manager from discriminating against individuals because of their race, sex, religion, sexual orientation, disability, or other identifying features.
Liability
Establishing the limited liability of the property manager is crucial. This section of the property management agreement is meant to protect the manager from liability, in the circumstance that they have not been negligent.
For example, this section could protect the manager if damage is done to the rental property by the tenants or other stakeholders. Irresponsible behavior which leads to damage by hired contractors, employees, or tenants, is not the responsibility of the property manager. In the circumstance of legal issues, this clause in your agreement is key.
Contract Duration
Up next, you’ll want to identify the length of the contract, including its start and end dates. Property management contracts which are short-term should generally be avoided. In order to guarantee consistent income, it is reasonable to offer your services on annual terms, with the option to renew upon expiry.
Termination Clause
There are a lot of reasons why you or the property owner may want to terminate the property management agreement. It is therefore crucial that a termination clause is included in any contract. There are a number of key things that must be stipulated in this part of the agreement.
First, a notice of termination must be provided, and with a clear timeline. This is usually in the range of 30 to 90 days. A notice period is important since it will allow both the owner and rental property manager adequate time to make any necessary arrangements that may be needed on account of the termination. Furthermore, you may want to stipulate a fee for early termination. If the property owner decides to end the contract before it reaches its end, this will of course cause a financial burden on you, the manager. Thus a clear statement of the associated termination fees should be made in this section.
Quite usually, a reason will be required for termination of the property management agreement. Having such a clause in your contract can help to avoid fraud or other misconduct from both parties.
Finally, this section of the property management agreement should outline the obligations of both parties upon termination of the contract. This should work to the favor of both the owner and manager, and ensure a smooth transition takes place after the contract has been canceled.
Bottom Line
Whether you’re learning how to start a property management company, or you’re a seasoned professional, learning how to write a good property management agreement is of the utmost importance. Property management clients will have a clear idea of everyone’s role in the agreement, including responsibilities and fees. Using this guide, you’re sure to cover all your bases and have everything you need for a strong contract. And don’t forget to consult with a real estate lawyer to ensure everything is in order!