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What is a Property Management Agreement?
A property management agreement is a legally binding contract between a landlord and a property management company. Typically, the landlord has a property or multiple properties they want professionally managed. The agreement is intended to govern the relationship between the landlord and property management company, outlining obligations, fees, and other important terms to make sure the relationship is a success.
A property management agreement is in written form, so it is important to have the agreement signed by all parties. Management companies who agree to manage properties expect to receive compensation for their services as long as they deliver on the obligations outlined in the contract.
What to Include in a Property Management Agreement
A property management agreement lays out the responsibilities assigned to each party and details all relevant aspects. Below is a description of sections that are strongly advised to always include in a property management agreement:
- Service Fees. It is crucial to clearly state in the agreement what fees will be paid to the property management company for performing services. Services tend to consist of finding a tenant for the property owner, collecting and disbursing rent payment, addressing maintenance concerns, enforcing evictions, and being the point of contract for the tenants.
Property Owner Responsibilities.
You as a landlord will have responsibilities just like the management company will have theirs. The tasks that you have to keep up with need to be written out so there is no confusion as to which party is obligated to take care of something specific. You may be tasked with:
- keeping funds available for the management company to withdraw from if maintenance repairs or other charges are due.
- having insurance on the properties being managed and making sure the coverage is sufficient.
- signing a residential lease agreement or commercial lease agreement despite the management company finding the tenants because you still hold the title of ownership.
- Equal Housing Opportunity. The Fair Housing Act regulates fairness and equality in the housing market in order to prevent and address discrimination. Since this Act is composed of many federal and state laws it is highly suggested that it be included in a property management agreement.
- Liabilities. To prevent the management company from having liability issues you may be restricted from doing certain things that are being cared for by them such as finding tenants and entering properties. There is usually an entire section that discusses what a property management company will not be held accountable for. For example, the management company will not take the blame for something such as poor work being done by a third party hired by the landlord.
- Term. The length of time that a property management company agrees to manage properties for a property owner must be specified in the contract so that once again disputes can be avoided. The management company is expected to fulfill their end of the bargain until the agreed upon time has concluded.
- Termination. There are many reasons why you or the management company may wish to terminate your contract early. The various reasons that would justify an early ending to the agreement need to be stated clearly on the contract. If there will be a fee for an early termination then that needs to be included in the property management agreement.
View this article to get more information on what to include in a property management agreement.
Purpose of a Property Management Agreement
The purpose of a property management agreement is to create a legal document that is enforceable by the law that outlines the rights and obligations of the landlord and property management company. The agreement makes it clear what is expected from each party and what remedies may be sought if one fails to do what they promised.
In real estate, things inevitably break and all tenants are different. Creating a property management agreement will create an objective framework for managing the relationship and the property.
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When a Property Management Agreement is Needed
Aside from a property management agreement solely being needed to cover the responsibilities of each party, it serves as the base of a potentially long-term business relationship. Reasons that you may need a property management agreement range from simple to complex and some are explained below:
- Laws & Regulations - Most states require that residential real estate and commercial real estate is managed by an individual or company with a real estate agent license or property management license. The only six states excluded from this requirement are Kansas, Maryland, Maine, Massachusetts, and Vermont.
- Education - Certifications are available for property managers to provide them with knowledge in the field although they do not have the same authority as an actual license. A certified property manager is said to hold the highest ethical standards for managing properties so it seems likely this type of management will prove to be beneficial opposed to others with less education specific to the industry.
- Clarity - Some management companies may assume things are done a certain way but you may have a different view or preference for services that should be provided. A property management agreement is likely to guarantee expectations are met on both ends and will ensure that you and the management company are on the same page. The agreement will also be available for reference if you or the management company cannot remember something.
- Protection - A property management agreement protects the interests of an owner as well as the management company from being held at fault for something that was not their responsibility. You may find it worthwhile to invest in an agreement because the management company is going to be handling sensitive data and will have access to some of your finances. Having direct permissions spelled out will prevent mishandling and abuse.
A property management agreement is a standard document to have anytime property owners want to hire someone else to manage properties for them.
Get Help With a Property Management Agreement
Getting help with a property management agreement is a sensible thing to do given the complexities of managing property and value of real estate. The owner and property management company will be protected by executing an agreement. If you need help with a property management agreement, post a project in ContractsCounsel’s marketplace to receive bids from vetted lawyers. Our lawyers can help you draft a property management company from scratch or review an existing agreement.
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