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A property management contract is an agreement placed by the owner to their chosen manager that outlines the organization's objectives effectively and clearly. This is one of the most important documents in the rental industry. However, many business owners or firm representatives do not know of it. Thus, the features and objectives stated below will help you understand the basics and importance of a property management agreement. Other important guidelines have been added, along with allowing the manager to take care of the company. Penalties, too, make up to be a part of the property management contract. Therefore, one must know that a property management contract must be done without fail.

Steps to Make a Property Management Contract

Below are the steps to make a property management contract:

  1. Identify Parties. The two parties must be clearly identified. Accurate details must be presented about them. This may include adding their names, addresses, phone numbers, etc.
  2. Give Property Description. A description of the property must be made. Make sure everything is added without any confusion in the contract. This may include location detailing, address, size, and other information.
  3. Define Scope of Services. Add the services the management company provides. This will give the clients a glimpse of a manager's daily tasks. Some property managers even enlist a section detailing what is outside their responsibilities.
  4. State Terms of the Relationship. A section describing the relationship between the client and manager must be added. This section should include tenure, responsibilities, rights, and how disputes may be handled.
  5. Outline Fees. Outlining the fees part should be done. This may include a percentage of the monthly rent, flat fees, and any additional charges. Thus, look at everything carefully and add the fee details.
  6. Add Compensation. Add the compensation part. The situations surrounding which compensation must be given should also be added. Make sure the compensation complies legally and ethically.
  7. Underline Budget. Adding in budgets must be considered. Budgets are said to be updated quarterly. Also, the property manager must make monthly reports for the owners to display the financial performance, rents, etc.
  8. Include Liabilities and Insurance. Adding insurance safeguards for both parties. Addressing this is essential as it protects the interest of the property owner and the management company. Therefore, this provides security, trust, and professionalism in the property management relationship.
  9. Resolve Disputes. Make space for dispute resolution. This provides a framework for resolving conflicts during the contract period. Mediations can be outlined, thus saving both parties from a costly legal battle.
  10. Declare Termination of the Relationship. This step includes adding the termination of the relationship. Many add the conditions under which a relationship can be targeted. More than that, a 30-day notice to terminate a relationship unreasonably is added too.

Functions of a Property Management Contract

Apart from outlining guidelines for the chosen manager, a property management contract has other functions, too. This might imply that it can cover a lot of requirements. These may range from adding in an amount for a fine if damages occur and so on. However, a property management contract has important functions apart from all this. These are as given below,

  • Managing the Tenant: Tenant management and relations are important functions of a property management contract. To maintain this relationship, owners must build a solid landlord-tenant relationship. However, boundaries must also be set fluently between the tenant and the property owner.
  • Ensuring Financial Management: Another function of a property management contract is financial management. The property owner ensures that he will promptly collect the rent. Tax, insurance, premiums, and other requirements must also be maintained.
  • Looking into Maintenance and Repairs: A property management contract enlists how the manager will investigate damages (if any) to the company. Thus, owners find out a manager will prevent or attend to any problems that may come up. However, if there are any discrepancies, then legal steps can be taken.

Thus, these are some of the functions of a property management contract. An estimate of less than 50% of property owners manage their properties. Therefore, knowing the functions and acting at par with them is essential. Other main functions include monitoring and coordinating building maintenance, enforcing lease agreements, and regularly communicating with the property owner about the property's status.

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Contents of a Property Management Contract

The functions of a property management contract are well known to you by now. Certainly, they hold up to be the most important contents of a management contract. However, there are other documents too. Documentation is an important process as it describes everything in detail. Below listed are the contents:

  • Parties to the Contract: This is the first thing that a management contract must have. It is totally simple, and it has the property owner's name and contact information, as well as the property management firm's name and contact information. Furthermore, the effective date of the property management agreement is there.
  • Property Management Services: This includes an outline of included and excluded services. Below listed are the services:
    • State Licensing: Some areas require a rental license or housing inspection so the company may fulfill the necessary legal compliance requirements. This will protect the firm. Furthermore, strict standards enforcement may also take place.
    • Leasing Services: Finding a qualified tenant is a top priority of any managing firm. Thus, actions such as preparing listings and showings, preparing documents, and photographing units are included in this process.
    • Rent Collection: A rental firm relies on rental payments, so payments are very carefully made. Thus, financial management is an important part of a property management contract.
    • Late Fees: If rent is not paid on time, managers will take action. Therefore, the contract has to describe the steps that the manager might take. Written notices and follow-through to attend to the problem are some ways to solve the issue.
  • Fees and Services: A fee description must also be included. On average, property management fees are 8% to 12%. This is dependent on the type of property, size, and location.
  • Owner Responsibilities: Owner responsibilities are mentioned in the management contract. Planning for emergencies and attending to financial obligations falls under the owner's responsibility. Landlord insurance is added, too, and may vary from company to company.
  • Owner Restrictions: A list of things the owner should not do is also added. This may include entering the property and taking action against it. To do so, a 24-hour notice should be served through the manager's approval.

Therefore, these are the contents of a property management contract. Make sure you have added all the points, and if already prepared, you can have a property management agreement reviewed. Also, describe everything, even if it's minute, as it gives a clear picture. This will reduce any scope of misunderstanding or dispute that may occur later.

Key Terms for Property Management Contracts

  • Base Rent: A fixed amount used as a minimum rent in a lease with provisions for increasing the rent over the term of the lease.
  • Broker: A licensed real estate professional who purchases and sells the property for others in exchange for a commission.
  • Common Area: Refers to areas or amenities provided for the common use of more than one person.
  • Co-signer: A third party on a lease who assumes the financial responsibilities of renting a property even though they are not a tenant.
  • Default: Failure to perform a legal or contractual duty under a commercial lease, such as not paying rent when due or the breach of other aspects of the agreement.
  • Double Net Lease: Part where the tenant agrees to cover the costs of two of taxes, utilities, or insurance premiums.
  • Equal Housing Opportunity: Refers to the idea that everyone should be granted equal opportunities to live in various housing communities regardless of race, gender, age, nationality, familial status, or disability.

Final Thoughts on Property Management Contracts

These are the things you must keep in mind regarding a property management contract. The main components of it lie in the content itself. Thus, details and a set of rules must be added, too. Doing this makes sure that no dispute occurs shortly and also builds a healthy tenant-owner relationship.

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ContractsCounsel is not a law firm, and this post should not be considered and does not contain legal advice. To ensure the information and advice in this post are correct, sufficient, and appropriate for your situation, please consult a licensed attorney. Also, using or accessing ContractsCounsel's site does not create an attorney-client relationship between you and ContractsCounsel.

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