07 Apr Property Management Agreement
Property Management Agreement
A property management agreement is a contract between the owner of the rental property and the property management company hired to run the property. For this reason, before you sign one, it’s important to know the basics. That’s because when you hire a property management company, you are allowing them to handle vital day-to-day operations. Some of which when managed wrong, can wreak havoc on your bottom-line.
For example, never hire a property management company that does not include regular maintenance and routine inspections. The issue is, maintenance needs to be a proactive process. And, when it is not, you actually end up spending more in the long run.
Property management agreements are an essential tool for both the owner of the property and the property management company. In fact, not only does it outline the working relationship of the two parties, but also sets the standard of performance. With this in mind, we offer some insight on the top six items a good property management agreement should include.
The Anatomy Of A Good Property Management Agreement
In general, a property management agreement always contains the same basic types of information. For example, it will name all parties involved and include the address and/or legal description of the property. It will also outline the responsibilities of the property management company and can include things like, advertising, renting the property, rent collection and so on. However, because people are imperfect, and because disputes inevitably arise even under the best of circumstances. A good property management agreement doesn’t just list all the services and fees. It also anticipates the many things that can go wrong, and spells out what happens in these situations.
#1 Property Management Agreement Scope Of Work Outline:
- Monthly basic services
- Tenant screening criteria
- Rent collection responsibilities
- Repairs and maintenance
- Landscaping, pool maintenance and other ancillary activities
- What reports will be sent to the rental property owner
- Services that require an additional fee
#2 Fee Structure
The property management agreement should address routine fees, startup and close-out costs. The fee structure can be a flat rate, a monthly fee, or a percentage of the rent. Keep in mind, there is a big difference between all of these fee structures. In fact, since the management fee is the most common type of fee, make sure to pay close attention to how it is broken down.
#3 Property Management Company Responsibilities
From inspections and maintenance to retaining and screening tenants, it’s important to know the services you are receiving. This section defines the responsibilities of the property management company. And, it can include some or all of the following items:
- Renting the property
- Maintenance, repairs and housekeeping
- Terms of financial tracking
- Collection of rent and late fees
- Policy for responding to tenant issues
- Stipulations for 24-hour emergency maintenance services
- Requirements for ordering supplies
- An outline of rules and regulations (to be enforced)
#4 The Owner’s Responsibilities
This section of the agreement will defines what your obligations are. And, it also spells out what you cannot do. For example, it will detail the specific amount of money you must have in a reserve fund. As well as the type of insurance you need, and if the property management company will be included under your coverage. Additionally, things you cannot do like finding a tenant or entering the property will also be included. So, pay attention to what your responsibilities are as the property owner so there are no surprises.
It’s typical to find a liability clause in a property management agreement that limits the liability of the management company, except in cases of negligence. This includes:
- Gross negligence
- Acts (or omissions)
To protect yourself, you should make sure there is a “reasonable care” clause in the agreement.
#6 Legal Compliance
This section is key as it ensures your property will comply with, any and all laws, ordinances, codes, and regulations applicable to the ownership, operation, use, and occupancy of the property. In fact, it is always a good idea to include a clause that all parties will carry out their duties in accordance with major federal laws including:
- Fair Housing Act
- Americans with Disabilities Act
- Soldiers and Sailors Civil Protection Act
- Fair Credit Reporting and Collections Act
Property management agreements are an essential tool used to outline services, fees, obligations, and responsibilities to name a few. While every property management agreement is specific, since every rental property is unique, make sure you know what you are signing. A professional property management company doesn’t just list their services and fees on the agreement. They also list the many things that can go wrong, and they spell out what happens in these situations.
Whether you are interested in changing property managers, or simply looking to hire a property management company for the first time, we can help! We take care of all types of residential rental properties including homes, condos, and multifamily properties such as multiplexes, duplexes and triplexes, and even small apartment buildings. Let us manage your rental properties, so you can enjoy your life! Call us today at (858) 576-2176. We will save you time, money, and the stress that comes along with managing your own rentals.