8 Essential Clauses Every Property Management Agreement Needs

A Property Management Agreement is a legal contract between a property owner and a management company, outlining the terms of property management services.

May 3, 2023

Property Management Agreement

Property Management Agreement

A property management agreement is a written contract between a property owner and a property management firm that outlines the manager’s duties and responsibilities. This agreement is critical for protecting the owner’s interests and ensuring that the property management firm has clear guidance as to expectations. Agreements can be customized to fit the Owner, Property Manager, and the property’s specific needs. It should be reviewed annually and updated.

While the specific clauses in a property management contract will vary depending on what is needed, there are some essential clauses that every agreement should include.

This article will discuss 8 clauses every property management agreement needs. These clauses will protect the owner’s interests and help ensure that the manager has proper guidance to provide quality service.

What is a Property Management Agreement?

A property management contract is a legally enforceable agreement between a landlord and a property management firm. It safeguards the mutually beneficial interests of property owners and property management firms.

Usually, the landlord has one or more properties they want to have managed by a professional property management firm. The property management agreement ensures a successful partnership between the landlord and the property management firm. It outlines responsibilities, costs, and other essential elements.

A successful property owner-management relationship will lead to better results for the Owner, Management firm, and Tenants.

Why is There a Need for a Property Management Agreement?

a. It provides clauses for terminating the agreement without legal liability.
b. Standard clauses stipulate that both parties must provide 30 to 90 days written notice before terminating the contract.
c. It contains the fees connected with canceling the agreement before its expiration.
d. It contains queries regarding liability issues
e. It outlines reporting expectations
f. And so much more…

Essential Parts of a Property Management Agreement

The duties allocated to each party must be carefully laid out in a property management agreement. Below are the most important clauses in a property management agreement that must be included:

1. Provided Services

It is never a good idea for property owners to assume what services are offered. Rent collection, bill payment, evictions, tenant screening, advertising unoccupied units, continuous building exterior and landscaping care, and creating tenancy or lease agreements are all typically included in full-service property management.

This can be customized as per the property; the duties should be clearly stated so that it avoids any confusion.

2. Fees

The property management contract should specify how all services and related costs are to be paid. If a property owner is handed a contract specifying a general management charge, they should request a breakdown of the various services included.

The management fee can vary depending on the property’s location, size, and services expected. Low fees are not always a good thing as it can mean fewer duties will be fulfilled by the management company. The property management agreement should clearly outline any additional fees and the scope of service provided for them.

3. Duration of the Agreement

Property management firms typically enter into agreements for a minimum of one year. However, before agreeing to a one-year commitment, property owners and the management company should hire a real estate lawyer to review the contract’s provisions.

4. Termination of the Agreement

A lawyer should also examine the cancellation or termination provision within a property management contract to ensure the owner has the right to end the agreement with proper notice. It is also vital to note obligations following termination, such as the need to pay fees within a given time frame. Some termination specifics are:

a. Notice period: it is usually a period ranging from 30-90 days after a written notice has been delivered
b. Early termination fee: some agreements have a provision wherein the party who has applied to terminate the deal has to pay a fee to the other
c. Reason for termination: The agreement should allow a property management company to terminate an agreement without giving a reason. Also, the management company should not be liable if they fail to find a tenant.

5. Indemnification

The indemnification or the “hold harmless clause” in the property management agreement protects the management business by restricting liability, except for situations in which the company has been careless in upholding its commitments. It is a crucial component of a property management contract between property owners and property managers. The contract’s liability clause places restrictions on the property manager’s liability.

Suppose a third party hired by a property management company behaves irresponsibly. In that case, the firm won’t be held accountable or liable as long as they fulfilled their duty to vet the third-party thoroughly. For instance, unless the property management business did not meet the “reasonable care clause” to vet the applicant, they would not be accountable if a handyman or other service provider failed to accomplish the work they were engaged to do.

6. Assignment

An assignment (or assignment of contract) occurs when one of the contracting parties transfers their rights and obligations to a different party. The third party then completes the contract’s requirements. In the case of a property management agreement this allows the management company to continue in the case of a transfer of ownership assuming the Buyer wants to continue.

7. Dispute Resolution

Contractual provisions, known as dispute resolution clauses, serve to settle differences in either a non-binding or binding manner. Rules that mandate the parties to participate in alternate dispute resolution processes like mediation and arbitration are occasionally included in them. These clauses are essential parts of a property management agreement.

8. Signature

Without the consent of all parties, a property management agreement is non-binding and unenforceable. With signatures, the lease can be made into a contract with legal consequences if broken. The agreement must be signed and dated by the landlord and the property manager to show their acceptance of all clauses, terms, and conditions.

Property Management Agreement: Conclusion

Given the difficulties in maintaining a property and the cost of real estate, seeking help from a property management company is advisable. If you are a landlord looking to hire a property management company, make sure that these important clauses are in the property management agreement. And if you are a property manager, ensure you understand these clauses before signing the deal.

For a reliable property management experience consider partnering with Summerfield. We at Summerfield employ tried and tested strategies to maintain your buildings. You can learn more about our approach by scheduling a meeting with us!

Property Management Agreement: FAQs

Q: What is a property management agreement contract?

A: It is a legal contract between the property owner and a property management company that outlines the terms and conditions under which the Owner hires the management company as their authorized agent to manage a property.

Q: What is a clause in a contract?

A: A contract clause’s individual purpose is to precisely define and delineate a single element of the property management contract.

Q: What does a property management agreement typically include?

A: A property management agreement describes under what terms and conditions the property management company will manage the day-to-day operations of a property. The purpose of this agreement is to specify which duties belong to the property management company and which belong to the owner. It is very important to make sure essential parts of a property management agreement are all included.