Using a Property Management Agreement

Using a Property Management Agreement

by Belle Wong, J.D., December 2018

If you are a landlord or property owner, you may want to delegate the responsibility of managing the property to an individual or company. Before you sign a property management agreement, be sure to read the document thoroughly and negotiate any points you're unhappy with.

Property Manager's Responsibilities

The property management agreement should set out in detail the property manager's responsibilities. Regardless of whether the agreement is for a commercial or residential property, the following are key points the document should include:

  • The property manager's responsibilities. Depending on your needs, this could include finding a tenant, collecting rent, and maintaining the property.
  • The fees charged by the property manager, including how the fee is calculated, if it's not a fixed amount, and when and how the fees are to be paid.
  • Any additional services the property manager agrees to provide as necessary but which are not covered by the regular management fee. The agreement should set out what these additional services are and any related fees.
  • Anything that the property management company specifically won't do—that is, anything that is left to the responsibility of you, the owner.

Owner's Responsibilities

Additionally, the property management agreement should have a section that sets out the owner's or landlord's responsibilities. Such provisions often include:

  • Not contracting with another property manager or property management company for the duration of the contract.
  • Not entering the premises without first giving the tenant appropriate notice. Some property management companies require owners to contact the company before entering an occupied unit.
  • Not signing a tenant without the property manager's involvement and approval.
  • Setting up a reserve fund for day-to-day management expenses, such as contractors or cleaning. This fund is then used by the property manager as required, with the owner topping off the fund as needed so that it always holds a minimum amount.
  • Obtaining liability insurance. The agreement should set out the amount of coverage and, in most cases, the property management company will require to be covered under the terms of the insurance.

 

Property Management Company's Liability

While the property management company should be held liable for any damages resulting from its own negligence or the negligence of those in its employ, agreements often state that the company is not liable for the acts of any third parties.

However, you should check that wording has been included that requires the company to use reasonable care when it hires or contracts with third parties to work on the property, such as researching a contractor's reputation or relevant licenses before hiring them.

Early Termination Clause

Most property management companies require agreements to cover a term of at least a year. An early-termination clause sets out how to dissolve the agreement before that term is up and any related consequences. When reading through this portion of the agreement, keep an eye out for the following:

  • Notice to terminate property management agreement. The document should set out how much notice is required to terminate. The amount of notice may be different for the owner compared to the notice required from the company. A written notice is generally required.
  • Fees or penalties for early termination. If a fee is involved, the agreement should set out exactly how this fee is calculated.
  • Whether cause is required for termination. The ideal wording for owners is for termination to be available without cause as long as proper notice is given. If cause is required, the agreement should outline what constitutes adequate cause.
  • No penalty for termination if tenant not found. If the company has agreed to find a tenant for your property, the agreement should let you terminate without any penalty in the event that the company fails to find a tenant within a stipulated period of time.
  • Each parties' duties on termination. The owner's responsibility on termination is usually to provide any owed payments or fees. The agreement should state what tasks the property management company must do once the agreement is terminated, such as transferring any security deposits it holds to either the owner or the owner's new agent within a specified amount of time.

Because your circumstances will likely differ from that of another rental property owner or landlord, the agreement you sign should reflect your particular needs. Consider using an online service provider if you need help crafting or reviewing a property management agreement.