Any contract is considered to be a serious matter. For example, the ‘Property Management Agreement’ is also a matter of grave concern. Since it binds two parties into a relationship, it’s wise that you first have a thorough knowledge of what should be included in this agreement. Property management contract are designed according to the interests of property owners and property management companies in a mutually beneficial relationship.
When you hire a property manager for you, you need to carefully review their management contract. You should make sure that you understand the responsibilities of the property manager, and the responsibilities of the landlord and make sure you will be protected if the manager does not fulfill his obligations.
Need for a Property Management Contract:
When you invest in real estate, it could be easy to buy and manage the properties you want to rent out. As you buy or invest in more properties to rent out, the specific needs and responsibilities of each property can take up all of your time and keep you from investing and doing other business. By hiring a qualified property management company to take care of your investment property, you can focus on other investments and buying more properties without worrying about it.
Moreover, a property management firm in return for a fee will take on the responsibilities of renting, repairing, and other day to day running of your property allowing you to take on other important responsibilities and business.
Here is a list of things you should look out for in a property management contract.
Services and the fee:
The first important thing you need to know about the property management contract is what services the property manager has agreed to do. And how much they will charge for them. You need to know which services will be done as part of the management fee. Also which services can be done for an extra fee, and services will never be done.
Remember that just because a property manager seems to charge more, you shouldn’t immediately rule them out. If a property manager’s initial fee is lower, they may charge more for “extra duties”. Like filling vacancies, paying bills, fixing problems, and evicting tenants. You need to carefully read the management agreement to find out which services are actually covered by the management fee and which are extra and require extra payment.
Also, be aware of the services the property manager is not going to perform under any circumstances. Be sure the manager is not excluding anything you consider an absolute necessity, such as finding tenants, collecting rent, or handling emergencies.
Responsibilities of the property owner:
It is important to include a clause in the contract that spells out what the property owner can and cannot do when dealing with the management company. For example, it may be the owner’s job to set up a bank account. And keep at least a certain amount in it for repairs, emergencies, and general maintenance. As well as to get and keep the right kinds and amounts of insurance.
An essential part; Equal Opportunity Housing :
‘Equal Opportunity Housing’ is an essential part of a property management contract. Make sure there is a section clearly stating that they support ‘Equal Opportunity Housing’.
Keeping this section means that the property management abides by both the state and the federal fair housing laws in your area.
Liability:
This part of the contract limits the property manager’s liability. It is also known as the hold harmless clause. In general, this clause will protect the property manager, except in cases where they are negligent.
The property manager is not responsible for the negligence of the third parties they hire. For example, a property manager will not be responsible if he hires a contractor, and the contractor causes damage to the property.
Duration of Contract:
You try not to sign a long contract with a management company until they have shown they can get things done and you trust them. Most management companies will not sign a contract for less than a year. Which is too bad. In that case, you will carefully read the clause about ending the contract. And make sure you can do so if you are unhappy with the service.
Clear Termination Clause
Make sure that there is a clear way to end or cancel the management contract. It should say why and when the property manager or management company can end the contract. As well as why and when the landlord can do the same. There are penalties if you end the relationship too soon, so make sure to read this part of the agreement carefully.
Early Termination Fee
The early termination fee varies by a few hundred dollars. Compared to the full fee that the management company would have collected during the agreement. None of the managers charge a fee for getting out of the contract early. But if they do charge a fee, it’s either a flat fee of $300 to $500 or something else that has to be done.
Termination Causes:
You might want a contract that does not require reasons to terminate the agreement. Your agreement should at least have this flexibility to allow you to terminate the contract without any penalty.
A contract that can be terminated without a cause should have a 30 days notice. And if you don’t want any penalty for this termination of the contract, it’s suggested that the termination date might reflect the exact contract term expiration date.
Obligations upon Termination:
There should be a list of tasks that need to be done and a window of time in which they need to be done. For example, the contract might say that the property management company has to give the property owner copies of all tenant leases within 14 days of the end of the contract. Or that any money owed to either party must be paid within 30 days of the end of the contract.
