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Making a Property Manager Agreement
Property Manager Agreements help property owners ensure that property managers protect their interests by collecting rent, maintaining properties, and managing vacancies. This contract outlines the responsibilities of the property manager and property owner.
A Property Management Agreement, also called a Property Manager Agreement, is a contract between a property manager and a property owner. The agreement outlines the expectations of their professional relationship and will cover details such as specific management responsibilities, how payments are made, items the owner is responsible for, and insurance requirements.
Our Property Manager Agreement includes all common provisions and the legal language to make a comprehensive real estate business contract. While in many cases the property owners may initiate making the contract, often property managers will make their own contract and present it to the owner. Some key points of consideration include:
Duration of the contract
While ideally, you are looking to create a beneficial long-term agreement, many limit the first agreement to one year. This is viewed as a trial period to see if both parties work well together and it allows time to figure out what improvements may need to be added to the next contract.
Responsibilities of the manager
The manager's responsibilities will need to be listed in the contract. Most often this includes collecting rent, managing building maintenance expenses, finding and hiring labor, finding and screening tenants, and signing and renewing contracts.
Often the manager will receive payment as a percent of the collected rent. Ongoing expenses may also be taken out of the collected rent or the property owner may fund a separate account just for additional expenses such as repairs and advertising. The contract also outlines how the owner wants to be paid and when rent money is due.
Termination with notice
If either party wants to terminate the agreement, it can be done with notice. The agreement includes a provision for ending the contract and how many days' notice must be given. Usually, you will also build into the contract the actions that need to be taken before the termination date, such as paying the remaining rents, providing expense documentation, submitting last reports, and so on.
Termination by default
If either party does not hold up their end of the agreement, the contract can be terminated. Most often you will include in the document how many days a party has to fix issues before termination is considered.
You'll want to outline what kind of insurance each party must have to protect all interests. This may include Liability and Errors and Omissions insurance. An indemnification section is also included in this agreement.
Reviewing the cancellation policy is the first step to ending a Property Manager Agreement. Typically, the cancellation policy will include information regarding any associated cancellation fees and cancellation notice requirements (for example, 30- or 60-day notice).
After reviewing the cancellation policy, you may want to send your cancellation notice in writing and ensure the management company notifies any tenants of the management change.
This agreement does allow property managers to sign Lease Agreements for the property owner. Often property owners are located far from the properties or simply do not have the time to sign every agreement so the property managers act on their behalf. This includes lease renewals and lease terminations. Managers may also have the power to submit legal paperwork for processing evictions.
Property managers are usually paid a percentage of the rent collected. Five to ten percent is common. Since rent varies, the property manager will need to decide what percent is worth the amount of work it will take to perform their duties. Owners should note that if a manager under bids, that may be a sign that they may not have the experience you are looking for.
Many states require professional property managers to either have a Real Estate Broker License or another type of state certification. A Real Estate Broker License gives the manager the right to advertise property, collect rent, negotiate leases and show property. Some areas also offer training for Property Manager Licenses. In most states, these licenses are not difficult to obtain. If you need more information about local real estate laws, contact a real estate lawyer.
In this Agreement, the Property Manager will be required to maintain General Liability Insurance and Errors and Omissions (E&O) Insurance.
Property managers have a lengthy list of responsibilities and are critical to your success as a property owner. You want someone you can trust with your property, income and reputation. Before you enter a contract with a property manager, you'll want to attempt to find the best candidate.
To learn more about the property manager, you may consider asking:
When you meet with them, you'll want to try to trust your first impressions. Do they seem unorganized? Are they preoccupied? Do they seem to listen to your concerns? You may also benefit from visiting some of the properties they manage to see if the buildings are well maintained and occupied. Some owners will even call on their vacant properties posing as a potential renter to test customer service skills and responsiveness.
If you need additional real estate agreements, see our Essential Documents for Landlords.