How to Get an Ironclad Property Management Agreement

By Scott Souness

Many owners of rental properties are either unwilling or unable to devote the time to fully manage their holdings. In such cases it is preferable to hire the services of a property management company to take over the task of managing these rental properties. The decision to hire a property manager should be done after a lot of thought and careful consideration, as a bad choice can have a lot of negative consequences on the property owners. The most important step in hiring a property manager is to draw up a property management agreement. This document will highlight the property manager's responsibilities and also provides legal cover for the property owners.

When choosing between property management companies it is important to pay attention to the details. A company that charges a fixed management fee of 5% is not necessarily the better option than one that charges 6%. The services offered for the 5% fee and the services offered for the 6% fee can vary considerably, making it impossible to make a simple price comparison without going into the details of each offer.

Signing the property management agreement can, in many cases, actually limit a landlord's legal right to perform certain actions on his or her own property. Landlords, for example, have no legal standing to evict a tenant unless said tenant has broken any specific rules in the rental agreement drawn up by the property manager. Certain curbs on the landlord's powers should be expected when signing contracts with property management companies.

Both landlord and property management company must abide by local and federal equal housing laws. The landlord could be held liable for any failure of the manager to uphold these laws, making it important that they are a binding requirement in the management agreement.

Landlords should be aware that property managers are not liable for damages done by tenants or other third parties, like contractors. Property management agreements have a clause that limits damage liability for the property manager, with the exception of instances where negligence can be proven.

The agreement should include a clear termination clause. Both the landlord and property management company have the option to terminate their working relationship without penalty in an agreed upon time frame. This time frame and the grounds for terminating a contract must be clearly stated in the management contract.

The property management agreement should be carefully studied to make sure it doesn't put the homeowners at a disadvantage. Contracts can have a clause that indemnifies the property managers or management company at the expense of the homeowners - something that could cost the landlord dearly further down the road.

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