What Is a Property Management Agreement?

 

What Is the Purpose of a Property Management Agreement?

If a property owner wants an outside firm to take over the day-to-day tasks of running their rental property, the owner can sign a property management agreement (PMA) with the management firm. A property management agreement outlines the clear roles and responsibilities of both the property owner and property management firm. This agreement is a legal contract that defines important terms, such as the duties belonging to the owner and the fees due to the property management firm for services rendered. 

Benefits of a property management agreement for landlords

If you are a landlord and unsure of what to expect from a property management agreement, consider the following benefits of signing a PMA with a management firm:

• Legal compliance
• Specific contract terms
• Access to reliable maintenance workers or contractors
• Professional on-site leasing teams
• Organized system for tenant screening and rent collection
• Ensuring properties are regularly inspected to guarantee compliance with local health, safety, and fire codes  

Benefits of a property management agreement for property owners

If you own a rental property, a property management agreement (PMA) means that you can rely on a hired management firm to conduct daily maintenance and management of your property. Depending on the terms of your PMA, you can focus on bigger-picture issues, such as growing your real estate business, while the daily tasks of screening tenants, hiring contractors, and responding to maintenance requests are covered by the property management firm and its employees and contractors.

What Is Included in a Property Management Agreement?

What terms and conditions should you expect to find in a property management agreement? When you’re aware of the basic inclusions in common PMA’s, you can make an informed decision before signing with a management firm. It is important that you are aware of both your rights and responsibilities before entering into this mutually beneficial working relationship. Once you sign the agreement, you and the property management firm are legally beholden to the contract.

<h3>Length of contract term</h3>

One of the first things to be specified in a PMA is the length of commitment. A one-year commitment to a property management firm is generally required; most management firms will not sign a contract that does not commit to at least a year. Furthermore, if you are just beginning your relationship with a property management company, it is generally advised that your contract terms do not exceed this length. This will prevent you from getting stuck with an unsatisfactory firm long-term (see also the section on termination clauses at the end of this article.)

Fees

Another important section of your PMA should cover the fees owed to the property management firm. Because the management firm is providing you an important service, they should receive fair compensation. However, it is also important to ensure that you are not cheated out of fair compensation yourself. Be sure to carefully review the fees section of your PMA to ensure the payment agreement is fair and reasonable.

The management firm’s legal liability

Who is responsible if a tenant, guest, or employee is injured on the premises? A PMA should clearly outline both the responsibilities of the property owner/landlord and the property management firm. This is important in the event an accident occurs on the property; a clear outline of your roles and responsibilities will reduce uncertainty as to who is responsible (or financially liable) if injuries or property damage occur.

Renting and leasing responsibilities

Finding reputable tenants and retaining them is crucial to the success of your rental property business. There are many tasks associated with finding new tenants, renewing leases, collecting rent, and interacting with tenants. In your PMA, the responsibilities that belong to you and those that belong to the property management firm should be clearly articulated. In most cases, the property management firm will handle most of the tasks regarding tenant leases, but clarification on this point can help prevent confusion in the future.

Maintenance tasks

A rental property requires a variety of preventative and reactive maintenance. Ensuring that your property meets local health and safety codes as well as maintaining tenant satisfaction will prevent you from being fined or sued by disgruntled tenants. However, in order for maintenance to be conducted quickly and efficiently, it is important that your PMA outlines which party is responsible for hiring maintenance workers and/or contractors. One of the main benefits of hiring a property management firm is their network of reliable contractors and on-site maintenance staff. It is also important that the responsibility to maintain and repair the property is explicitly stated in your agreement.

Reporting frequencies

Once they hire a property management firm, landlords and property owners will have a far smaller role in the day-to-day operations of their properties. However, it is still important that they be regularly informed on major maintenance issues, new leases, and rent collection data. Many PMA’s will include a provision for regular reports from the property management company to ensure the owner is kept up to date.

Property insurance

Insuring your property is crucial to protect yourself from accidents, tenant negligence, and other unforeseen catastrophes. A property that is uninsured or underinsured is vulnerable and presents a huge financial risk to you as the owner. Determining who is responsible for insuring the property, what kinds of insurance your property requires, and who will contact the insurer in the event of an accident should be outlined in your PMA.

Equal opportunity housing compliance

As a property owner, you must meet all federal regulations regarding Fair Housing Laws. Your PMA should clearly articulate that your operating procedures adhere to all federal requirements as well as state and local guidelines. To ensure your PMA is compliant with federal law, visit the Department of Housing and Urban Development’s Fair Housing Act information page.

Dispute dissolutions and/or termination clause

Lastly, it is important to have procedures outlined in your PMA in case you are unsatisfied with your relationship with the property management firm. If there is a dispute, outlining a procedure to mediate these conflicts can ensure a return to a smooth working relationship. However, in the event that you are utterly unsatisfied with the property manager’s performance, including a termination clause in the PMA guarantees a way to end the contract early. 

Risks to Landlords Without a Property Management Agreement

Landlords can build a positive collaboration with a property management firm that is beneficial to all parties. However, without a clear PMA, it is likely that your time working with your property manager could turn contentious when it comes to conflict resolution. A defined PMA can help diffuse conflicts before they even begin. 

Lack of contract terms

If you and your chosen management firm do not sign a PMA, the exact terms of your contract may be in doubt. For example, if the length of your contract is unclear, the property management firm could pull out of the agreement early, leaving you without a property manager to oversee operations on your property.

Nothing to protect you from poor management

If you do not have a PMA, you will not have a termination clause that can allow you to sever your relationship with your chosen property management firm. This means that there is no guaranteed process, if you are unhappy with the property manager’s performance, for ending your agreement. A PMA will ensure that you have the right to initiate termination in the event that your property is managed poorly.

Risks to Property Owners Without a Property Management Agreement

As the owner of a rental property, you have made a significant investment in your business. As such, it is crucial that this investment be protected by reliable, responsible property management. However, hiring a property management firm without signing a property management agreement can leave property owners like you vulnerable to uncertainty and confusion.

Unorganized delineation of duties

If you do not sign a PMA, there may be significant uncertainty as to who is responsible for certain aspects of the property’s care. Therefore, important things, such as safety inspections, rent collection, trash removal, landscaping, and maintenance, may fall through the cracks. Over time, this could significantly damage the property’s value and your relationship with your tenants.

Unclear liability in case of accidents

If a tenant or their guest is injured on your property, who will be held liable: you or the property manager? Without a clear outline of each party’s responsibilities, you could be held legally or financially liable for the property manager’s negligence. Without a PMA, the property management firm or your tenant could claim that you were negligent in your role and that you, as the property owner, should be held financially responsible for the tenant’s injuries or property damage.