May 14, 2024

Property Management Agreement Guide + Free Template

Chief Customer Officer - Second Nature

With a renewed focus on rental income as an investment trend, the popularity of property management is on the rise. Busy professionals and out-of-town real estate investors increasingly rely on property managers to handle the day-to-day operations of their rental properties.

When they come to you for the first time, one approach to establishing clear differentiation with respect to your competitors is through the clarity and comprehensiveness of your property management agreement.

In today’s guide we’ll cover the essentials of a property management agreement that provides a foundation for transparency throughout this critical relationship, as well as peace of mind for the investors relying on you to manage their investment.

What is a property management agreement?

A property management agreement is a legally binding contract between a property owner and a property management company or individual. This document outlines the specific responsibilities and duties of the property manager, the expectations of the property owner, the terms of service, and the compensation structure.

The agreement serves as a guideline for both parties to understand their roles, rights, and obligations in managing the rental property, ensuring a clear and professional relationship.

Why do you need a property management agreement?

A property management agreement is essential for multiple reasons:

Clarity and expectation management: It clearly defines the roles and responsibilities of both the property manager and the property owner, avoiding misunderstandings and conflicts.
Legal protection: The agreement provides legal protection for both parties, specifying the terms under which services are rendered and the consequences of breach of contract.
Financial management: It outlines the financial aspects of the relationship, including management fees, rent collection, and maintenance costs, ensuring transparency in financial transactions.
Maintenance and repairs: The agreement specifies the procedures for handling maintenance and repairs, ensuring the property is well-maintained and any issues are promptly addressed.
Dispute resolution: The agreement includes provisions for resolving disputes, which can help prevent conflicts from escalating and provide a clear path for resolution.

What should a property management agreement include?

Crafting a solid property management agreement doesn't have to be daunting. Here's a breakdown of the key components:

Parties Involved

Property owner: Clearly identify the legal name and contact information of the property owner(s).
Property manager: Do the same for the property management company or individual.

Property Details

Address: Include the full address of the property being managed.
Legal description (optional): For added clarity, consider including the legal description, particularly for complex property ownership structures.
Property type: Specify whether it's a single-family home, multi-unit building, or commercial property.
Unique features/limitations: Mention any unique features (e.g., pool, historic designation) or limitations (e.g., zoning restrictions, HOA rules).

Term and Termination

Effective date: Define the start date of the agreement.
Termination clauses: Outline the grounds for termination by either party (e.g., breach of contract, property sale).
Notice period: Specify the required notice period for each party if they wish to terminate the agreement (e.g., 30 days, 60 days).
Termination mechanisms: Explain how the date of termination should be communicated (written notice, specific format [e.g., certified mail]), along with any applicable indemnification measures.

Manager Responsibilities

Resident screening: Detail the process for resident screening, including applications, background checks, and credit checks.
Rent payments and security deposit collection: Outline procedures for security deposit collection, rent collection, late fees, and eviction processes.
Maintenance oversight: Specify the property manager duties and roles in overseeing maintenance requests, repairs, and independent contractor/vendor selection (approval thresholds, cost limitations).
Financial reporting: Define the frequency and format of financial reports provided by the property manager (monthly statements, annual reports).
Communication protocols: Establish communication protocols regarding occupant inquiries, maintenance emergencies, and routine updates.
Availability: Consider outlining the property manager's availability for emergencies (24/7 hotline, designated contact person).

Owner Responsibilities

Repairs: Specify the owner's responsibility for major repairs beyond normal wear and tear.
Providing access: Outline the owner's role in providing access to the property for maintenance or showings when residents are not present.
Major decisions: Define how major decisions regarding the property (e.g., renovations, capital improvements) will be made (joint agreement, owner approval).
Property inspections: Address expectations regarding the frequency and purpose of property inspections conducted by the owner.
Insurance coverage: Clarify the owner's responsibility to maintain appropriate liability insurance policy coverage for the property.

Fees and Compensation

Management fee: Detail the structure of the property management fee (percentage of rent collected, flat fee).
Additional fees (optional): Address any additional disbursements for specific services, such as resident placement or lease renewals.

Dispute Resolution

Process: Explain the process for resolving disagreements between the owner and the property manager (mediation, arbitration, legal action).
Governing laws: Specify the governing laws that apply to the agreement in case of disputes.

Free Property Management Agreement Template (Basic)

This contract template is for informational purposes only and should not be considered a substitute for legal advice. Please consult with an attorney to tailor the agreement to your specific needs and to ensure that the provisions of this agreement comply with local and state laws.

Property Management Agreement

This Property Management Agreement ("Agreement") is made and entered into as of [DATE] by and between:

[Property Owner Name] residing at [Property Owner Address] ("Owner"), and

[Property Management Company Name] located at [Property Management Company Address] ("Manager").

WITNESSETH

WHEREAS, Owner is the legal owner of the property located at [Property Address] (the "Property"); and

WHEREAS, Manager desires to provide property management services for the Property; and

WHEREAS, Owner desires to engage Manager to provide such services for the Property

NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants contained herein, the parties agree as follows:

1. Services

Manager agrees to perform the following services for the Property (Services may be added or removed based on specific needs. Consult with a lawyer.):

Resident screening and resident selection (application processing, background checks)
Collection of rent and late fee enforcement
Maintenance oversight and coordination (up to $[AMOUNT] per repair)
Move-in/move-out inspections
Monthly financial reporting related to management of the property

2. Term and Termination

This Agreement shall commence on [DATE] (the "Effective Date") and shall continue for a period of [NUMBER] year(s), unless earlier terminated as provided herein. This termination of this Agreement may be effected by either party upon [NUMBER] days' written notice to the other party.

3. Management Fee

Owner shall pay Manager a monthly management fee equal to [PERCENTAGE]% of the gross monthly rent collected.

4. Legal Proceedings

In the event of a legal proceeding arising out of this Agreement or the management of the Property, the following provisions shall apply:

Authority: The Property Manager is hereby authorized to initiate and prosecute any legal action deemed necessary to collect rent, enforce the terms of tenant leases, or protect the Owner's property interests.
Owner Approval: Prior written approval from the Owner shall be required for any legal action exceeding $[Dollar Amount] or involving potential litigation.
Costs and Reimbursement: The Property Manager shall keep detailed records of all legal expenses and attorney’s fees incurred. The Owner shall reimburse the Property Manager for all reasonable and documented legal expenditures associated with authorized proceedings.
Representation: The Owner shall have the right to be represented by their own counsel in any legal proceeding. However, the Property Manager shall have the right to participate in the proceedings and may retain separate counsel at the Owner's expense if a conflict of interest arises.
Communication: The parties agree to cooperate fully and share all relevant information in a timely manner throughout any legal proceedings.

5. Dispute Resolution (Optional - Replace with preferred method if applicable)

Any dispute arising out of or relating to this Agreement shall be settled by [METHOD OF DISPUTE RESOLUTION, e.g., mediation] in accordance with the rules of [NAME OF MEDIATION PROVIDER] (the "Rules"). The decision of the mediator shall be final and binding on the parties.

6. Waivers

The Owner acknowledges and waives any and all claims, demands, or causes of action against the Property Manager arising from the following, unless such claims arise from the Property Manager's gross negligence or intentional misconduct:

Acts or omissions of any resident of the Property.
Loss or Property damage caused by reasons outside the Property Manager's reasonable control, including natural disasters, acts of war, or civil unrest.
Unexpected repairs or maintenance issues beyond the scope of normal wear and tear.

The Owner further agrees to indemnify and hold harmless the Property Manager from any and all claims, liabilities, damages, losses, or expenses (including attorney's fees) arising from the Owner's violation of this Agreement or any applicable laws or regulations.

7. Entire Agreement and Governing Law

This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior or contemporaneous communications, representations, or agreements, whether oral or written. The terms of this Agreement shall be governed by and construed in accordance with the laws of the State of [STATE].

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.

[Property Owner Signature]

[Property Owner Name (Printed)]

[Property Management Company Signature]

[Property Management Company Name (Printed)]

Optional addendums

For specific situations, consider adding supplementary documents like:

Bed bug addendum
Pool addendum
Pet lease addendum

These addendums can address unique requirements and regulations related to these aspects of the property.

Considering everything explained above, here is our free example template:

Best practices when using property management agreement templates

Using property management agreement templates can streamline the creation of your contracts, but it’s important to adapt them carefully to meet your specific needs and legal requirements. Here are some best practices to ensure your agreement is both comprehensive and effective.

Personalize the agreement

Every property is unique, and so are the needs of the property owners and managers. Personalize your agreement by:

Incorporating specific property details: Include unique features or limitations of the property, such as historical designations, HOA rules, or special amenities.
Tailoring financial terms: Adjust the management fee structure and additional fee details to match your specific financial arrangements.

Regularly update and review

Property management agreements should not be static documents. Regularly review and update them to reflect changes in:

Legal requirements: Stay informed about changes in local, state, and federal laws that might affect your agreement.
Market conditions: Adjust terms to reflect current market conditions, such as changes in rental rates or maintenance costs.

Establish effective communication channels

Establishing effective communication channels within the agreement ensures smooth operations and quick resolution of issues. Include:

Defined points of contact: Specify the primary contacts for both parties and their preferred methods of communication.
Communication protocols: Set clear guidelines for reporting maintenance issues, handling resident inquiries, and providing updates.

Plan for contingencies

Anticipate potential issues and include contingency plans in your agreement to handle unexpected situations:

Emergency procedures: Outline steps for handling emergencies, including contact information for emergency services and protocols for urgent repairs.
Dispute resolution: Provide a clear process for resolving disputes, including mediation or arbitration clauses to avoid costly legal battles.

Cover legal considerations

Consulting with a lawyer is crucial to ensure your property management agreement is legally sound and reflects your specific circumstances. An attorney can help you with:

Specifying maintenance coverage: Clearly define which maintenance issues are the responsibility of the property manager and which fall to the owner.
Pet policy details: Outline a comprehensive pet policy including pet restrictions, fees, and deposit requirements.
Local legal compliance: Ensure your agreement adheres to all relevant laws and regulations in your area, such as resident rights and fair housing regulations.

FAQs: Helping Potential Investors Demystify Your Property Management Agreement

Q: Is a property management agreement legally required?

A: While not always mandatory, a property management agreement is highly advisable. It protects both the owner and the manager by outlining expectations and responsibilities.

Q: Can I use your template for any property management situation?

A: The provided template is a basic framework. It's best to consult with a lawyer to customize it for your specific property type, location, and desired services.

Q: Do I need a lawyer to draft the agreement?

A: While not mandatory, legal guidance is highly recommended. An attorney can ensure the agreement is legally sound, protects your interests, and complies with local laws.

Q: Can I use this template for agreements outside of property management, e.g., for lease agreements or rental agreements?

A: No, this template is specific to property management agreements. For other types of agreements, consult with a lawyer or use appropriate templates designed for those purposes.

Q: What should I do after finalizing the agreement?

A: Once both parties have signed the agreement, keep a copy for your records and provide one to the property manager. Familiarize yourself with the terms and communicate openly to ensure a smooth and successful working relationship.

Conclusion

A well-drafted property management agreement is the cornerstone of a successful relationship between owner and property manager.

By using the provided template as a foundation and consulting with a lawyer for customization, you can establish a clear and comprehensive agreement that provides full transparency and fosters a smooth rental property experience.

On top of your agreement, consider rolling out a resident benefits package (RBP). It’s a powerful way for property managers to create a Triple Win – for residents, investors, and themselves.

An RBP like Second Nature’s is designed to be simple to use and easy to implement. All the services included within it are managed externally by Second Nature, meaning there is no day-to-day upkeep required from the manager. You plug it in and Second Nature keeps it running. The value creation an RBP generates – with such little work required from the PM – is an incredibly easy way to grow your business and create great experiences that residents will pay and stay for.

Don't get left behind in the evolving world of resident experience. Learn more about our fully-managed Resident Benefits Package and how we can build ease for you, your investors, and your residents.

Topics:

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