Property Management Agreements: What Landlords Need to Know
Creating Effective Property Management Agreements
For property owners with multiple rental units or those who prefer a hands-off approach to landlording, a property management agreement is a crucial document. This contract establishes the relationship between you (the owner) and your property management company, defining responsibilities, compensation, and performance expectations.
Key Components of a Property Management Agreement
1. Parties and Property Identification
Every property management agreement should clearly identify:
- The legal names of both parties (property owner and management company)
- Detailed description of all properties covered by the agreement
- Property addresses, unit numbers, and any specific exclusions
- Effective date and term of the agreement
2. Services and Responsibilities
A comprehensive agreement will detail exactly what services the management company will provide, such as:
Tenant Management
- Marketing vacant units and showing properties
- Tenant screening and selection criteria
- Lease execution and enforcement
- Rent collection and handling of late payments
- Security deposit management
- Tenant communication and complaint handling
- Eviction procedures and responsibilities
Property Maintenance
- Routine inspections (frequency and reporting)
- Preventative maintenance procedures
- Emergency repair protocols
- Vendor selection and management
- Spending authority limits
- Improvement project management
Financial Management
- Rent collection and processing
- Monthly financial reporting
- Bill payment procedures
- Reserve fund management
- Annual budget preparation
- Tax document preparation
3. Fee Structure
Management fees typically fall into several categories:
- Management fee - Usually 8-12% of monthly collected rent or a flat fee per unit
- Leasing fee - Often 50-100% of one month's rent for placing new tenants
- Vacancy fee - Some companies charge a reduced fee for vacant units
- Setup fee - One-time fee for onboarding a new property
- Renewal fee - Fee for renewing existing tenants (typically lower than new leasing fee)
- Maintenance markup - Percentage added to maintenance costs
- Early termination fee - Penalty for ending the agreement before the contracted term
The agreement should clearly state when and how each fee is calculated and collected.
4. Term and Termination
Your agreement should specify:
- Initial term length (typically 1-3 years)
- Automatic renewal provisions
- Termination notice requirements (typically 30-90 days)
- Early termination conditions and penalties
- Termination for cause provisions
- Procedures for property transfer upon termination
5. Insurance and Liability
This section should address:
- Required insurance coverage for both parties
- Minimum coverage amounts
- Indemnification provisions
- Hold harmless clauses
- Limitations of liability
6. Legal Compliance
The agreement should specify that the management company will:
- Comply with all fair housing laws
- Maintain required licenses and certifications
- Follow all local rental ordinances
- Handle security deposits according to state law
- Maintain required property conditions and safety standards
Common Pitfalls to Avoid
When creating or reviewing a property management agreement, watch out for these potential issues:
Vague Service Descriptions
Ambiguity about services can lead to disputes later. Ensure the agreement clearly states what is and isn't included in the base management fee.
Hidden Fees
Some agreements contain unexpected charges like administrative fees, inspection fees, advertising fees, or mark-ups on maintenance. All potential costs should be disclosed upfront.
Excessive Spending Authority
Be cautious about giving managers unlimited authority to spend money on repairs without approval. Set reasonable thresholds that balance efficiency with oversight.
Difficult Termination Provisions
Avoid agreements that make it excessively difficult or expensive to change management companies if you're unsatisfied with performance.
Inadequate Reporting Requirements
The agreement should require detailed, regular financial and property condition reports so you can monitor performance.
Creating Your Property Management Agreement
Our Property Management Agreement Generator provides a customizable template that addresses all these critical components. This tool helps you create a balanced agreement that protects your interests while establishing clear expectations for your management company.
Whether you use our template or work with a management company directly, remember that this agreement is negotiable. Don't hesitate to request modifications that better align with your property goals and management philosophy.
Finally, because property management regulations vary by state, verify that your agreement complies with local laws. Our state-specific legal clauses can help you identify requirements in your jurisdiction.