Property Management Agreement Guide + Free Template

As real estate investing becomes more popular, so does property management. 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.

If you want to stand out to new investors, you need a clear and comprehensive property management agreement. 

In today’s guide we’ll cover the essentials of a property management agreement that drives transparency and peace of mind for investors relying on you to manage their assets.

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 improves the property management relationship by clearly defining the roles and responsibilities of both the property owner and property manager.
• Legal protection: The agreement provides legal protection for both parties, specifying the terms of the services provided 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

• Clearly identify the legal name and contact information of the property owner or owners.
• Do the same for the property management company or individual.

Property description

• Include the full address of the property being managed.
• For added clarity, consider including the legal description, particularly for complex property ownership structures.
• Specify whether the property is a single-family home, multi-unit building, or commercial property.
• Mention any unique features (e.g., pool, historic designation) or limitations (e.g., zoning restrictions, HOA rules).

Term and termination details

• Define the start date of the agreement.
• Outline termination provisions and reasons for termination by either party (e.g., breach of contract, property sale).
• Specify the required notice period for each party if they wish to terminate the agreement (e.g., 30 days, 60 days).
• Explain how the date of termination should be communicated (written notice, specific format [e.g., certified mail]), the process for early termination, and any applicable indemnification measures.

Manager responsibilities

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

Owner responsibilities

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

Fees and compensation

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

Dispute resolution

• Explain the process for resolving disagreements between the owner and the property manager (mediation, arbitration, legal action) and responsibility for legal fees.
• 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 addenda

For specific situations, consider adding supplementary documents like:

• Bed bug addendum
• Pool addendum
• Pet lease addendum

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

Ready to get started? Download our free template. 

Related: How to Write a Letter Notifying Your Tenant of the Sale of Property

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:

• Including unique features or limitations of the property, such as historical designations, HOA rules, or special amenities..
• Adjusting the fee structure and additional details to match your specific financial arrangements.

Regularly update and review

Regularly review and update property management agreements to reflect changes in:

• Local, state, and federal laws that might affect your agreement's legal compliance.
• 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:

• Primary contacts for both parties and their preferred methods of communication.
• 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 by:

• Outlining steps for handling emergencies, including contact information for emergency services and protocols for urgent repairs.
• Providing 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:

• Clearly defining which maintenance issues are the responsibility of the property manager and which fall to the owner.
• Outlining a comprehensive pet policy including pet restrictions, fees, and deposit requirements.
• Ensuring your agreement adheres to all relevant laws and regulations in your area, such as resident rights and fair housing regulations.
• Selecting the appropriate liability insurance for your properties to prevent lack of coverage down the road.

FAQ

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 of managing properties.

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.

Build a foundation for success

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.