Calendar icon May 14, 2024

Property Management Agreement Guide + Free Template

Photo of Andrew Smallwood

Andrew Smallwood

Chief Customer Officer - Second Nature

What we'll cover

What is a property management agreement?

Why do you need a property management agreement?

What should a property management agreement include?

Free Property Management Agreement Template (Basic)

Best practices when using property management agreement templates

FAQs: Helping Potential Investors Demystify Your Property Management Agreement

Conclusion

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.

Property Management Agreement

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.
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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.

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Property management services have changed by leaps and bounds over the past 5-10 years. And property management outsourcing services have grown along with it. While the traditional approach to property management simply provided the basics – maintenance, rent collection, etc. – entrepreneurial PMs saw a massive gap in that value proposition and have transformed the real estate industry. Now, property management services are increasingly seen as a way to generate value for residents, real estate investors, and property management companies. PMCs are delivering resident benefits like credit reporting, renter’s insurance programs, pet guarantees, and more. And each of these services acts as a value add for everyone involved. But that can also add extra burden and cost to your property management business when your team is already spread thin. 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Resident benefits and ancillary services. Property managers often outsource value-driving products like an RBP and other services that investors want, and residents will pay for. Let’s dig into the services that might be included within each of those larger categories. Rent collection Third-party payment processing companies can handle the actual collection and processing of rent payments for the PMC. The property management company will provide the payment processing company with the necessary information and details about the residents and the property, including lease terms, payment due dates, and amounts owed. The process may involve various payment methods, such as online payments, credit card payments, ACH transfers, or other payment options. Some popular outsourcing solutions that help collect rent include Buildium, Propertyware, and AppFolio. Second Nature provides a fully managed service that helps ensure your residents pay rent on time. Repair and maintenance Many PMCs outsource repairs and property maintenance. We’ve spoken with experts like Bob Preston, who run their own maintenance companies separately as another source of income and an added value to their clients. When a property management company outsources repair and maintenance, it typically involves hiring third-party contractors or service providers to handle the actual repair, upkeep, and maintenance tasks required for the property. Outsourcing repair and maintenance can offer several benefits for property management companies. You can access a broader range of specialized skills and high-quality expertise, which may not be available in-house, and save time and resources by avoiding the need to recruit and manage in-house staff to handle repair and maintenance tasks. Marketing and advertising Marketing isn’t everyone’s strong suit, and that’s okay! When a property management company outsources marketing and advertising, it typically involves hiring a third-party marketing or advertising agency to handle the promotion and advertising of the rental properties. The agency will work closely with the PMC to develop a comprehensive marketing strategy that aligns with the property's unique selling points and target audience. The marketing agency may use a variety of advertising channels and mediums to promote the property, including social media marketing, search engine marketing, online advertising, email marketing, print advertising, and other marketing channels. They may also create engaging content and visuals, such as videos, images, and virtual tours, to showcase the property's features and amenities. Legal Most PMCs outsource their legal services to a third-party law firm or attorney to provide legal advice and representation on various matters related to the property or properties. Legal services that may be outsourced can include lease agreements, evictions, compliance with local and federal laws and regulations, dispute resolution, and other legal matters that may arise in the course of managing the property. Outsourcing legal services helps minimize legal risks and liabilities, ensure compliance with applicable laws and regulations, and protect the property investor’s interests. Accounts and finance Many PMCs outsource to an accounting firm or financial service provider to handle the financial management and reporting. The outsourced firm will work with you to manage financial records, provide financial reporting, and ensure compliance with accounting standards and regulations. Accounting and financial services that may be outsourced can include bookkeeping, financial statement preparation, tax planning and compliance, budgeting and forecasting, and other financial reporting and analysis. Overall, outsourcing accounts and finance can help property management companies to operate more effectively and efficiently and achieve their financial objectives while minimizing financial risks. Insurance PMCs often work with a third-party insurance broker or agent to provide insurance coverage and manage insurance-related issues for the property or properties. The insurance coverage that may be outsourced can include property insurance, liability insurance, workers' compensation insurance, and other types of insurance coverage that may be necessary or recommended for the property. Another way to outsource insurance is to find a service that provides a renters insurance program like Second Nature’s. Ensuring that residents have insurance coverage is a priority for 90% of property managers, but only 41% of residents maintain compliant coverage. At Second Nature, our renters insurance program has 100% compliance. You can learn more about our coverage and fully managed Resident Benefits Package in our 2023 Resident Experience Report. Safety and security Many PMCs outsource to a security company to provide safety and security services. The security company will work closely with the property management company to assess safety and security needs, design and implement safety and security protocols, and provide safety and security personnel and equipment as needed. Security services that may be outsourced can include security personnel, security systems and equipment, safety training and education, emergency response planning and execution, and other safety and security-related services. Costs of Outsourcing Property Management Services? The cost for a PMC to outsource some property management services can vary depending on a number of factors, such as the scope of services required, the complexity of the work, the location of the service provider, and the level of expertise required. Some service providers may charge a flat fee, while others may charge an hourly rate or a percentage of the property's rental income. The cost of outsourcing property management services can range from as low as $1 per property per month to as much as hundreds of thousands of dollars annually, depending on whether it’s a full-service tech solution, simple maintenance services, a Resident Benefits Package, etc. It's important to note that while outsourcing property management services can come with a cost, it can also provide benefits such as increased efficiency, reduced workload, and access to specialized expertise. Before outsourcing any services, it's important to carefully consider the potential costs and benefits and to choose a service provider that offers high-quality services at a reasonable price. Benefits of Outsourced Property Management Services Outsourcing property management services can have a massive impact on your return on investment per door and per client. Outsourcing also helps with scaling when you can’t afford to run every service in-house. With the ability to outsource, you can offer more value to your clients without skyrocketing your operating costs. You can also drive secondary sources of revenue through outsourcing. Not convinced? Let’s go over some of the real-life benefits we’ve seen PMCs leverage with outsourcing select services. Cost savings Outsourcing property management services can save property management companies significant costs associated with hiring and managing in-house staff, as well as investing in technology and infrastructure. Outsourcing can also help to minimize overhead costs, such as office space, equipment, and supplies. Let’s think even bigger. Outsourcing value-generating services like a Resident Benefits Package has multiple benefits: boosting resident satisfaction, incentivizing on-time payments, and reducing vacancy rates. Talk about a cost-saving win! Increased efficiency We’ve seen PMCs use outsourcing to streamline their operations, reduce administrative property management tasks, and increase productivity. This can free up time and resources for property management companies to focus on core business functions and strategic planning. Instead of using your own team for time-consuming tasks, you can outsource them. Access to expertise Outsourcing property management services allows PMCs to access specialized expertise and skills that may not be available in-house. This can include legal, accounting, marketing, and maintenance expertise, among others. Outsourcing can also provide access to the latest technology and software, which can improve efficiency and effectiveness. Better risk management Property management inherently involves risk. You’re managing people’s lives on the one hand (residents) and investments on the other (owners/investors). Outsourcing can help better manage risks associated with property management, such as legal liabilities, compliance issues, and safety and security concerns. This can help protect your company from financial and reputational damage. Improved resident satisfaction You can more seamlessly and reliably improve resident satisfaction by providing better maintenance and repair services, more efficient rent collection, and faster response times to tenant concerns and requests. This can help to increase tenant retention and attract new tenants. Higher employee satisfaction Outsourcing services to a third party is a direct way to impact your employees’ satisfaction. How? Outsourcing helps reduce workload, gives access to better training and development, improves working conditions, and provides a better work-life balance. Often, outsourcing means that your employees get to focus on the core functions that they love instead of getting bogged down in tasks they don’t love or don’t feel equipped for. Factors to Consider When Outsourcing Property Management Back Office Services Selecting the right property management outsourcing services provider is a crucial decision that can significantly impact the efficiency, profitability, and overall success of your property management operations. Here are key factors to consider: 1. Range of services Evaluate the range of services provided by the outsourcing company. Check to make sure they offer the specific services you need, such as rent collection, maintenance, legal support, marketing, financial management, and resident benefits. A comprehensive provider can handle multiple aspects of property management, which can streamline your operations. 2. Industry experience Look for a provider with extensive experience in property management and a proven track record of success. They should have expertise in the specific types of properties you manage, whether residential, commercial, or mixed-use. Experienced providers are more likely to understand industry-specific challenges and deliver effective solutions for various situations. 3. Reputation Research the provider’s reputation within the industry. Check online reviews, testimonials, and case studies to gauge client satisfaction. A provider with positive feedback and strong references is more likely to deliver high-quality services. 4. Cost Evaluate the cost structure of the provider’s services. Compare their fees with the value they offer, as well as review how they bundle these services. While cost is an important factor, it’s essential to consider the overall value and benefits the provider brings to your property management operations. The goal is to achieve a balance between cost-effectiveness and high-quality service. 5. Customer service Effective communication is vital to successful outsourcing. Assess the provider’s responsiveness, transparency, and customer service quality. They should offer multiple channels for communication, ideally with a main point of contact, and provide timely updates on important matters. 6. Technology and innovation Assess the technology and software solutions the provider uses. Advanced property management software can enhance efficiency, improve communication, and provide valuable insights. Ensure the provider leverages the latest technology to offer seamless and efficient services. 7. Compliance and legal expertise Ensure the provider is well-versed in local, state, and federal regulations related to property management. They should be able to navigate legal complexities and ensure compliance with all relevant laws. This reduces the risk of legal issues and ensures smooth operations. How Thousands of PMCs Are Outsourcing Services for Better Resident Experiences Property management companies are always looking for new ways to generate value for themselves, their residents, and their investors. One of the quickest ways to scale and increase return on investment is to outsource property management services. At Second Nature, we’ve pioneered the first-ever fully managed Resident Benefits Package in order to support PMCs with just that goal. Our RBP provides services that residents are proven to pay and stay for – and our team manages every part of the process so property managers can focus on strategy, growth, or work-life balance. We’ve helped thousands of property managers transform their services and their operations with a customized RBP providing services they couldn’t do alone. Our goal is to make property management easier for PMs, residents, and investors – and drive value that benefits all three. We call it the Triple Win.

Calendar icon October 2, 2024

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