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.
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.
A property management agreement is essential for multiple reasons:
Crafting a solid property management agreement doesn't have to be daunting. Here's a breakdown of the key components:
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.):
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:
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:
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)]
For specific situations, consider adding supplementary documents like:
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:
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.
Every property is unique, and so are the needs of the property owners and managers. Personalize your agreement by:
Property management agreements should not be static documents. Regularly review and update them to reflect changes in:
Establishing effective communication channels within the agreement ensures smooth operations and quick resolution of issues. Include:
Anticipate potential issues and include contingency plans in your agreement to handle unexpected situations:
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:
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.
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.