Screening a Property Management Company Part 3: The Management Contract

2020-08-17

Screening a Property Management Company Part 3: The Management Contract

In this 3-part series on what to consider when screening property management companies, we’ve tackled PMC services, communication systems, and documentation processes, but now we want to dig a little deeper and look at a little-considered aspect of PMC screening: the management contract.

Always read the fine print when reviewing a property management contract: What does their contract state, and what’s missing? If their contract isn’t thorough, how thorough will they be later? Don’t assume that something will be provided unless it’s 100% clear in the contract, otherwise you’ll almost definitely end up disappointed down the road. 

Some important details to look for in a property management contract include:

Fees

Most landlords zero in on a property management company’s monthly commission when hiring someone to manage their properties, often to the exclusion of all other considerations. But the flat rate charged by a PMC doesn’t tell you all you need to know about the cost of working with them – you also need to take into account their individual fees for specific services, such as:

-Management Fees

-Placement Fees

-Maintenance Fees (which usually differ depending on the level of involvement – repairs vs. full renovations, etc.)

-Termination fees

-Eviction fees

-Other: Like Monthly late fees or additional admin fees (for dealing with things like housing assistance claims)

Lots of “cheap” PMCs actually add up to cost landlords more in the end, because they hit you with tons of hidden fees to make up for their lower monthly commissions. The details of all chargeable fees (and when they’re applicable) should be clearly outlined in the PMC agreement, so make sure you factor these into your calculations when comparing companies.

Responsibilities

Your responsibilities as a landlord vs. the responsibilities of the property management company should be clearly defined, and broken down into itemized checklists, when possible. For example, the management contract should indicate the person in charge for each step of the screening procedure for tenants, like receiving applications, verifying credit, income and rental history, and inspecting an applicant’s current housing. 

The management contract should also say who is in charge of paying for utilities, approving maintenance projects, and ensuring the property is in compliance with all municipal guidelines.

If a responsibility isn’t clearly stated in the contract, it’s legally open for debate – so make sure it’s 100% clear what you’re able to hold your PMC accountable for. 

Deadlines for Reporting

A management contract should also clearly define time frames for the PMC to inform you of important developments, and explain how these updates will be delivered to you. Is this through an online portal, via email, or by phone? When it’s something serious, like if they discover the property is being used illegally, they should have to inform you immediately, via a channel which you can easily access.

By the same token, it’s important that you note any deadlines for landlord approvals stated in the contract – for example, if you don’t approve a maintenance request within a certain number of days, your PMC may have the ability to make a decision without your approval, so always be aware of these deadlines.

Maintenance & Repairs

It’s important to understand how a PMC will handle documentation and approvals for repairs and maintenance done to your properties. Who is the one responsible for final approvals, and is there a dollar limit under which they can approve repairs without the owner’s input? Will they provide you with details of contractor bids, or only the amount of the winning bid? Do they itemize maintenance and labor costs in their invoices? Will you have access to the vendor’s contact information? Do they take pictures or videos to verify any work that was done?  

Poor documentation and communication when it comes to repairs is a common landlord complaint when dealing with PMCs, so making sure that all of these details are outlined clearly in the management contract will help ensure you don’t run into these problems down the road.

Trial Period 

Another thing to look for in a management contract is a trial or probationary period clause, which states that either party can terminate the agreement within the first 30-90 days (or thereabouts), without incurring any termination fees. This gives you the opportunity to test out working with a PMC before being locked in for the long term, and gives them an incentive to prove their value to you (rather than just closing the deal and promptly forgetting about your properties). 

Termination

You should be able to easily terminate the contract if they don’t fulfil their responsibilities, without incurring a termination fee or paying for work that wasn’t accomplished. 

There should also be a provision that the PMC will agree to cooperate with the transfer of management, as long as all fees are paid, and will turn over all necessary documentation to the new property management company. For example, they should agree to try to provide the owner with copies of the lease, rental ledger and other necessary paperwork within a set number of days of the contract’s termination. Without these, the owner has no way of knowing if there are rents owed, or any legal means of enforcing the rental contract – and it’s not uncommon for some PMCs to ghost on landlords once they’ve been fired, without handing over this information.

A good management contract is one which clearly defines the roles and responsibilities of each party, and helps structure a good working relationship. As a landlord, you want to make sure that the agreement makes it possible for you to hold your property manager accountable for providing the level of service promised to you, and gives you an avenue for easily ending the relationship, if it comes to that. 

If their contract is vague about their fees or responsibilities, or lacks provisions to ensure a smooth transition of power if you ever decide to terminate, then beware. 

Any other things you look for in a strong PMC contract? Let us know in the comments. 

Image Courtesy of: bongkarn thanyakij

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