Your Property Management Agreement: What Does It Mean?
A Contract is a written list of the promises you have made.
A Property Management Agreement is a complicated document. We get enough questions about ours that we figured we should probably do a little “Plain English” breakdown of the beasts. Keeping in mind, we’re not lawyers and nothing we say should be taken as anything akin to legal advice, let’s talk about what to look for in a PMA.
General Legal Text
Every well-written PMA will have several “stock” clauses that are essentially universal to the type of contract. These include:
• Some variation of “This agreement may not be modified,”
• Some variation of “This agreement is the ‘whole agreement’ between these two parties,”
• A Severability clause, which essentially means that if any part of the agreement is found to be legally unenforceable, the rest of the agreement remains valid,
• Some variation of “This agreement shall be enforced according to the laws of (name of State here).”
• A Fair Housing clause, basically mentioning that both parties understand and agree to adhere to the Fair Housing Act,
• And many, though not all, will also have a Binding Effect clause that essentially says “if something happens to either of the parties involved in this contract, their successors take over and the contract continues in effect.”
OK, the basics covered, let’s look at the parts you actually care about:
Like many agreements, most PMAs automatically renew indefinitely once signed. Rather than relying on a set duration, they continue until one party terminates the contract. Every PMA has a Termination clause, and the precise details of that clause will, one day, matter to you. You should read carefully to make sure that you understand:
• How many days’ notice you have to give in order to terminate the contract,
• What conditions will automatically terminate the contract, which will often include:
-The covered property(/ies) being foreclosed upon or sold,
– One or both parties failing to perform their duties (see below),
-The death of one or both parties,
– Or other related circumstances.
• And what happens if the contract is terminated by you vs. by the manager.
Every PMA will list the duties that you have, and the duties that the property manager has. If you’re shopping for a property manager, you’re going to want to look carefully at their PMA and make sure that you understand exactly what the contract obligates the property manager to do — and what it doesn’t. We’ve seen PMAs that don’t cover aspects of property management that we consider pretty basic, like finding tenants for your empty properties. Look over any potential manager’s PMA and make sure that you understand what you’ll still have to handle on your own.
Of course, the split of duties between you as the owner and the property management company comes at a price. This is where you can see a lot of variation: some PMAs offer a single, flat, and often fairly large fee for all services; others require you to pay individually for every single service the company offers (and choose ahead of time which ones you’ll sign up for); still others split the difference, with a flat fee for 90% of the process, but small fees attached to ‘non-essential’ services.
Ultimately, of course, it’s crucial to read every contract you get involved in thoroughly — but hopefully now you’ve got a little bit of a guide about how exactly you can go about looking over your PMA with a critical eye.