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What to Look For in Property Management Agreements
AUGUST 1, 2012
Every so often I get calls and email from landlords who have had trouble with a property management company, a company that manages property for several rental property owners, not the onsite variety of manager (though I get calls about them, too). Usually the complaints have to do with the property management company not having done the job the landlord was led to believe it would do.
I have responded to complaints such as, “he never checked references, he just rented to anybody,” “he let the tenants get away with murder,” “he says I have to evict the tenant.” Only after the landlord has started having these problems, he or she reads the management agreement and finds out that, contrary to what he or she was led to believe, the management company is not responsible for anything. Too many agreements are written so all the management company is supposed to do is send the right amount of money, and that’s only because it will get into trouble with the real estate agency of the state if it doesn’t.
After reviewing several property management agreements I have on hand, I came up with a list of clauses and terms that should be in any property management agreement you sign with an outside management company.
Due Diligence
This is probably the most important clause you can have in a management agreement. In it the management company promises to do its best when managing your property. It is a legal term, which, among other things is defined as “that amount of diligence which a reasonable and prudent man would exercise under the circumstances.”
The professional property manager has an extra duty of diligence, since it has implied, by taking on a management contract, that it is expert in rental property management.
Communication and Notification
Here they are obligated to tell you what’s going on in the management of your property, as necessary. Preferably, the agreement will specify what they company needs to tell you about and when.
Accounting
Every state has some kind of law regarding the accounting procedures of licensed property managers. Every agreement will have a provision that provides for the property management company’s following the law. Since accounting is a statutory requirement, all you can expect is the management company’s agreement to obey the law and send the right amount of money periodically.
One thing to watch out for, though, is when they will send the money. By what day of the month will your check be mailed to you? Will the check be for that month, or will the management company hold back a month? What happens to the security deposit they collect from the tenant?
Termination of the Agreement
Every agreement will have a provision for its termination. The question is how long does it take to terminate and is there a cost or penalty to you if you do so before a certain date?
Repairs
Just about every management agreement will provide for the management company to handle repairs. Usually they hire contractors or other companies to handle them. What you will find in the agreement is a “hold-harmless” clause, saying that the management company is not responsible for the “acts, defaults and negligence” of the people they hire. What you also want to see in the agreement is a statement that they will use “reasonable care” when they hire anyone to work on the property.
Certainly they are not responsible for people over whom they have no control. But they are responsible if they hire someone who has a history of shoddy or dangerous work, and they know or should have known that he has.
Evictions and Terminations of Tenancy
Believe it or not, some agreements don’t provide for the management company to handle evictions or tenancy terminations. What are you hiring them for if not for their ability to deal with problems in the property? And what bigger problem is there than a tenant who must be booted?
What you want is their expertise and their willingness to use it. Always make sure that the property management company will use due diligence in terminating the tenancy of any tenant who must be removed.
Will having all these clauses in a management agreement guarantee a smooth relationship with the property management company you hire? Absolutely not. You need to interview and get references from several before you commit to anyone. In addition, find out what kind of professional training they have. Just as you would not rent a property without a signed rental agreement that spells out your and your tenants’ rights and responsibilities, never hire a management company without their and your rights and responsibilities completely spelled out. The reputable companies are eager to fully disclose.
Make it a business!! This is the best advice I can give anyone renting out their home. Whether you use a professional property manager or do it yourself. The moment you let it get personal is when you get yourself into trouble. This does not mean you can not empathize with your tenant, but you still need to keep the professional relationship and enforce the contracts you have with each other. When you start to relax on the enforcement is when you loose control and things start to go bad.
Top 5 Landlord Tips: Property Management 101
Catering to the demands of multiple tenants makes property management a tough job. While fielding complaints and handling maintenance, papers get lost and things get overlooked.
To help the landlords out there get through (and hopefully prevent) some of the more difficult situations, here are our top 5 property management tips.
Landlord Tip No. 1: Write It Down
Writing everything down is the number one way to make a landlord’s job easier. This doesn’t only include leases, either. If you need to enter an occupied unit, notify the tenants via writing and keep a copy in a designated folder. Same goes for any other notices or warnings you hand out. It also might be wise to keep notes of any conversations in case of a later misunderstanding.
Landlord Tip No. 2: Don’t Discriminate
Housing discrimination is a big problem in this country, which means it comes with big penalties. A successful housing discrimination suit results in a property owner paying damages, attorneys fees, and court costs.
Know the law–both federal and state. Federal law, governed by the Fair Housing Act, is pretty standard, but state laws vary and may be much broader.
Landlord Tip No. 3: Properly Handle Security Deposits
Security deposits are a huge contention between landlords and tenants, making this one of the most essential property management tips. Understand what you can and cannot collect as a security deposit and whether it needs to be kept in an interest-bearing account. More importantly, at the end of a lease, only make proper, itemized deductions from a security deposit, and return it in a timely manner.
Landlord Tip No. 4: Regularly Inspect Property
Remember that you are ultimately liable for what happens on your property even if a dangerous condition is caused by a tenant. Same goes for conditions that make a unit legally uninhabitable. Pop in now and again to make sure common areas are well-maintained and tenants aren’t in need of repairs.
Landlord Tip No. 5: Understand Local Eviction Law
Evictions are the bane of any landlord’s existence. One wrong move and the process can be delayed another month. If you want to handle evictions yourself, pay attention to dates, deadlines and notice requirements. Otherwise, call a real estate attorney–they’ve got evictions down to a science.
- What to Look For in Property Management Agreements
- Top 5 Landlord Tips
