You have your perfect building and now you want your asset to start working for you. A property manager seems like a smart choice to handle all the responsibilities, saving you ample time and headache. Is there anything left to be done?

Yes, just pause for a bit and first sign a property management agreement. It is a really critical document to avoid confusion between both the parties, prevent future disputes, and you two the much-desired peace-of-mind and confidence.

This article will delve deep into what this agreement is, why it’s useful, and what it contains. You can also download and use our free sample property management to quickly start with your journey.

What Is a Property Management Agreement?

A property management agreement is a formal written agreement between the owner of the property and the company which is being contracted to manage it. It covers the terms of their engagement.

It is an important agreement as it explicitly lists out what rights are being given to the property manager and what are each party’s obligations. It also spells out what liabilities will arise if any party breaches the agreement.

This handy document will protect your interests in case any dispute arises in the future. Hence, you should always consider one before beginning with the deal. In the next sections, we have further explained who should use it and why.

Who Needs a Property Management Agreement?

A property management agreement is a part and parcel of daily life for those in the property business.

If you are a property owner and you wish to appoint someone else to manage your property, then it is best for you to enter into a property management agreement. It will safeguard your interests as well as clearly indicate what your expectations are from the managing team.

Similarly, if you or your company has been hired to manage a property, it is advisable for you to sit down and discuss with the owner, clear all the terms and conditions, and sign this legal agreement. It will cement any verbal promises and also protect you if conflicts arise later.

Whether you are the owner or the manager, we have prepared detailed property management agreement templates for you. Benchmark your agreement on these and get started on your new business venture with a peaceful mind.

Can You Use Verbal Property Management Agreement?

Whether you are the property owner or its potential manager, it is quite possible that you already know the other party and trust its words. Once all the details are finalized in your meeting, you might be eager to get on with the business without spending time on legal mumbo-jumbo.

Yet, we advise you to exercise patience and caution. While verbal agreement could be enforced by law, they are really difficult to prove in practice. People often regret relying only on handshake agreements if things go downhill and the other party reneges on its promises.

Moreover, it is really easy too. You can prepare your own free property management agreement by using our ready-to-use property management agreement template.

It has been diligently prepared by experts, taking into consideration all the present and future possible requirements.

Why do you Need a Property Management Agreement?

A property management agreement is very important, we simply cannot state its value enough. Check the below points and see for yourself how it can protect you:

Better Legal Redressal:

If a dispute arises and the matter goes to the court, it becomes difficult for the parties to validate their points if they had entered into an oral agreement only. It is much easier to get a settlement if a signed agreement is presented.

Protection From Random Termination:

If any party wants to terminate the existing property management agreement, they have to give prior notice and follow the processes as stipulated in the agreement. So you won’t be left dry and hanging.

Clarity of Liability:

Property management is a complicated task and the liability clause protects the parties from unforeseen circumstances. It prevents disputes later regarding how to handle claims if someone gets injured, or say a tenant eviction problem arises, etc.

Potential Points of Disputes Get Resolved Earlier:

This document is essential as it helps to discuss some key points in advance like fee structure (fixed vs. variable), responsibilities of both the parties, etc., so no one shakes off their hands later on.

What Are the Typical Parts of a Property Management Agreement?

You would find that even a simple property management agreement has some basic parts:

  • Details of the parties: Name and address of both the property owner and its future manager.
  • Responsibilities of the manager: The agreement spells out the scope of the manager’s responsibilities.
  • Responsibilities of the owner: This could pertain to how the owner communicates with the manager, what type of insurance coverage is being obtained by him, etc.
  • Duration: How long the agreement will be valid.
  • Remuneration: The manager’s fees and commission are also broken down to the required depth.
  • Termination clause: It specifies under which circumstances the agreement can be ended prematurely and what steps are to be taken for this.
  • Liability clause: This is useful as it limits the property manager’s liability in case of any unfortunate incident. For e.g., if as a property manager you hired an electrician after due research but still some accident happens, the law may hold you harmless.

How Can a Property Management Agreement Be Terminated in Advance?

You might have started the property management deal with complete conviction. But still, sometimes it doesn’t work out as planned. A termination clause in the property management agreement guides how the business relationship can be brought to an end.

Generally, a termination clause should have the following things:

  • Notice period: For example, either party may need to give the other one a minimum specified day of notice so that alternate arrangements can be made.
  • Early termination fee: An amount can be specified in advance.
  • Cause of termination: You would want that you can terminate the agreement when reasonable problems occur, while incurring minimal fees. Both parties generally negotiate in advance under which situations they can terminate the agreement.
  • Other obligations on termination: For e.g., the property owner might want the manager to provide him with lease copies within a week, transfer the tenants’ security deposits, etc.

As you can see, a termination clause is a very important element of the deal as it provides a mutually suitable exit plan to both the parties. You will find this in all the property management agreements templates.

What is the Use of Indemnification or Liability Clause in a Property Management Agreement?

An indemnification clause is an integral element of any property management agreement. In this, the property owner agrees to hold the manager as harmless for specified situations where he isn’t at fault directly.

The manager may be exempted liability from all claims related to his tenancy management except those that were due to his willful wrong acts, gross negligence, frauds, etc.

He may be held harmless if any loss incurred due to a third party hired by him, so long as he hadn’t been negligent in selecting the workmen.

Is It Possible to Modify the Property Management Agreement?

In the course of your agreement period, you might come across times when you wish to upgrade your property management agreement. Perhaps you want to change the scope of responsibilities or say, rethink on the fee structure.

Generally, it is possible to upgrade the agreement in-between, so long as both the parties agree to it and it is done in writing. The exact process for doing so is stipulated in advance in the Modification related Clause.

Check out our property management agreement sample to see how you can incorporate this clause in your agreement.

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Conclusion

Hopefully, this article has solved your doubts about the property management agreement. We urge you to sign one before entering into the deal. It’s not just useful for the owner and manager but also supports the health of the building.

If you are confused about how to start, we’ve got it covered. Use our property management agreement template and begin your journey confidently. Prepared by legal experts, it covers all the terms and conditions that are considered useful in such agreement.

CocoSign is the go-to website for all types of agreements and templates. Do have a look if you need any!

Disclaimer

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