Most property management companies require a 1-2 year contract period. The contract will be legally binding after its signing but the start date or “effective period” may begin later. After the initial term is over, the contract may automatically renew itself. If this automatic renewal wants to be prevented, a written notice must be provided at least 15-30 days before it takes place.
This clause dictates under what circumstances you or the manager can end the relationship prematurely and what penalties or costs you will incur. Address important questions such as:
How much notice does the management company require before allowing termination of the contract?
Does the contract require “cause” as a prerequisite to being able to provide this notice? If so, does the agreement needs to spell out what exactly qualifies as “cause”?
Will there be any fees or penalties for terminating the contract early?
A contract that allows for termination without cause with 30 days notice is preferred. There should also be some provision to allow you to exit the contract without penalty in the event that the manager is not able to secure a tenant within an extended period of time of 3 to 4 months.
When you do decide to terminate, make sure your written termination date reflects the exact contract term expiration date, otherwise you could be liable for the penalties mentioned above.
Pay attention to the circumstances in which the management company cancels the contract, the notice they will give you, and the financial implications it will have. Some contracts may not contain an agent termination clause. If they do, they can include a very broad and general list of circumstances. Make sure the contract allows you 30 days of adequate notice in the even that this does take place. Also find out what the financial ramifications of agent termination will be.
Duties Upon Termination
There are still important things that need to be taken care of in order to ensure a clean break. Owners needs to make a final payment to the management company to settle the account and the contract should cover the following tasks for the management company:
Provide the owner with a final financial report along with remaining rents on hand minus agents fees and funds needed to cover all outstanding expenses the manager has incurred in the course of managing the property.
Provide the owner with the necessary records of tenant security deposit obligations.
Transfer security deposits either to the owner, or the owner’s new agent minus the relevant deductions as dictated by the contract.
Provide tenants with a written notice of the exact dollar amount of the security deposit and inform them that the owners or owner’s new agent is now responsible for returning their security deposit.
Provide tenants with a written notice that they are no longer managing the property and provide them with contact information for the owner’s new agent or designee.
If either party breaches the contract, how long will they have to fix the problem before the other party has the right to terminate the contract? This ranges from 0 to 30 days.
Mediation and Arbitration
Does the contract specify the usage of a mediator or arbitrator to resolve disputes? If so, why presides and what is the process? Who pays for their services?
In the event that legal proceedings are required to settle a dispute about the contract, will the prevailing party will be entitled to reasonable attorney’s fees? Check to see if the contract puts a cap on this amount. If so, the entity with more cash may have an advantage in the event of a dispute.