Here are some things to pay attention to in the property management contracts you review:
It is common for contracts to start off by stating that it is a legally binding and exclusive management agreement and then naming the parties to the agreement and the legal address of the property being managed.
This is the section of the contract that should specify what services you will be receiving and how the services will be performed. Ensure that the contract contains a due diligence clause where the management company states that they will do their best in the management of the property.
Some contracts may contain a list of services that the agreement does not include and it is important to know what items are listed and what the billing rate is for these services so that are no surprises down the line. The list is sometimes primarily services that are not provided under any circumstances. Services typically listed are things like modernization, refinancing, fire restoration, rehabilitation, process serving, advising on proposed new construction and assisting sales agents or appraisers.
Some contracts have a section called “Equal Housing Opportunity” which outlines compliance with fair housing laws.
This clause addresses the issue of the Agent spending its own funds to pay owner bills. Many contracts clearly indicate that the management company is not required to advance the owner funds. Other contracts go further as to state that while it is not required to advance funds, the firm retains the right, at its sole discretion, to advance funds to cover necessary expenses. The owner is obligated to make immediate repayment and there may be fees if repayment is late. A 1.5% of the invoice per month is standard.
This clause discloses the facts about the property, your ability to enter into agreements, etc. Inform the company if there are any potential conflicts or if you are not sure about certain points.
This is where the owner’s responsibilities in the relationship are outlines. It is important to pay attention to what you are committing yourself to.
The contract may specify that the owner agrees to:
Not hire any other company to lease or manage the properties included in the agreement while the contract is in effect.
Not take any action that would jeopardize the management company’s ability to offer the property for rent in compliance with fair housing laws.
Abide by restrictions on entering the property.
Transfer security deposits paid by existing tenants to the management company.
Provide broker with all necessary records and documents the management company will need to do their job.
Reimburse the management company for expenditures they make on behalf of the owner in the management of the property.
Immediately notify the management company in the event the owner’s representations as described in the contract are no longer valid or if other circumstances have arisen that are legally required to be disclosed to the agent, are necessary for the agent to know to perform their duties, or would affect the habitability of the property.
Immediately inform the manager in the event the owner has missed payments for financial obligations related to the property such as property taxes, insurance, HOA fees, and most importantly, the mortgage payment.
Not rent the property to anyone without the management company’s prior consent.
Not deal or negotiate with current or prospective tenants about anything related to the management or leasing of the property, but instead refer them directly to the broker.
Maintain property in a condition necessary for it to comply with all relevant laws.
Set-up and maintain a reserve.
It is important to know what kind of insurance and what amount of coverage they require to maintain.