Many property investors do not have the time or skills necessary to manage their properties, and instead hire a professional property management company. Both landlords and property managers need to have a good business relationship, and the property management contract is often the foundation, and safeguard, of that relationship.
Both parties must understand their responsibilities and know the consequences of not fulfilling their obligations. Let’s unpack some key parts of property management contracts.
In this section, the property management firm should clearly outline their services and the cost for these services. While it varies, typically these services include:
- Marketing property units
- Screening and approving tenants
- Maintenance and repairs
- Collecting rent
- Responsibly managing tenant and owner funds
- Lease renewals
It will also state which services are not included, and if these are an extra fee, how they will be charged. For example, some property management companies charge a flat fee for the everyday running of the property and overseeing of maintenance and repairs but will charge an additional fee to manage a major remodel or modernization of a building.
A solid contract will state how these additional fees are charged, either as a flat fee, a percentage or on a case-by-case basis. Neither the landlord or the property management company wants to have any unpleasant surprises or disputes.
As a standard practice, most property management contracts cover how the owner is required to keep a reserve fund. The property management firm uses this reserve fund to pay for the day-to-day expenses relating to property marketing, repairs and maintenance, as well as emergency situations.
Typically, an owner is required to have proper insurance coverage for their rental property. The contract will specify the types of insurance the owner is expected to have as well as the amount of coverage. And so there are no misunderstandings, it should also say if the property management company is included under the owner’s coverage.
The contract also stipulates actions that are prohibited by the owner. These will include things forbidding entry to the property unless approved by both the tenant and the property management company. As well, a property management contract relieves the owner of finding and approving tenants, this responsibility is almost always transferred to the property management company.
Liability and Reasonable Care
Normally property management contracts will include something called a “hold harmless” clause, which limits liability and is designed to protect the property manager with the exceptions of where the manager has been negligent. This means they are not responsible for the “acts, defaults and negligence” of the people they hire. However, contracts also contain a “reasonable care” clause that says they will take reasonable care when hiring a contractor, and will conduct background checks as not to hire a contractor with a history of poor or dangerous workmanship.
Contract Duration & Termination
Just like the majority of leases, typically property management contracts run for a period of one year. This provides stability in the relationship, and gives the property management company time enough to prove their value to the owner.
The contract will also detail the termination conditions. This covers the allowable reasons that an owner or a property management company could cancel the contract early without any penalties. It will also outline the fees for early termination without cause.
How Property Vista Helps
Property Vista’s suite of tools is designed to help property managers work more efficiently, and enhance communication with owners. Property managers can use built-in permissions to share information with owners for conveniently, and keep information safer than downloaded and emailed reports. For property managers, constantly managing cash flow and turnover while maintaining operations is a challenge. So, instead of just focusing on accounting with some add-ons, Property Vista embraces a holistic approach with many diverse property management system tools. Let the software automate repetitive, time-consuming tasks and help sort, file, dispatch, alert, and manage the rest. Curious to know more? Check out pricing here and book a demo.