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Property Management Articles

03

Property Service AgreementsWhen you decide to rent your real estate property, most people just going into the business realize the process takes a lot of time and work. In fact, a good landlord managing his own property likely has to be on-site or visit the location at least once a week if not more. This may sound burdensome, but the amount of tenant contact, management, repair, issues, and site issues that occur are numerous. The work only grows exponentially if the rental location is a multi-unit structure.

To reduce personal involvement, many landlords choose the option of hiring a property management service via a property management agreement. This kind of contract essentially lays out the terms and conditions a third party will perform for a landlord on the property in return for payment. The compensation is typically a share of the rent collected from the tenant in the property.

A property management agreement has a number of benefits. First, the landlord doesn’t have to be present at the site for most, if not all, of the issues that arise. Second, the property management company can manage multiple aspects of the property, including rent collection, eviction, and marketing for new tenants. Third, the property manager can monitor the property regularly, leaving the landlord free to spend time on other unrelated issues.

While a landlord may prefer to be anonymous to tenants, the actions of the property management service still represent the landlord. Many services are fly-by-night operations, skimping on what they can to maximize profits. Such services give other property managers a bad name and ultimately upset the tenants. Screening for the right service is essential to avoid this kind of situation.

A property management agreement represents a legal contract between a landlord and a service manager. The document should spell out what the landlord needs from the service for a specific property and its tenants. This can include rent collection, monitoring, management, administration and paperwork, accounting, tax paperwork filing, renting, maintenance, and evictions if necessary. In some cases, property management services will even provide legal services for an extra cost. In return, a service will want payment through a cut of the rent collected, an outright payment, or both.

It is critical for landlords to understand that a property management service acts as the landlord’s legal agent and proxy under a property management agreement. This means the landlord can be held legally responsible for the service's actions. For instance, if a service manager turns out to be a freak and starts peeking in the windows of tenants, the landlord can be sued for invasion of privacy and harassment due to the manager’s actions. Thus it is important for landlords to make sure that indemnification language is included in the property management agreement.

A good management service will also provide a comprehensive package for a landlord needing third party servicing. Many times a property management agreement will come with options for the landlord to choose from. The greater the amount of services, of course, the higher the cost from either rent collected or direct payment.

Most services will have their own default property management agreement already written. A landlord is not bound to accept these default terms as any such contract is completely negotiable until agreed to by both parties. However, some services will demand that their default agreement be used or no service. It’s likely a good idea to skip such a business as many reputable property management companies will be more than willing to customize a property management agreement to add a new customer to their portfolio. Landlords should not be afraid to push for terms that are favorable to their own needs first.

Once the draft property management agreement is ready to go, a landlord should have it looked over by a property attorney versed in both contracts and landlord-tenant law. This review will help identify any exposures or concerns the landlord should be aware of prior to turning over daily management to the hired service. You don't want to find out about a legal problem well after the fact when the contract is executed.

Finally, a property management agreement can be with an individual or a business. Sometimes a property just needs one on-site property manager. Whichever option is chosen, landlords just need to remember to specify all their requirements in the property management agreement. It becomes the guidebook and checklist for what the manager has to do with the property.

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