What is a Management Agreement?

A Management Agreement is a legally binding contract between a property owner and a property management company that outlines the terms and conditions of the management services provided. It specifies the responsibilities and obligations of both parties, including property management fees, services provided, maintenance responsibilities, financial reporting, lease administration, and termination clauses. Management agreements are essential for clarifying the expectations and duties of both parties and protecting their interests in managing investment properties effectively.

A comprehensive management agreement is essential for defining the relationship between property owners and property managers. It outlines the responsibilities, expectations, compensation, and legalities involved in the management of the property. Such an agreement ensures that both parties understand their roles and helps prevent conflicts and misunderstandings. Here’s what should be included in a comprehensive management agreement:

1. Parties Involved

• Identification of Parties: Clearly identify the property owner and the property management company or individual manager involved in the agreement.

2. Property Description

• Accurate Description: Include a full and accurate description of the property or properties being managed. This might include addresses, property type (residential, commercial), and specific units.

3. Scope of Services

• Management Duties: Specify the tasks the property manager is expected to perform. These typically include:
  • Rent collection
  • Property maintenance and repairs
  • Marketing of rental units
  • Tenant screening and leasing
  • Handling tenant complaints and issues
  • Eviction procedures
  • Financial reporting and accounting
  • Compliance with local, state, and federal laws
• Additional Services: Clearly mention any additional services and the expectations for these tasks.

4. Authority of Manager

• Financial Limits: Define the spending limit of the property manager for maintenance and repairs without prior owner approval.
• Contractual Authority: Specify whether the manager has the authority to enter into contracts on behalf of the property owner (e.g., service contracts, tenant lease agreements).

5. Term of Agreement

• Duration: State the start date and end date of the management contract. Include terms regarding renewal of the agreement.
• Termination Conditions: Outline the conditions under which either party may terminate the agreement, including notice periods and any penalties for early termination.

6. Compensation

• Management Fee: Detail the fee structure for the property manager’s services. This can be a flat monthly fee or a percentage of the monthly rental income.
• Additional Fees: Clarify any additional fees, such as lease renewal fees, vacancy fees, or maintenance markups.
• Expense Reimbursements: State how out-of-pocket expenses will be handled.

7. Reporting and Accounting

• Financial Reports: Specify the type and frequency of financial reports the property manager should provide to the owner, such as monthly or quarterly reports.
• Accounting Standards: Define the accounting standards to be used in preparing financial statements and handling funds (e.g., GAAP, cash basis).

8. Insurance and Liability

• Insurance Requirements: Detail the types and amounts of insurance that the property manager must maintain, such as general liability and professional liability insurance.
• Indemnification: Include an indemnification clause to protect both parties from legal actions stemming from the other party's actions.

9. Legal Compliance

• Adherence to Laws: The agreement should stipulate that all property management activities will comply with federal, state, and local laws, including fair housing regulations and landlord-tenant law.

10. Dispute Resolution

• Mediation and Arbitration: Outline the steps to be taken in the case of a dispute between the property owner and manager, possibly including mediation and arbitration as first steps before litigation.

11. Signatures

• Legally Binding Signatures: Ensure that the agreement is signed by all involved parties or their legal representatives, making it legally binding.

12. Miscellaneous Provisions

• Force Majeure: A clause that absolves both parties of responsibility in the event of circumstances beyond their control (e.g., natural disasters).
• Confidentiality: Stipulations regarding the confidentiality of the agreement and any sensitive information.

Conclusion

A well-crafted management agreement is crucial for the successful partnership between a property owner and a property manager. It protects the interests of both parties and sets a clear framework for what is expected in terms of management duties, financial dealings, and legal compliance. Both parties should review all terms carefully and consider legal consultation to ensure that the agreement meets all necessary legal standards and adequately covers their interests.