Ask any smart real estate investor, and they’ll tell you about the importance of a good property management team. Property managers not only provide essential leasing, management, and maintenance services, we also help property owners earn more on their investments and reduce both the expenses that come with renting out a home and the liability.

However, before you hand over the reins to your investment, it’s crucial to understand the property management contract that you’ll sign with your management partner. This document outlines the relationship between you and your property manager, detailing responsibilities, financial agreements, and the terms under which the partnership operates.

To ensure your investments are managed effectively, here’s what you should look for in property management contracts.

Scope of Services Offered

The first thing to check is the list of services the property manager will provide. Typically, these include:

Marketing and advertising
Tenant screening
Rent collection and lease enforcement
Property maintenance
Financial reporting

Make sure the contract clearly specifies the scope of these services to avoid misunderstandings later on. If there are services which are available but not included in the general agreement, you’ll want to know what those are.

Property Management Fees and Compensation

Understanding the fee structure is vital. Property management companies usually charge a percentage of the monthly rent, ranging from 8 percent of your monthly income to 12 percent. Other management companies will have a flat fee that doesn’t depend on rental income. Some companies might also levy additional fees for specific tasks like renewing lease agreements or managing repairs and overseeing evictions.

There’s no right or wrong way to implement property management fees. However, you’ll want to ensure that all costs are transparent and justified.

Lease Terms and Renewal Handling

Review how the property manager plans to handle lease renewals and terminations. The contract should specify the process for negotiating lease terms with tenants and the steps taken when a lease ends. This ensures continuity and reduces the risk of vacancies. You won’t necessarily have any hands-on responsibilities here, but you want to know how decisions are made and communicated with your residents.

Maintenance and Repair Policies

Maintenance can be a significant cost in property management. The contract should outline who is responsible for repairs and maintenance, how often inspections occur, and the process for approving expenditures. Establishing a threshold for expenses can prevent unexpected costs. Some property managers will make emergency repairs and tell you about them after the work has begun. You’ll want to discuss your own expectations around approvals, information, and costs. Some management companies may require a maintenance reserve. Others will deduct costs from your monthly rental income. Again – transparency in the contract is what’s most important.

Accounting and Financial Reporting

Regular financial reports offer insights into your property’s performance. The contract should specify the frequency and type of reports you’ll receive, such as income statements and expense breakdowns. These documents are essential for tracking your investment’s profitability. Will you have access to an online portal? That should be in the contract, too.

Legalities and Liability

Check the liability clauses to understand your responsibilities in case of lawsuits or damages. If a tenant sues a property manager, they’re likely to sue the property owner, too. Will your defense be independent of your property manager’s, or unified? The contract should also address:

Insurance

What are the insurance requirements? Most property managers are looking for ways to protect both parties from potential liabilities. You may be required to add your property manager as an additional insured to your policy.

Contract Termination

Understand the termination process. The contract should detail conditions under which either party can terminate the agreement, along with any notice period required. Knowing this can save you from being locked into an unsatisfactory arrangement.

Dispute Resolution

Disagreements can happen, even with the best management teams. A good contract will include a dispute resolution clause, outlining how conflicts will be handled—be it through arbitration, mediation, or legal action.

Common Contract Pitfalls

Even well-drafted property management contracts can have pitfalls or gaps that may lead to misunderstandings or conflicts.

One common issue is vague language regarding responsibilities and services. If the terms are not clearly defined, it may lead to disputes about what tasks the manager is supposed to perform.

Another pitfall is the omission of a detailed fee structure, which can lead to unexpected charges if additional fees are not clearly outlined.

Overlooking the termination clause may lock you into a contract that cannot be easily ended if the property management services are not satisfactory.

Finally, not specifying the process for handling emergencies can lead to delays in addressing urgent maintenance issues. It’s crucial to review each clause carefully to ensure clarity and protect your investment.

Contract Negotiation Tips for Rental Property Owners

When negotiating a property management contract, preparation and clarity are key.

Start by clearly defining your goals and expectations. Talk to your management partner about what success looks like to you, whether it’s minimizing vacancies, enhancing property value, or maximizing rental income. Open communication with potential property managers about these goals ensures alignment from the outset.

Don’t hesitate to negotiate the terms of the contract; many elements, such as fees, responsibilities, and notice periods, can be adjusted to better fit your needs. This is a document that should be customized to you.

Always ensure that all agreed-upon terms are documented in writing in the contract to avoid misunderstandings later. Flexibility from both parties can lead to a more effective partnership, potentially restructuring terms as circumstances change over time.

A well-drafted property management contract is crucial for a smooth and profitable real estate investment. By focusing on these key areas, you can protect your interests and ensure your property is managed efficiently. Always consider having a legal professional review the contract to spot any potential issues.

If you’d like to take a look at one of our sample management contracts, we’d be happy to share. Please contact us at Wess Cason Realty. We provide real estate and property management services in Charlotte and the surrounding areas in Mecklenburg, Union, and Cabarrus County.