You will need to sign a Property Management Agreement when you (a future property owner) enter into a legal relationship with a property management company. It’s normal and the agreement outlines the legal terms and obligations of the relationship.

However, you may not be familiar with what are the most important parts of a Property Management Agreement. Below are eight parts you need to review before entering into a legal agreement. At the end, we’ll also share the most important thing that the agreement CAN'T tell you.

1. How Easy Is It To Cancel A Property Management Agreement?

This is the first thing you should look for in the agreement. It’s vital to look at it since it shows the property management company’s willingness to give you flexibility in allowing you to leave if you are ever unhappy with their service. If you ever feel like the contract is a trap or the property management company is trying to handcuff you into working with them then trust your gut.

2. Are The Fees Hidden In the Agreement?

You can expect the company to charge fees for the services they provide. However, are those fees transparent and fair?

If the fees are ‘hidden’ throughout the agreement that could be an indication that the company is not being transparent in what they will charge you. We try to keep everything visible to you. View our fee structure.

3. Did an Attorney prepare the agreement?

The state of California does not require that an attorney prepare a Property Management Agreement specific for the company. You can look for language in the agreement stating it was prepared by “...Law Firm” if you want to be certain.

4. How Much Money Do I Have To Place In Reserve?

Your California property management company should open a banking trust account for you. You will need to fund this account with what is commonly referred to as a reserve. This money is used to pay expenses on the property that are incurred before or after you receive the rental income each month.

Reserve amounts vary. It’s fairly common for this amount to be from a few hundred dollars to one full month’s rent.

5. How Fast Do I Get My Money?

When a tenant pays rent, you’ll want to know how quickly you’ll get paid. Your property management agreement will outline the terms.

Since we know you want your money quickly, we send Electronic Fund Transfers (EFT) on the 6th of every month directly to your bank account.

6. What Is A Maintenance Trigger?

Maintenance triggers are predefined conditions or events that initiate maintenance activities. These can be on a time-based schedule, usage milestones, condition monitoring alerts, or visual inspections.

Think of it this way: the toilet is eventually going to run, the sink will drip, and the oven will break. You don’t want to be bothered when those day-to-day issues and problems happen. Routine maintenance and repairing items is why you hire a property manager.

For the protection of your property and to comply with health and safety laws, your property management company MUST have strong maintenance protocols in place. When you look at the Property Management Agreement, check for whether these protocols are clearly defined. They should list when repairs are tenant vs owner responsibilities, what constitutes a maintenance emergency, when to repair vs replace, and when you (as the owner) should be involved. Be sure you understand when (and if) you will ever have to become involved in repair requests.

7. What Are The Guarantees?

Two of the common fears we hear from owners are:

  1. What if my tenant does not pay rent and has to be evicted?
  2. What if a pet does damage to my property?

In the agreement, you should find how the property management team will respond and what they will do to help.

8. Who Handles Evictions?

Evictions are rare, but if a legal problem comes up, will the property management company handle it? Or is it something that they’ll hand back to you?

You’ll want to make sure that the company will take care of all legal problems on your behalf. This includes preparing and serving legal documents required in the eviction process by California.

Beware of any management agreement language that requires YOU to involve YOUR legal counsel in cases of tenant eviction. That’s a hassle you don’t want coming back to you.

Property Management Agreements are written by attorneys to outline the legal relationship between the property owner and the property management company. However, they can’t tell you what you need to know most. They can’t describe the most important parts of your new relationship. Things like the property manager’s expertise, integrity, honesty, professionalism, communication response time, compassion, wisdom, and the list goes on. These are the most important things to consider before entering into a relationship with a property management company.

Be aware. You are not entering into a transaction. You’re entering into a relationship. You must be able to trust your property management team. They’re the company who will be keeping the keys to the front door of your valuable real estate asset.

We hope this information helps you make an informed decision for your property management needs. Please consider me a resource if I can help you in any way.