Arguments between property owners and property managers often arise due to one mistake: they failed to sign a property management contract. In this post, we give you the lowdown on why contracts are non-negotiable, as well as discuss the common sections, details, and clauses included in a standard contract.
What Is a Luxury Property Management Contract?
A luxury property management contract – also called a luxury property management agreement – is a standard, legal document between two parties: the luxury property management company and the property owner. It aims to describe each party’s roles and responsibilities and detail the day-to-day activities the firm will perform as overseers of the investment property. Additionally, the contract contains information on the fees the company will collect for its property management services, such as when they are due, how they are calculated and collected, and so on.
Why Do You Need a Property Luxury Management Contract?
It would be a massive mistake to have a third party oversee your investment property without a written rental contract. If the responsibilities (e.g. marketing, maintenance, etc.) aren’t clearly entrusted to a specific party, neither you nor the property management firm would be accountable. A property management contract protects you and the team you’ve hired by describing who’s responsible for what, and in turn, prevents misunderstandings down the road.
Furthermore, with a contract in place, both parties will know how to proceed in case of problems. For example, if one party fails to fulfill their duties, you can simply turn to your contract to find out what the repercussions are for your specific scenario (in most cases, it’s the termination of the contract). And since the contract is legally binding, it lowers the risk of the property management company skimping on its obligations.
What Details Are Included in the Luxury Property Management Contact?
When signing any agreement, it’s vital to understand what the terms mean for you and your management firm. Read – and reread – the contract thoroughly. Go through each page carefully (preferably with a lawyer by your side), and don’t be afraid to ask the property management company for clarifications, or to make changes if certain items don’t sit well with you. Even if the contract was prepared by your property management company, that doesn’t mean you have to concur with all their terms.
It pays to have a general understanding of what’s contained in your contract so you don’t feel overwhelmed when you see it for the first time. Below, we’ve broken down the common parts of a property management contract:
#1 Parties in the Contract
Some people think this part isn’t important, but as simple as it is, it’s one of the most crucial parts of the contract because, without it, the contract wouldn’t be enforceable. It covers the name, address, and contact information of the property owner and the property management company, as well as the effective date of the contract.
#2 Responsibilities of the Property Management Company
This section tackles the specific services the firm will provide the property owner. In most cases, the property management company’s scope of work covers:
- Collecting rent
- Screening tenants (the contract should also discuss how tenants are screened)
- Maintaining the rental property
- Conducting repairs
- Sending reports to the property owner
- …and more
It’s worth mentioning that the contract should get into the nitty gritty. For instance, concerning property repairs, the contract should clearly state if repairs need to be approved by the owner first, or if the company can greenlight the repairs themselves. Similarly, it should stipulate what type of property management reports should be submitted to the owner, and when they should be prepared.
#3 Responsibilities of the Property Owner
This part of the contract details your roles and restrictions as the landlord. One of your roles will be to create a reserve fund (an account the property management firm can dip into for their daily expenses) and make sure that fund doesn’t fall below a certain amount. In most contracts, property owners are obligated to obtain various types of insurance (e.g. flood insurance for properties in Florida) while agreeing to get a certain amount of coverage for each.
On the other hand, property owner restrictions cover what you can’t do, such as placing a tenant without consent from the manager, entering the rental property without notice, not allowing the property manager to enter the property, and signing contracts with other property managers.
#4 Fee Structure
The property management’s fee structure should define how much their rate is, what is included in the cost, as well as any additional fees they intend to collect such as placement fees, vacancy fees, etc.
Most property management companies charge a percentage of the rent, but be sure to ask if they base it on the rent collected or the rent anticipated. If it’s the anticipated rent and your property is vacant, you’ll still have to pay them a percentage of the rental rate (this means you might end up paying more, as compared to a typical vacancy fee).
Also called the “hold harmless clause”, this section is based on the idea that liabilities aren’t black and white – this means that even if something seems to be the firm’s fault, they won’t always be held liable. In general, this clause protects the company as long as they aren’t negligent.
For example, if the property manager hires a contractor who damages the property, but they can prove that they took “reasonable care” in hiring that person (meaning they did their research like conducting background checks), the manager won’t be held liable.
#6 Contract Term
It’s common practice for property management companies to include a start and end date in their contracts, as well as instructions for renewal. Most contracts run for at least a year, so it’s crucial to choose a company you’re confident in. Still, it would be best to sign a contract only if it contains a termination clause – this way, you can end the agreement early in case the company fails to do as promised, or if they don’t seem aligned with your long-term goals.
Hire a Property Manager With Confidence
When clients get on board at Luxury Property Care, we make sure to sit down with them to discuss our practices, procedures, and the details of our contracts. This way, they will know exactly what to expect when they work with us. Furthermore, because we believe that luxury properties call for custom services, all of our contracts are tailor-made to our client properties’ unique requirements. When you choose us as your partner in property management, you can be confident, knowing that you’re getting what you paid for – and more.