WHAT TO LOOK FOR IN PROPERTY
© Copyright 2000-2011 Landlord.com
By Bob Cain
2000 Cain Publications, Inc., used by permission
Every so often I get calls and email from landlords
who have had trouble with a property management, a company that manages
property for several rental property owners, not the onsite variety of
manager (though I get calls about them, too). Usually the complaints have
to do with the property management company not having done the job the
landlord was led to believe it would do.
I have responded to complaints such as,
"he never checked references, he just rented to anybody,"
"he let the tenants get away with murder," "he says I have
to evict the tenant." After the landlord has started having
these problems he or she reads the management agreement and finds out
that, contrary to what he or she was led to believe, the management
company is not responsible for anything. Too many agreements are
written so all the management company is supposed to do is send the right
amount of money, and that's only because it will get into trouble with the
real estate agency of the state if it doesn't.
After reviewing several property
management agreements I have on hand, I came up with a list of clauses and
terms that should be in any property management agreement you sign with an
outside management company.
This is probably the most important
clause you can have in a management agreement. In it the management
company promises to do its best when managing your property. It is a
legal term, which, among other things is defined as "that amount of
diligence which a reasonable and prudent man would exercise under the
The professional property manager has
an extra duty of diligence, since it has implied, by taking on a
management contract, that it is expert in rental property management.
Communication and Notification
Here they are obligated to tell you
what's going on in the management of your property, as necessary.
Every state has some kind of law
regarding the accounting procedures of licensed property managers. Every
agreement will have a provision that provides for the property management
company's following the law. Since accounting is a statutory requirement,
all you can expect is the management company's agreement to obey the law
and send the right amount of money periodically.
One thing to watch out for, though, is
when they will send the money. By what day of the month will your check be
mailed to you? Will the check be for that month, or will the management
company hold back a month? What happens to the security deposit they
collect from the tenant?
Termination of the Agreement
Every agreement will have a provision
for its termination. The question is how long does it take to terminate
and is there a cost or penalty to you if you do so before a certain date?
Just about every management agreement
will provide for the management company to handle repairs. Usually they
hire contractors or other companies to handle them. What you will find in
the agreement is a "hold-harmless" clause, saying that the
management company is not responsible for the "acts, defaults and
negligence" of the people they hire. What you also want to see in the
agreement is a statement that they will use "reasonable care"
when they hire anyone to work on the property.
Certainly they are not responsible for
people over whom they have no control. But they are responsible if they
hired someone who has a history of shoddy or dangerous work and they knew
or should have known that he did.
Evictions and Terminations of Tenancy
Believe it or not, some agreements
don't provide for the management company to handle evictions. What are you
hiring them for if not for their ability to deal with problems in the
property? And what bigger problem is there than a tenant who must be
What you want is their expertise and
their willingness to use it. Always make sure that the property management
company will use due diligence in terminating the tenancy of any tenant
who must be removed.
Will having all these
clauses in a management agreement guarantee a smooth relationship with the
property management company you hire? Absolutely not. You need to
interview and get references from several before you commit to
anyone. But not having these clauses in the agreement will almost
guarantee you problems.
Robert Cain is a nationally-recognized
speaker and writer on property management and real estate issues. For a
free sample copy of the Rental Property Reporter call 800-654-5456 or
visit their web site at
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