Responsibilities and Representations

Responsibilities and Representations

Property management contracts can range in size from 3 to 10 pages, but 5 to 6 is average. Some contracts are comprehensive; others are basic. While we can’t tell you exactly what the agreements you see will look like, there’s a good chance they’ll contain some of the items outlined below. 

Remember that each management company must be viewed in its entirety when compared against another. While some issues are more important than others, making a true comparison among the property manager  you interview requires taking into account the full scope of their management fees and services. Here are some things to pay attention to in the property management contracts you review.

Introductory Paragraph(s)

Most contracts start by stating this is a legally binding, exclusive management agreement. Then they name the parties to the agreement and the legal address of the property being managed. This is also typically the section that communicates that the broker will be working on behalf of the owner in managing the property. Terms like “Grant,” “Employ” and “Appoint” all communicate that the owner is transferring agency to the broker. 

Agency is defined as “the relationship of a person (called the agent) who acts on behalf of another person, company, or government, known as the principal. “Agency” may arise when an employer (principal) and employee (agent) ask someone to make a delivery or name someone as an agent in a contract. The basic rule is that the principal becomes responsible for the acts of the agent, and the agent’s acts are like those of the principal.” (dictionary.law.com)

Broker Responsibilities (a.k.a. “Authority and Powers”)

This is the section of the contract that should specify exactly what services you will be receiving and how those services will be performed. We’ve already covered most of this section in the following posts:

• Handling Tenant and Owner Funds
• Property Maintenance and Inspections
• Setting and Collecting Rent
• Marketing, Screening and Retaining Tenants

Make sure that the contract contains a due diligence clause (a.k.a. “best effort”), where the management company states that they will do their best in the management of the property.

Extra Duties

Some contracts contain a list of services that the agreement does not include or qualify as “work exceeding normal management duties.” If this clause exists, you need to find out which items are listed and the billing rates for these services. If a billing rate is listed, it may be “an hourly fee equal to the current monthly management fee.” Otherwise, the contract may state that the fee shall be agreed upon before the work begins, in which case you’ll want to find out more to eliminate surprises down the road if you need any of these services. 

If the list contains services that the property manager doesn’t provide under any circumstances, then make sure that you’re comfortable foregoing or outsourcing the items listed. Services typically listed include modernization, refinancing, fire restoration, rehabilitation, process serving, advising on proposed new construction and assisting sales agents or appraisers. That said, sometimes the list can be more comprehensive and include things that you might have assumed would be included in the management fee. Bottom line: It’s important to check the contract.

Legal Compliance

Some contracts have a section titled “Equal Housing Opportunity” that outlines compliance with fair housing laws. This is only part of the equation. Here’s an example of a more comprehensive legal compliance clause:

“The parties will comply with all obligations, duties, and responsibilities under the Texas Property Code, fair housing laws, and any other statute, administrative rule, ordinance, or restrictive covenant applicable to the use, leasing, management, or care of the property.” (austinlandlord.com PDF)

Advances

This clause addresses the issue of the Agent expanding its own funds to pay owner bills. Many contracts clearly indicate that the management company is not required to advance the owner funds. Others go further, stating that while not required to advance funds, the firm retains the right, at its sole discretion, to advance funds to cover necessary expenses. The owner is of course obligated to make immediate repayment, and fees may be assessed if repayment is late (1.5% of invoice per month is average).

Owner’s Representation

The purpose of this clause is pretty straightforward. You’re simply disclosing the facts about the property and your ability to enter into the agreement. Read it carefully and make sure you let the company know if there are any potential conflicts, or if you’re not sure about certain points.

Owner’s Responsibilities/Duties

There is where the owner’s responsibilities in the relationship are outlined. Pay close attention to see what you’ll be committing yourself to. The following are some items that may be included, with some being more common than others. The contract may specify that the owner agrees to:

• Not hire any other company to lease or manage the properties included in the agreement while the contract is in effect.
• Not take any action that would jeopardize the management company’s ability to offer the property for rent in compliance with fair housing laws.
• Abide by restrictions on entering the property. This will vary, but the basic idea is that owners cannot enter their property whenever they want once it’s occupied, as this would be in violation of the tenant’s rights. The restriction may only require informing the tenant beforehand, or it may require the owner to notify the agent and work through them to schedule a visit.
• Transfer security deposits paid by existing tenants to the management company. (This may not be applicable, depending on the laws in your state.)
• Provide broker with all necessary records and documents that the management company will need to do their job.
• Reimburse the management company for expenditures they make on behalf of the owner in the management of the property.
• Immediately notify the management company in the event that the owner’s representations as described in the contract are no longer valid, or if other circumstances have arisen that are legally required to be disclosed to the agent, are necessary for the agent to know to perform their duties, or would affect the habitability of the property.
• Immediately inform the manager in the event that the owner has missed payments (becomes delinquent) for financial obligations related to the property, such as property taxes, insurance, HOA fees, and most importantly, the mortgage payment.
• Not rent the property to anyone without the management company’s prior consent.
• Not deal or negotiate with current or prospective tenants about anything related to the management or leasing of the property, but instead refer them directly to the broker.
• Maintain the property in a condition necessary for it to comply with all relevant laws.
• Set up and maintain a reserve.
• Maintain insurance (see below).

Insurance

Find out what kind of insurance and what amount of coverage the property manager requires you to maintain. The contract will likely require that the policy cover the management company in the same manner as the owner, and require notification in the event that coverage is changed in the future. In some cases, the contract may actually authorize the manager to purchase insurance on your behalf (at your expense) in the event that you lack sufficient coverage now or in the future. 

In the next post, we’ll find out how the terms of your management contract will affect your (or your property management company’s) decision to break off the relationship early.

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The Realty Medics are the nation’s leaders in “Rocket Science Renting”: Rocket Science Renting is about keeping your life simple by letting someone else handle the complex work of property management for you. It’s knowing that your property is running smoothly, with no hiccups or glitches. It’s hyper-responsive customer service that gives you property management peace of mind. It’s advanced technology that could only be designed by a former NASA engineer like our owner, Ben Sencenbaugh. And it’s knowing that you’re always getting maximum value and ROI for your investment.

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Areas We Serve in Florida

We’re happy to serve many of the surrounding areas here in Central Florida. Below are the current cities and locations that we operate in. If you don’t see your area listed, don’t hesitate to reach out to us and we’ll see if we can work together.

• Altamonte Springs
• Apopka
• Avalon Park
• Casselberry
• Clermont
• Daytona Beach
• DeLand
• Deltona
• Eastwood
• Kissimmee

• Lakeland
• Lake Mary
• Longwood
• Maitland
• New Smyrna Beach
• Ocoee
• Orlando
• Ormond Beach
• Oviedo

• Palm Bay
• Poinciana
• Sanford
• Stoneybrook
• Waterford Lakes
• Windermere
• Winter Garden
• Winter Park
• Winter Springs
• Wildwood