Clearly lay out all of the responsibilities a property management company is taking on for you.
Real estate investors can prevent misunderstandings and protect themselves with clear, professional property management agreements.
If you have multiple properties or properties that aren’t close to home, you need management help. Make sure the people helping you have clear, legally binding instructions.
Third-Party Property Management
In these situations, we outsource property management. If you are among the investors using any kind of third-party property management, whether it’s on-site, off-site, a single person, or a large company, or some other version of a property manager, you will need a property management agreement.
Managing Property Management
When you can’t be there to do the job yourself, your job becomes managing your managers. All the research in the world may not prepare you for the realities of handling your management. We find “informal” agreements tend to end poorly. The property management agreement helps establish expectations and boundaries in your relationship with your property management.
The Property Management Agreement
Don’t underestimate the power of this little document. It’s the single most effective way for you to manage your property managers. Their duties will be clarified in this document, as will your obligations to them. Remedies for common problems may be included, and a well-written agreement should prevent most in the first place.
First of all, few property management companies will do business without a formal agreement. Next, think of all the things that can possibly go wrong with managing a property. Perhaps some of these things are reasons you wouldn’t wish to manage this property yourself.
If there’s one thing we have observed about real estate litigation, it is this: rarely is either party truly acting in bad faith. More lawsuits are fueled by misunderstanding than fraud.
Good contracts are one huge way to prevent lawsuits in real estate generally, and between property management and the investor specifically. Having the rules everyone plays by, and the remedies for parties harmed by breaking the rules, in black and white makes life easier. This clarity prevents the types of misunderstandings that may land you in court.
When’s the last time you practiced your legal prose? Or reviewed the basics of contract law?
Never? That’s okay. It’s probably not your job to do either of those things, which is fine. You’ve been busy investing and likely mastering many other skills throughout your life while folks like our attorneys were knee-deep in the books that taught them the finer points of contract law, legal research, and how to write ironclad documents that will hold up under legal scrutiny.
A real estate attorney knows the law, what to look for in a contract, and perhaps most importantly, how to tailor a contract to your needs. At Royal Legal Solutions, we always listen to the client first, then form our plan to keep your assets defended and support you in your other business goals.
CUSTOMIZED TO YOUR BUSINESS
While we will absolutely tailor your agreement to your situation as much as possible, there are some common items you will see across a wide variety of property management agreements. Some of the things you can expect to see in yours are listed below.
This includes theirs and yours. If there’s an item you don’t want to handle, make sure it’s in the agreement on their side of the deal. Their day-to-day duties should be spelled out as well.
FINANCIAL AND FEE INFORMATION
What fees you owe and how you will pay them should be crystal clear.
You want the managers to assume as much legal liability as possible, an item our attorneys can help ensure by contract.
CONTRACT TERM AND TERMINATION PROCEDURES
Of course, the contract will need to have a specified length of time it is in effect or term. Termination issues should also be covered.
Our experts can show you other ways to limit your personal liability and safeguard your assets. Whether you need a single property management agreement or a comprehensive asset protection strategy, Royal Legal Solutions can help.
Scott Royal Smith is an asset protection attorney and long-time real estate investor. He's on a mission to help fellow investors free their time, protect their assets, and create lasting wealth.
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