Getting into an agreement is a significant and legal commitment. So, being conscious before you sign is natural. Especially when you are trusting a person or an organization for your valuable asset.
To be more specific, if you are hiring a property manager, understanding key elements of the contract becomes critical. It helps in learning the roles and responsibilities of the manager and how you can protect yourself and your property. Most importantly, taking precautions and understanding everything clearly, will help you avoid any chaos later on.
Moreover, it will also help build trust and give you confidence that your house is in safe hands. That being said, let’s take a look at the elements that must be present in your agreement.
Services and Fees
What are the services that the manager is offering to you? What is the total fee for those services? Does the manager provide any additional services? If yes, then what are the additional fee charges? All these questions are essential and must be answered in the contract.
Besides, you must understand all these things before signing the contract. Every service and fee charged should be clearly defined. In case the terms are not clear, ask the manager to amend the agreement. Also, pay attention to “Extra services” and “Extra fees.”
For instance, let’s say you are hiring a manager for your property in LA. They are charging extra for providing an eviction procedure. In such a scenario, it must be clearly mentioned in the agreement. Similarly, the contract should also include information regarding how the fees for the particular service will be charged. Is it on a percentage basis, a flat fee, or a case-by-case basis?
In addition to this, you also need to be aware of the services that the manager does not provide. Generally, the service of extensive remodelling and refinancing of property are not included. However, if the necessary services such as collecting rent, finding tenants, or handling emergencies are also excluded from the agreement, you should ask the manager.
Responsibility of Property Owner
Needless to say, the contract should clearly define the roles and responsibilities of the landlord. This part of the agreement helps in determining what your obligations and restrictions are. So, you can plan your other steps accordingly.
Usually, there are two obligations on the landlords:
- Creating And Maintaining A Reserve Fund: As a landlord, it is your responsibility to create a specific reserve fund and maintain it regularly. The property manager can use this reserve fund for maintenance issues or emergencies.
- Getting Proper Insurance: Your other obligation will be to get proper insurance. The contract must mention the type of insurance, the coverage amount that you have obtained. The agreement should also include whether the property management company is included under the coverage or not.
Likewise, most agreements impose the following restrictions on the owner:
- Finding Tenants: After signing the contract, only property management companies have the authority to find and place the tenant. It is generally because every company has its own guidelines and policies for selecting tenants. If you find a tenant on your own, it will make it challenging for them to manage the unknown person efficiently.
- Entry: Another restriction imposed is that the landlord must provide proper notice to the tenant and company before visiting the property. It might vary from company to company. However, it is to ensure the privacy and security of the tenant.
Equal Opportunity Housing
The State and Federal fair housing laws protect individuals from discrimination based on sex, race, colour, nationality, religion, or disability in every house-related transaction. Therefore, it is the responsibility of both the manager and the landlord to ensure that the agreement includes “Equal Opportunity Housing.”
In case of non-compliance with the laws, a civil penalty of $16,000 will be imposed. The penalty will also increase on the continuation of non-compliance.
Hold Harmless Clause
It is another crucial element of the agreement that states the property manager’s liabilities. In simple terms, the hold harmless clause protects the manager unless they have been irresponsible. However, one thing that you need to understand here is that the manager will only be responsible for his own negligence and not for a third party.
For instance, if the manager hires a contractor. The manager will not be held liable for the damage caused by the contractor. To protect yourself from such a situation, you must include a “reasonable care” clause in the contract.
To make it more clear, let’s suppose you have a house in LA. In this case, having the clause will ensure your la property management company conducts proper research before hiring any third party. Similarly, the manager can’t hire any person who has a complaint history. Also, they will ensure that you get your rent on time without any hassle.
Contract Duration
Generally, landlords working with the property management companies for the first time avoid getting into long-term contracts. Nonetheless, companies usually sign a contract for at least a year. Therefore, you must read the contract carefully to learn about the duration of the agreement. Along with this, you also need to know about the termination and renewal of contracts.
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Termination Clause
Last but not least, make sure that the contract includes a well-written and thoroughly explained termination/cancellation clause. This clause will explain all the rights that you, as well as the company, have about the cancellation.
For instance, the contract will include information about termination notice. Similarly, it will also include the fees charged for early termination. It might vary from just a few hundred dollars to the decided amount. Also, make sure that the contract doesn’t include any specific reasons for termination. Otherwise, there might be penalties.
To Sum It All Up!
Thoroughly understanding every element of the contract is a good habit. It helps identify any ambiguities present in the agreement, thus removing them for the benefit of all parties involved. We hope that this article has helped you learn every critical information and create a strong contract. Nonetheless, if you doubt anything in the contract, don’t be afraid to ask the property manager about the same.
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