Are you in the process of hiring a Tampa property management provider to handle the day-to-day operations of your rental property? Understanding the contents of your Property Management Agreement (PMA) is crucial to the success of your rental property and the relationship with your property manager.
This blog post will discuss what to look for in your property management agreement, common items found in most agreements, and potential elements to avoid as a landlord and rental property owner.
Term: How Long Are You Committed to Your Property Management Provider?
One crucial aspect to consider is the term or length of the property management agreement. Establishing a trustworthy and reliable relationship with your property manager is essential for success. You must be able to have trust in their abilities, effective communication, and confidence that they have your best interests at heart. Understanding the duration of the management agreement is crucial. They say you date your Realtor, but you marry your property manager. So understanding how married you are to your manager is a must.
Some companies require a 12-month management agreement with a 60-day written notice of cancellation, and if terminated, they may charge a fee. At The Listing Real Estate Management, we believe this practice holds rental owners hostage, as it limits their options if they believe the service is not up to their standards. A confident property manager should not need to enforce strict binding terms or charge penalties for termination. Other companies may have a 12-month commitment but do not impose cancellation fees or have shorter notice periods. As a Tampa rental property owner, carefully review the Term Section of your Property Management Services Agreement to ensure everything is clear. Being stuck with a property management company not yielding profits will not benefit you or your property.
Management Authority & Responsibilities: What Does Your Property Manager Have the Power to Do?
This agreement section typically covers the maintenance reserve threshold and outlines the manager’s authority to approve maintenance repairs below that threshold without the owner’s authorization.
Other responsibilities addressed in this section include rent collection, lease and contract negotiations, accounting standards, security deposit procedures, trust accounting, advertising, legal notices, and more.
Be aware of this section and be familiar with the Power of Attorney (POA) clause. The POA grants the property manager the ability to sign leases on behalf of the landlord. This clause streamlines the leasing process and protects owners from potential complications.
Landlord’s Representation or Duties to the Property Manager:
Whether you are an experienced landlord or a first-time rental property owner hiring a property management company, it’s essential to understand that there are duties and responsibilities that you, as the property owner, must still fulfill. You may wonder why you need a property manager if you have to handle specific tasks yourself. While property managers handle most of the work, some duties, such as paying your mortgage, taxes, HOA dues, and insurance, are your responsibility and should not be delegated to the property management company. Neglecting these responsibilities can lead to severe conflict and consequences. To ensure the completion of these processes, consider setting up autopay in your name to guarantee timely payments.
Guarantees in the Property Management Agreement:
Reputable property management companies often offer guarantees to reassure owners about the quality of their services. For example, at The Listing Real Estate Management, we provide a 12-Month Tenant Guarantee, promising to find a replacement tenant free of charge if the tenant screened, approved, and placed by us defaults on their lease within the first year. This guarantee ensures that the property management company is comprehensive and selective about finding quality tenants.
Other companies may offer eviction guarantees, covering the cost of eviction if necessary. However, it’s crucial to examine the details of these guarantees. Something you want to know about this guarantee is that it can be pricey. The issue with this guarantee is that an uncontested eviction in Florida will cost around $500, not including the court costs of the filing fee, service of process, and the writ of possession if necessary. The total can add up to roughly $735 to $850 uncontested.
Additionally, following the removal of the tenant, some companies will charge the property owner another tenant placement fee. This placement fee is typically 75% or one full month’s rent. You’ll be paying more for the new tenant than the eviction cost.
Another guarantee to be weary of is guarantees that promise quick leasing times may prioritize quantity over quality when placing tenants. For example, some property managers will present you with a 14-day lease guarantee; if they fail to place a tenant in 14 days, they offer two months of management free of charge. In this case, the company may prioritize the “fast tenant” over the right tenant. Unscreened tenants not chosen carefully may not be the most reliable or best fit for your property.
Ensure that any guarantees offered are explicitly stated in the Property Management Agreement to avoid empty promises.
Understanding the costs associated with hiring a property management service provider is essential. The compensation section of the agreement should clearly outline the manager’s fee structure, whether a percentage-based or flat fee. It’s also important to ask about additional fees, such as lease renewal fees or hidden charges. Transparent and upfront pricing is an essential quality of your property manager. Ask questions and carefully review the compensation section of the agreement to avoid unexpected fees and conflict with your property manager.
Indemnification or Hold Harmless Clause & Liability Insurance Requirements:
It is important to thoroughly review the agreement to know exactly what you are getting into. In your PMA, you will come across the Indemnification or Hold Harmless Clause. This clause protects one party from damages and expenses caused by the failures or mistakes of the other party. Simply put, one party cannot sue the other for injury or damage to one’s property.
Additionally, the agreement may specify liability insurance requirements for your Tampa investment property. As the landlord, you may need proof of liability insurance coverage, typically at least $100,000/$300,000 per occurrence. You must also add your property management provider as an additional insured party. This coverage protects you if an injury occurs on the property.
Property Management Agreement Summary:
Reviewing a property management agreement can be tedious, especially when considering multiple property management companies. However, trust, communication, experience, reputation, and character should be top priorities when selecting a property management company for your investment property.
The agreement serves to protect all parties involved and provides a comprehensive understanding of the property manager’s duties and the operation of your rental property. Reputable management companies typically do not alter their property management agreements for individual clients, as each clause serves a purpose. Don’t hesitate to ask for clarification if you have any uncertainties or concerns about specific clauses.
At The Listing Real Estate Management, we are a full-service residential property management company in Tampa, Florida, serving landlords and tenants throughout Central Florida. If you have any questions or would like to learn more about our services, contact us today to get started on your thriving and profitable property management journey!