May 22, 2022

Rental Owners Must Know: What Makes a Property Management Contract Good

Do you need a property management company to look after your rental property? If yes, you should read carefully what’s in the contract before signing it to ensure that you won’t get the short end of the stick. 

You being the owner of the rental property should know what to expect from the deal. The contract should indicate the responsibilities of the property manager and your responsibilities. See to it that you’re protected in case the property management company fails to fulfill its obligations. 

Make sure that you don’t miss anything important. Here’s a list of things you should look for in a property management contract. 

Services of the Property Management Company

This part of the contract describes the services that the project manager will provide. For example, property management, leasing the property, maintenance, etc. It's common to see these items separated into subsections.  

Many property management companies have to carry out the lease to avoid unwarranted interaction between the property owner and tenants. Property management also includes advertising, screening of tenants, and modification of leases. 

When it comes to maintenance, some property managers will inform the property owner if there's any repair to be done, while others will notify you if a repair is more than the threshold amount. 

Service Fees

Typically, property management companies get their payments by taking a percentage of the monthly rent. In many places, the standard rate that companies take off the monthly rent is between 7% to 10%. 

The contract should specify the service fees and when the company collects them. It must also indicate the ancillary fees related to the management of the property. For instance, the company may charge a fee for every new tenant that starts to rent your property. Inspection fees, upgrades, and repairs will also be included in the fees section. 

Obligations of the Property Owner

The contract will also specify the responsibilities of the property owner. It’s typical to see obligations and restrictions imposed on the property owner in this part of the contract. 

One of the owner's obligations is to put up a reserve fund to be used by the property manager to enforce the latter’s responsibilities. The reserve fund must be maintained at a specific threshold and should never drop to a certain amount. The owner is also obligated to get insurance and uphold it. 

The restrictions specified in the contract may include unnecessary entry of the owner to the property unless the tenant is notified beforehand or the property manager approves of it. The contract will also restrict the owner from finding and placing tenants. The property management must stick to their standards in finding tenants, and the owner should not break those guidelines. 

Fair Housing Act Section

The property management contract should include a section specifying that the property owner and manager will observe the Fair Housing Act. This law ensures that every American should be treated fairly when seeking housing. It prohibits discrimination regarding the imposition or enforcement of prices, maintenance, services, privileges, etc., related to housing. 

Liability Clause

The liability clause indicates that the property management company won’t be liable for any property damage unless the manager is found to be negligent of his/her duties. If the property manager hires a contractor for repairs and the latter causes damage, the manager won’t be liable for the negligence of the contractor. 

The property owner, on the other hand, should ensure that there’s a reasonable care clause in the contract. It obligates the property manager to do research before hiring a contractor to ensure that there will be no damage to the property. 

Cancellation or Termination Clause

You should also find the cancellation or termination clause in the contract. It must specify why and when the property management company or the property owner can terminate the agreement. There should be a notice of termination that should be provided between 30 and 90 days prior by the party initiating it. 

The party initiating the termination should provide a reason for it. If you decide to terminate the contract early, you may need to pay a fee. This section should also state the list of obligations upon termination and the timeframe when said duties must be completed

Duration/Term of the Contract

The contract should indicate when the contract ends. Avoid signing a long-term agreement unless you’re confident in the capacity of the property management company you’re hiring. Some property management companies allow for an annual contract, while others sign monthly or quarterly contracts. 


Now you know what makes a property management contract favorable to you as a property owner. You should find those items mentioned in this article in the agreement between you and the property manager. Be sure that the contract is favorable to you because we're talking about a business that involves a significant amount of money. 

Topics: rentals, residential property management