*Article Management about If Clause*
Term (AKA “Duration of agreement”,
“Retainer period”)
Most property management companies require a 1-2 year contract period
with very few offering month to month services. Bear in mind that the contract
will be legally binding upon its execution (signing), even though the start
date or “effective period” may begin later. After the initial or “primary” term
is over, the contract may automatically renew itself for another term repeating
the process each time the expiration date occurs. Find out how long of a term
the auto-renewal will commit you to, it could be longer that the initial term
was for, which would be important to know. Also, in the event that you want to
prevent this automatic renewal from taking place, you might have to provide
written notice at least 15-30 days before it takes place.
Owner Termination
The termination clause is a very important piece of the contract. It
will dictate under what circumstances you or the manager can end the
relationship prematurely and what penalties or costs you will incur. Without an
exit plan, you might find yourself trapped if the relationship doesn’t work
out. Find out how much notice the management company requires before allowing
termination of the contract (30 days is normal but some companies require up to
90). Also, does the contract require “cause”
as a prerequisite to being able to provide this notice? If so, the agreement
needs to spell out what exactly qualifies as “cause”.
Will there be any fees or penalties for terminating the contract early?
Not all managers charge a fee; if they do it’s either a straight forward flat fee
(300-500$), or something conditional. Conditions can vary widely,
from having to pay a fee if you cancel during the initial vacancy period, to
only having to pay a fee if you cancel
after a tenant has been landed, or within the first 12 months. Worse
case scenario? We’ve seen contracts that in the event of early termination
still require the payment of monthly management fees for the duration of the
remaining lease term(s) and others that require the total management fee for
the life of the contract (based on scheduled rents) to be paid upfront as a
pre-requisite to early termination.
Ideally, you want a contract that allows for termination without cause
with 30 days notice. Bear in mind that while this clause is a legitimate way
for the management firm to protect itself from making an upfront investment in
a property only to have the owner bail, it also speaks to the company’s faith
in its ability to satisfy its clients needs. If they are having to implement extreme switching costs (termination
fees) in order to retain clients, this is a bad sign.
There should also be some provision to allow you to exit the contract
without penalty in the event that the manager is not able to secure a tenant
within an extended period of time (3-4 months). When you do decide to
terminate, make sure your written termination date reflects the exact contract
term expiration date, otherwise you could be liable for the penalties mentioned
above.
Agent Termination
Pay close attention to the circumstances in which the management company
cancels the contract, the notice they will give you and the financial
implications it will have. Below are some excerpts from real contracts that
describe circumstances which allow the management to elect to terminate the
contract:
·
If the agent in its sole discretion deems the continuation of the
agreement subjects it self to liability or is in breach of its duties to the
tenants or any other persons. (pdf: com)
·
If Broker determines that Broker cannot continue to effectively
provide leasing and management services to Owner for any reason at any time
during this agreement… (pdf: com)
·
Should Owner fail to
promptly fund repairs req required by any city, county, or state law,
regulation or ordinance and/or to maintain the condition of the property being
rented in a habitable condition as required by either the rental agreement
and/or applicable California code sections or appellate decisions, of if the
Owner fails to promptly comply with any government issued Notice of Corrections
or court orders. (pdf: com)
·
Owner has made any
misrepresentation of material fact regarding the real property, the tenant,
and/or the status of the landlord-tenant relationship, if any, or has been or
is not acting in strict conformity with this Express Property Management
Agreement and Authorization, or fails in any way to cooperate with the Agent in
managing this real property (pdf: com)
Bear in mind that some contracts don’t even contain an agent termination
clause, but if they do, they can include
a very broad and general list of circumstances. Make sure the contract
entitles you do adequate notice (30 days) in event that this does take place.
Lastly, find out what the financial ramifications of agent termination will be.
Worse case scenario, you could be dealing with a situation like the one
outlined below:
In the event that this (name withheld) Agreement and Authorization is
terminated for cause as allowed by this section, said termination will not release
nor relieve Owner of its responsibilities for payment to Agent of expenses and
management fees for the full term of this (name withheld) Agreement.
Duties upon Termination
Once you or the management company has
decided to sever the relationship, there are still important things that need
to happen to make for a clean break. Owners need to make a final payment to the
management company to settle the account and the contract should cover the
following tasks for the management company:
Provide owner with a final financial
report along with remaining rents on hand minus agents fees and funds needed to
cover all outstanding expenses the manager has incurred in the course of
managing the property. There should be some time parameter dictating how quickly
this will take place after termination. Also, check if the contract contains a
clause giving the manager permission to withhold owner funds, either all or a
portion like the reserve, for a certain period of time. This is usually for
30-60 days and is done in order to make sure all expenses are paid, such as
those already incurred but not yet invoiced.
Provide owner with necessary records and
documents. This would include a list of tenant security deposit obligations,
copies of tenants’ leases and other instruments entered into on behalf of the
owner.
Provide owner with a record of tenant
security deposit obligations.
Transfer security deposits either to the
owner, or the owner’s new agent minus the relevant deductions as dictated by
the contract.
Provide tenants written notice of the
exact dollar amount of the security deposit and inform them that the owners or
owner’s new agent is now responsible for returning their security deposit.
Provide tenants written notice that they
are no longer managing the property, and provide them contact information for
the owner’s new agent or designee.
