What is a property management agreement? A property management agreement is a contract establishing a property manager's legal right to operate a property. A property management agreement is a contract that...
A property management agreement is a contract that establishes the manager's legal right or authority over the operation of the property. In most cases, the manager is considered to be a principal agency relationship, so it's a contract in which the manager is the agent for the owner and acting as a fiduciary or trustee for the owner's funds and their assets associated with that property. It's usually for a fixed period of time, sometimes a year, sometimes two years, sometimes five years, depending upon conditions of the marketplace. It designates the manager's authority and their compensation.
For the services they are providing, it sometimes outlines procedures. It's a big, big component in specifying the limits of the manager's authority and actions that they can take over the property. It may say that the manager may authorize expenditures up to $500, $1000 and $10,000, depending on the property, without contacting the owner. Because of the principal agency relationship, at some point there need to be limits set on the manager where they have obligations to go back to the owner and ask for permission to do things. Those are the basic elements in a property management agreement or contract.
It also stipulates the reporting, the obligation of the manager to report to the owner the sources or the uses of the funds that have taken place during certain time periods, whether it be monthly or quarterly, depending on the agreement.
