Papering Property Management Agreements

Part II

In Part I of this article, the differences between listing agreements and property management agreements were discussed. A primary difference is that listing agreements are short-term, while property management agreements contemplate a continuing relationship between manager and owner. There are no Real Estate Commission approved forms for property management. Owners and managers routinely copy management agreements from form books or cut and paste together forms based upon favorite clauses from competitors or create forms based upon listing examples. Because the nature of the management relationship is different from the nature of the listing relationship, the cobbled together agreements often fail to address important issues.

The most frequent omission which causes problems is the failure to address the ongoing duties of both parties.

It is not unusual for a management agreement to identify the authority of the manager, without identifying the duties. For example, statements that the manager has the authority to have repairs made to a property do not necessarily create the obligation for the manager to have those repairs made.

Among the issues which seem to cause problems is the question of in whose name are leases being taken. Addressing this issue then tends to force the parties to confront the question of who provides the lease forms and how are breaches handled.

In multifamily leasing, it is common for leases to identify the manager as the landlord. If so, it is natural for the manager to have more control over the process following a tenant default. For example, the parties may expect the manager to provide the lease forms, hire the lawyer and direct the eviction process.

In commercial, retail and industrial leasing, each lease tends to be more significant than in residential leasing and landlords tend to want to be more in control. The manager may have fewer enumerated responsibilities, though they may be more complex.

Accounting responsibilities are often neglected. Generally owners expect a monthly accounting and managers expect to provide one. But what information is in the reports? Are the reports provided in a digital format? Managers don’t expect to customize their accounting for owners. Prior to cementing the relationship, owners need to satisfy themselves that the prospective manager’s reports will be adequate.

Though it is beyond the scope of this article to thoroughly address insurance responsibilities and indemnity issues, generally the owner should maintain casualty and liability insurance and the broker should maintain errors and omissions insurance. Both policies will tend to have exclusions for liabilities contractually incurred by the insured so both manager and owner should resist giving indemnities to the other party in the management agreement.

Since the nature of a management relationship is different from a listing arrangement, owners and managers should think out the important issues between them when papering their relationship.

This article was originally published in The Colorado Lawyer, Vol.29, No.8, August 2001

A version of this article appeared in the Colorado REALTOR® News, the monthly publication of the Colorado Association of REALTORS®.

Jon Goodman is a shareholder with Frascona, Joiner, Goodman and Greenstein, P.C., a Colorado law firm. His practice areas include Real Estate,Brokerage Law, Contracts, Land Use, Leasing, Real Estate Title, Association Law, Business Law, and Finance. Contact Jon Goodman.

Disclaimer — Content is general information only. Information is not provided as advice for a specific matter, nor does its publication create an attorney-client relationship. Laws vary from one state to another. For legal advice on a specific matter, consult an attorney.

JONATHAN A. GOODMAN