Papering Property Management Agreements

Part I

The nature of a listing agreement is different from a property management agreement. With a sale listing, the owner and the broker contemplate a relatively short term relationship which terminates upon the sale of the property. Unless the seller carries financing, neither the seller nor the broker expect to deal with the property, or one another, after closing. A management agreement contemplates a longer term, continuing relationship between owner and manager

With a listing, the broker typically works without being paid until the closing. Generally, if the transaction does not close, the broker is paid nothing. Tremendous pressure is brought to bear on the closing.

Lease listings can contemplate a longer relationship. After the owner closes on the lease, the owner still owns the property. The lease may expire while the landlord still owns the property and the broker hopes that broker will continue to list the property when it comes time to find a new tenant

Yet for purposes of this article, lease listings can be thought of as arrangements contemplating a series of closings. Each lease closing completes a significant chapter in the relationship between the owner and the listing broker. Typically, the broker does not get paid until the closing on the lease. Upon closing, the owner pays the broker; if the lease does not close, the broker does not get paid. Pressure bears down on each lease closing. Unless the listing broker is also the property manager, the broker and the owner hope not to deal with one another regarding the leased premises until the lease term expires

Property management relationships are different from listings in that they contemplate a continuing relationship between manager and owner. The owner typically makes regular payments to the manager. The owner is not building up a contingent debt to the manager. There is no planned event like a closing which focuses tremendous pressure on the relationship. Listing relationships focus mostly on one thing: closing. Management relationships contemplate more of an ongoing partnership. Though management relationships are more complex, they are less likely than listing relationships to lead to big blowup dispute between owner and licensee

When a multifamily or commercial property owner engages a broker to list a property for sale or lease, the owner and broker have several options for reducing their agreement to writing. They may use the Colorado Real Estate Commission (CREC) approved forms. Institutional property owners often have their own forms

There are no Real Estate Commission approved forms for property management. This leaves the parties free to use property management forms provided by the owner or the broker, prepared with or without the assistance of their lawyers. (See Real Estate Commission  Rule F-1.

Owners and managers routinely copy management agreements from form books or cut and paste together forms based upon favorite clauses from competitors. Often the parties are cobbling together management forms based upon listing examples. Sometimes, owners and brokers use whole listing agreements to document listing/management relationships. 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.

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