When the relationship between an owner and property manager goes south, parting ways can prove complex. After all, if you signed a property management agreement, the terms of cancellation are not always up to you. That said, if the property management firm is not living up to what they promised, you may be well within your legal rights to cancel. So, join us below as we discuss when and how to terminate a property management agreement for a smooth and, most importantly, legal transition.
What is a Property Management Agreement or PMA?
A PMA is a legally binding agreement between a property owner and a property management company. This contract lays out the responsibilities and terms of both parties as part of a business relationship. Furthermore, it outlines the owner’s intention to hand over control of daily operations to a management firm for a monthly fee. As with any contract, it is vital that owners thoroughly read and understand the terms before signing.
Reasons to Terminate a Property Management Agreement
Despite having a signed contract, there are generally some reasons a manager or owner can lawfully cancel the agreement. It is important to note that failing to have a lawful reason means the terminating party may breach the contract.
For example, if the manager never did or is no longer fulfilling your expectations, parting ways may be necessary. That said, each property management agreement may differ in its specific wording regarding why an owner can cancel. So, it is vital to read the contract before moving forward. Most often, the termination part of a property management agreement involves “just cause.” Some common examples for how to terminate a property management agreement are –
- The property manager violates Fair Housing Laws. Therefore, exposing the owner to potential liability or litigation.
- Failing to properly store and account for the tenant security deposit or any other funds.
- Demonstrating a disregard for urgency in making repairs or addressing tenant concerns.
- Placing an unqualified tenant into the property resulted in eviction or undue property damage.
- Not fulfilling obligations per the PMA contract, such as performing inspections.
So, if your PMA can be terminated for “cause,” ensure you are clear on what qualifies as “cause” to the management firm. Ideally, the agreement needs to clearly address what reasons are acceptable and which are not.
Owner Termination vs. Property Manager Termination
The terms for cancellation may vary slightly depending on which party seeks termination. That said, owners that lack “just cause” may find themselves stuck or paying hefty fees. Let’s review a few key points owners need to look for when figuring out how to terminate a property management agreement.
- Does the PMA require “cause” before giving the notice to terminate? – If so, define “cause.”
- How much notice does the PMA require before terminating? – Typically, this ranges from 30 to 90 days.
- Is there a penalty or fee for terminating early? This is often a flat fee of $250 to $500 or more, depending on the circumstances.
If the agreement does not offer a clearly defined way out or requires owners to pay fees for the duration of the PMA regardless, this is a red flag. Ideally, companies with faith in their processes allow property owners the security of knowing they can cancel if they are dissatisfied for any reason with adequate notice.
When Property Managers Terminate Owners
There are instances in a business relationship where the manager will terminate the PMA with a property owner. Keep in mind; some PMAs may be vague. That said, these contracts can include a wide range of agent termination circumstances which can have financial implications for owners. Some of these instances may include, but are not limited to the following –
- The property is unsafe, and the owner is unwilling or unable to spend money to rectify the potential risk.
- There is a potential health risk in the property that the owner cannot resolve.
- The owner refuses to fix maintenance concerns.
- Maintaining legal compliance with local codes becomes problematic.
- If the owner does not have and refuses to obtain landlord protection insurance.
- The owner is intimidating to staff or rude to staff, and generally difficult to deal with.
5 Steps to Cancelling Your Property Management Contract
Regardless of the reason for canceling a PMA, every owner must follow a few essential steps. To better understand the process, continue reading as we lay out the process below.
- Review the Contract’s Cancellation Policy
- Send Written Notice to the Property Management Firm
- Plan for Any Termination Fees or Applicable Costs
- Request Copies of All Records and Documents
- Verify the Property Management Firm Notifies the Tenants
Review the Contract’s Cancellation Policy
Before canceling a contract, it is important to refresh yourself on the specific termination requirements. So, check out the terms and see what fees you may face, along with possible restrictions or waiting periods. Furthermore, it is crucial to note any notice requirements to ensure a smooth transition and avoid potential disputes.
Send Written Notice to the Property Management Firm
Many property managers may appreciate a phone call if you are considering cancellation. After all, if there is an issue that could be resolved, opening up the lines of communication can go a long way. However, if cancellation is the final decision, sending notice in writing is advised. This protects both sides from any confusion and serves as a record if a dispute arises.
Plan for Any Termination Fees or Applicable Costs
Rarely do owners incur zero fees or costs when it comes to terminating a property management contract. Depending on the contract, these can range from a minimal flat fee to several hundred dollars. Additionally, owners may need to settle any unpaid maintenance expenses or invoices. So, it is better to prepare for what financial implications will come from terminating the contract.
Request Copies of All Records and Documents
If you are switching directly to another management company, the current firm should forward all applicable records to the new manager. Additionally, as the owner, you can request copies of any records you need. Check out the list below of documents and records you need before cutting all ties with your property manager.
- Tenant contact information
- Proof of tenant’s renters’ insurance coverage
- Copies of the tenant’s application, lease, all signed addendums, and any renewals.
- Property inspection reports along with corresponding photos.
- Maintenance records for the last 6 to 12 months
- Tenant financial ledgers and financial reports
- Owner financial ledgers and financial reports
- HOA forms and agreements
- Copies of all property keys or door codes
Verify the Property Management Firm Notifies the Tenants
In general, property owners do not have direct contact with tenants. After all, that is one of the biggest benefits to a third-party management firm. That said, the tenant must be made aware of any management changes. Furthermore, this notice should be in writing. So, make sure the existing company informs the tenant of the change and always request a copy of that notice for your records.
Looking for a Property Management Company You Can Trust?
Renting out your property is a complex undertaking full of many rewards and some concerns. Successful investors know that the support of a qualified Northern Virginia property management company is a huge asset.
The experienced team at Bay Property Management Group helps owners feel confident that their rental business needs are taken care of. Our staff offers a comprehensive marketing strategy, dedicated property managers, tenant communication services, maintenance coordination, and financial reporting. So, if you are looking for a true partner to take your investment to the next level, give us a call today to learn more!