Terminating a business relationship can be a daunting task, especially when it comes to something as important as property management. Some property managers may fail to meet their obligations, prompting landlords to reconsider their choice. This post will focus on best practices for terminating a property management contract when there’s a material breach and the agreement doesn’t allow for a quick termination process. However, it’s important to remember this post isn’t legal advice, and landlords should always consult with an attorney before making any decisions.
Material Breach – The Core of the Issue
At the heart of this process lies the concept of a “material breach.” This refers to a failure by one party to uphold their end of the bargain in a significant way. Some clear examples include:
- A property manager not distributing rent to the owner.
- Failure to market a vacant property for lease.
- Neglecting to schedule or oversee vital repairs.
If a landlord can identify and prove such a breach, they are in a position to take action.
Sending a Termination Letter
After establishing a material breach, the next step is to send a termination letter to the property manager. While having an attorney draft this letter is ideal, some landlords might choose to skip this due to the legal costs relative to the small damages associated with single-family property management contracts. Still, it’s crucial to:
- Detail the identified breach or breaches clearly, being careful to reserve any rights for additional claims.
- Highlight any damages caused by this breach while qualifying that additional damages may be claimed at a later date.
- Specify demands for transitioning responsibilities to a new manager or the owner, including transferring deposits, leases, and other relevant files.
Notice to Tenants
Owners should also be sure to notify tenants of the change in management or the decision to self-manage. This should include instructions for future rent payments to ensure a smooth transition.
Understanding Breach of Contract and Damages
Remember that sometimes, even without a clear breach, a landlord may wish to terminate a contract because of a general dissatisfaction with the property manager. In such cases, the landlord could be placing themselves in breach. Still, breaching a contract is a strategic business decision many parties choose, weighing the benefits against potential damages. It isn’t criminal, and there’s no “breach of contract jail.”
In Texas, damages for contract breach aim to give the non-breaching party what they were initially promised, referred to as the benefit of the bargain. Additionally, Texas law does not support punitive damages or penalties for breach of contract. For instance, if a p