Property ManagementProperty Management Agreement

Navigating the intricacies of property management agreements can often seem like a daunting task for property owners. One of the most crucial aspects to understand is the common term of such agreements, particularly in the context of single-family rentals in Texas. In this post, we’ll dive into the specifics of the most commonly used management form in Texas, explore the unique approach our management company takes, and discuss the implications of contractual damages for breaches of these agreements.

The Texas Standard: A Look at the Residential Leasing and Property Management Agreement

In Texas, the “Residential Leasing and Property Management Agreement” provided by the Texas Association of Realtors is widely regarded as the standard form for managing single-family rentals. A key element of this agreement is found in Paragraph 3, which outlines the specifics of the term.

Customizing Term Length and the Evergreen Clause

Paragraph 3 is particularly noteworthy because it allows parties to customize the length of the term to suit their individual needs. This flexibility is crucial in ensuring that both the property owner and the management company are comfortable with the duration of the agreement. Additionally, this paragraph includes an Evergreen clause, a common contractual provision that allows the agreement to automatically extend on a monthly basis at the end of the initial term. This clause ensures continuity and stability in the management arrangement.

A Slight Bias: The Unilateral Termination Provision

However, it’s important to note that Paragraph 3 also contains a provision that may raise some eyebrows. While it allows the Broker to terminate the contract for any reason with 30 days’ notice to the owner, it does not grant the property owner the same right. This imbalance creates a scenario that is somewhat biased in favor of the Broker, potentially leaving property owners with less control over the termination of the contract.

Our Approach: Emphasizing Flexibility and Fit

While most management companies aim to negotiate one-year contracts for property management services, our company takes a different approach. We prefer to offer contracts to our property owners on a monthly basis. This arrangement is mutually beneficial, as both the owner and our management company have the option to terminate the contract by providing 30 days’ notice.

Why Monthly Contracts?

The rationale behind our preference for monthly contracts is simple: we value the relationship with our owners and want it to be a good fit. If an owner is dissatisfied with our services, they have the freedom to terminate the agreement with minimal hassle. Conversely, we also reserve the right to terminate the management agreement for problem owners, such as those who fail to authorize repairs timely or have unreasonable expectations.

Exceptions: When Longer Terms Make Sense

However, there are exceptions to our preference for monthly terms. In cases where a property requires significant time and investment from our side—such as dealing with a delinquent tenant or a property needing substantial make-ready—we prefer a management agreement of at least 12 months. This duration allows us to recoup our initial investment and effectively manage the property.

Contractual Damages: Minimal Impact

For property owners worried about breaches of management agreements, it’s important to note that contractual damages for such breaches in the context of single-family rentals are generally minimal. Therefore, even if you find yourself in a long-term contract with a management company that doesn’t meet your expectations, termination might still be a viable option.

Conclusion

In summary, while the standard “Residential Leasing and Property Management Agreement” in Texas offers customization in terms of contract length and includes an Evergreen clause, it does have a bias towards the Broker in termination rights. Our management company, on the other hand, champions flexibility and fit by offering monthly contracts with mutual termination rights. Lastly, considering the minimal contractual damages typically involved, property owners should feel empowered to seek arrangements that best suit their needs, even if that means considering termination. In the world of property management, finding the right fit and maintaining a balanced relationship is key.

 

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