A property management agreement is the legal backbone of your relationship with a management company—get the terms wrong and you could lose revenue, face liability gaps, or deal with poor maintenance for years. Whether you own a small 12-unit building or a 200-unit complex, the contract details matter more than the company's branding. This guide covers the specific contract clauses and fee structures you need to negotiate before signing.
Fee Structure and Payment Terms
Management fees typically run 4–12% of monthly rental income for multifamily properties, though rates vary by market and property size. Smaller buildings (under 20 units) tend toward the higher end, while larger portfolios may negotiate lower percentages. Beyond the base management fee, clarify what's included and what costs extra.
Ask your prospective manager to itemize secondary fees upfront:
- Leasing commissions (often 50–100% of one month's rent per new tenant)
- Maintenance markup (the percentage they add to contractor invoices, typically 15–25%)
- Late fees or eviction processing charges
- Technology or software fees
- Turnover or make-ready coordination
Push back on vague language like "reasonable expenses." Specify caps on maintenance markups and require approval thresholds—for example, any single repair over $500 needs your written consent before work begins.
Maintenance and Capital Repair Responsibilities
This section is where most owners and managers clash. The contract should explicitly define which repairs the manager handles directly versus those they coordinate but you pay for separately.
Clarify the distinction between routine maintenance (air filter changes, caulking, minor plumbing) covered under the management fee, and capital repairs (roof replacement, HVAC system overhaul, foundation work). Set a dollar threshold—commonly $1,000–$2,500—above which you approve costs in writing first.
Require the manager to provide at least two competitive bids for major work and detail their process for emergency repairs (burst pipes, electrical issues) when you're unreachable. Also specify response times: most contracts should guarantee 24-hour emergency response and 48 hours for non-urgent maintenance requests.
Tenant Screening and Eviction Standards
Your contract should outline the manager's tenant screening criteria, including credit score minimums, income requirements (typically 3× monthly rent), and background check parameters. Ask whether they use third-party screening services and who pays for those checks.
For evictions, clarify that the manager initiates the legal process on your behalf and specify who covers the attorney fees (usually the owner). The contract should state whether the manager handles court appearances and sets realistic timelines—evictions in most states take 30–90 days, not faster.
Request that the manager provide a monthly report on tenant delinquencies and their collection efforts before legal action begins. This protects you if vacancy rates spike due to rushed evictions.
Insurance, Liability, and Legal Compliance
Your property management company should maintain errors and omissions (E&O) insurance, and the contract must name you as an additional insured. Typical E&O coverage for management companies ranges from $1M to $2M per claim.
Confirm the manager stays current on local landlord-tenant laws, fair housing regulations, and building codes. If they mishandle compliance and you face fines or lawsuits, the contract should clarify whether the manager shares liability. Many contracts limit the manager's responsibility—read this section carefully.
Also verify they handle security deposit accounting correctly per your state's requirements. Many states mandate specific timelines for returning deposits and detailed accounting; violations can trigger penalties against both you and the manager.
Termination and Notice Periods
Most multifamily management agreements run 1–3 years with automatic renewal. The termination clause should allow either party to exit with 30–60 days' written notice, without penalty. Beware contracts that lock you in longer or charge hefty early termination fees.
Define what happens to tenant files, rent rolls, and financial records if you part ways. The manager should transfer these within 10 business days and provide a final accounting of all income and expenses.
Getting Help Comparing Options
Instead of negotiating these terms in isolation, platforms like Mercoly let you compare contract terms from multiple property management companies side-by-side, see their fee structures and service inclusions clearly, and access reviews from other multifamily owners in your area.
Frequently Asked Questions
Q: What happens if my property manager stops responding to maintenance requests? A: The contract should specify response times (usually 24–48 hours); if the manager breaches this consistently, document the failures and send a formal notice referencing the contract violation, then consider terminating under the notice provision.
Q: Can a property manager charge a markup on contractor invoices? A: Yes, markups of 15–25% are standard for coordinating repairs, but your contract should cap this percentage and require written approval for any single repair over your agreed threshold (typically $1,000–$2,500).
Q: Who pays for eviction costs if a tenant doesn't pay rent? A: This varies by contract; many place eviction attorney fees on the owner, while the manager's coordination labor is covered under the base management fee—negotiate this explicitly before signing.
Compare management agreements from trusted providers in your area and lock in terms that protect your bottom line.