The best partnerships between property managers and building owners leave little to chance, yet provide flexibility when the unforeseen occurs. A horrendous fire roars through a building, flood waters cascade in through the foundation, and roofs collapse due to feet rather than inches of snow piling up — anything can happen when least expected.
But if you’ve done your due diligence, you should have a solid management agreement in place with your building owner. If not, you risk being held responsible, and, in the worst case, found grossly negligent. Not to mention the deluge of tenant complaints.
Before you sign on to manage a property, take time to do your homework. Here’s how:
Draw up an air-tight management contract — & sign it
Don’t leave anything up to good faith, good will, or even a firm handshake. Sign a detailed contract when you accept the job, one that covers all major issues. It may be wise to have a real estate or business litigation attorney eyeball the management agreement before signing, but doing so doesn’t have to involve huge legal fees.
Ask what the attorney charges per hour and for an estimate. Many attorneys work on these matters routinely, so you’re not asking them to re-invent the wheel.
Moreover, litigation may prove more expensive and a much greater hassle if you don’t protect yourself from the start. Also, if you don’t live on the building premises, it’s wise to be relatively nearby, says Scott Allen, president of Fourmidable in metro-Detroit, which manages mostly multifamily rentals.
The 8 cornerstones: what to include in a contract
In the contract, make sure to cover all the bases, including:
- Your management fees and work hours
- Who will cover for you when you’re not on duty
- Vacation time
- Who pays for workmen’s compensation for additional staff, liability insurance, and indemnification from loss and damages
- Whether you’re required to live on-site
- A seasonal maintenance and repair budget
- An emergency fund
- A detailed job description, which should be consistent with municipality rules (for example, a city may dictate how often snow and ice must be removed or how to deal with bed bugs )
Establish emergency funds & a discretionary reserve fund
“Most agreements permit a limited amount of money to be spent without express authorization,” says Jeff Wolk, principal of Fenwick Keats Management in New York City, which manages small to mid-size buildings. A leaky roof that could cost $50,000 to replace may require the owner or representative examining the damage before it decides to repair versus replace, says Wolk.
On the other hand, if a roof is collapsing and the building caving in, the rules change fast: call emergency services to save lives, get ahold of the owner’s insurance carrier to document what’s happening, and call repair or restoration services to mitigate further damage.
“There’s no time to secure competitive bids at these times,” says real estate attorney Andrew Maguire with McCausland Keen & Buckman in Radnor, Pennsylvania.
To be safe, business litigation attorney Matthew Villmer at Sodoma Law in Charlotte, North Carolina, recommends every property manager include detailed clauses in their agreements regarding costs and emergency funds for challenges like emergency snow removal, burst water pipe remediation, and downed tree clean-up.
Villmer also suggests a reserve fund clause that the manager can use at his or her discretion. Typical fund clauses require a $300 to $1,000 reserve, he says, but the amount should depend on the size of the building, its location, and area charges.
How to run a tight ship when owners are out of town
In addition to having a clear, air-tight management contract, here are some other ways to head problems off at the pass before they become big problems:
- Have a list of approved providers at hand. When you’re not trained or expected to handle certain repairs — roof, electrical, plumbing, carpentry, or restoration, know who to contact. Have a list of backup vendors because a disaster can tie up many repair crews. Also, have the name of the owner’s insurance carrier handy. On that note, before disaster strikes, double check that adequate insurance is provided, that certificates are up-to-date for building systems like elevators and HVAC, and that you have a list of affiliated providers such as landscaping services.
- Be prepared for emergencies. Have an evacuation plan and share it with everyone who lives and works in the building. Gather information on the closest shelters and how to reach them along the safest routes.
- Know how to keep in touch with the boss. Don’t wait to hear from owners; they may be on an extended vacation many time zones away and haven’t heard about the hurricane or blizzard. Know how to reach them if something important comes up. Have all their contact information — landline, cell phone, email address, and also others’ contact information who have the authority to take action when the owner isn’t available. And keep accurate invoices and receipts pertaining to all management and repairs.
- Know how to work with tenants. Dealing with residents when all goes well can be delightful. Encourage this rapport by showing your interest in helping and provide your mobile phone and email so they know how to reach you, says Allen, who follows this protocol. Good will in the bank can help ease frustration and worse, hostility, especially if you’re busy managing several buildings during a disaster. Whether routine or emergency, it’s important to keep detailed notes to share with property owners — include who said and did what and when.
The more diligent you are, the easier your job will be in the long run.
The responsibilities of property managers change all the time. What do you insist on in including when you draw up a contract to sign with a building owner? Let us know in the comments section below.Read more on Scaling
See More in Scaling