Understanding Your Property Management Contract
If you are a volunteer board member for your HOA, condo, or co-op, choosing the right property management company means carefully reviewing the management contract. This document outlines the working relationship between your community and the management company. Understanding it well can save your board time, money, and headaches.
This guide will help you focus on three important parts of the contract: the term (how long it lasts), the fees, and how to end the agreement if needed. We include practical questions you can ask, red flags to watch out for, and a checklist to make your review easier.
Contract Term: How Long Will the Agreement Last?
The contract term tells you how much time your community is committing to the property manager. Some contracts last a year or two, while others may be longer.
Why it matters:
- A longer term may lock your association in even if you're unhappy.
- A shorter term offers more flexibility but might have a higher cost.
Questions to ask:
- What is the length of the contract?
- Is there an automatic renewal clause? If yes, how much notice must the board give to avoid renewal?
- Can the board terminate the contract early without penalty? Under what conditions?
Red flags:
- Very long initial terms without clear exit options.
- Automatic renewals with minimal notice requirements.
- Lack of transparency about when and how to end the contract.
Fees: Understanding What You Will Pay
Management fees vary by company and by the type of community. The contract should clearly state all fees, including:
- The base management fee
- Additional service charges (e.g., accounting, maintenance supervision)
- Fees for extra services or projects
Why it matters:
Fees affect your community’s budget. Make sure you know what is included and what will cost extra.
Questions to ask:
- What is included in the base management fee?
- Are there charges for extra services? When do these apply?
- How often will fees be invoiced and paid?
- Are there any upfront fees or deposits?
Red flags:
- Vague descriptions of fees.
- Unclear billing schedules.
- Surprises in the form of hidden charges.
Termination: How to End the Contract if Needed
Sometimes, boards need to change managers. The contract should explain clearly how to end the relationship.
Why it matters:
You need the freedom to change management if performance is unsatisfactory without excessive costs or legal risks.
Questions to ask:
- What are the termination provisions? How much notice is required?
- Are there termination fees or penalties?
- Can termination happen for cause (like poor service) or only for convenience?
- What happens if there is a dispute?
Red flags:
- High fees or penalties to terminate early.
- Ambiguity about what constitutes cause for termination.
- No clear dispute resolution process.
Checklist for Reviewing Your Management Contract
| Topic | What to Check | Good Practice |
|---|---|---|
| Term | Contract length and renewal terms | Short to moderate length, clear notice |
| Fees | Detailed fee schedule, extra charge clarity | Transparent, all fees listed upfront |
| Termination | Notice requirements, penalties, cause vs convenience termination | Reasonable notice, minimal penalties |
Next Steps for Boards Considering a Management Contract
- Compare multiple firms. Use tools like compare management firms to see options and what they offer.
- Request proposals. Invite firms to submit detailed bids with contract terms via request proposals.
- Understand how firms are ranked. Learn about reputations and reviews at how we rank firms.
- Consult your association attorney. Confirm legal details, especially about contract terms, fees, and termination conditions.
By asking clear questions and reviewing contracts carefully, your volunteer board can choose a management company that meets your community’s needs today and offers flexibility for the future.
Remember, the management contract sets the foundation for your relationship with your property manager. Take your time, be thorough, and use your community’s interests to guide every decision.