Property management agreement: what it should include

A property management agreement should list every service the company provides, how and when it is paid, who holds the rent and the deposit, how much it can spend on repairs without asking, which reports the owner receives, who signs the leases and how the agreement ends. Companies usually offer a standard template written for all their clients, so the terms that matter to you are yours to add. Before you sign, check the draft against the eight points below.

If you are still deciding whether to hand the property to a company at all, start with the comparison of managing it yourself and hiring a company.

Which services should a property management agreement list?

Every service the company will provide should be named explicitly in the agreement: finding tenants, collecting rent, arranging repairs, handing the property over and taking it back. Anything not listed becomes an argument about whether it is included in the price or charged separately. The phrase "full management" says nothing unless the clauses after it spell out what it covers.

Check that the draft covers:

• Finding a tenant: listings, viewings and the screening the company does before it puts a candidate to you.
• Collecting rent and handling late payment: after how many days the company contacts the tenant and when it tells you.
• Paying the electricity, water and heating bills and the building maintenance fee out of the rent, and whether the utility accounts stay in your name.
• Commissioning and supervising repairs under the approval rules described below.
• Handing the property over at move-in and taking it back at move-out, with a written furniture inventory and dated photos.
• Periodic inspections during the tenancy, and how often they happen.

If a service you expect is missing, add it together with its price, or accept that you will do it yourself. Inspections are the service most often left out. Without them, a company can collect rent for years with nobody having checked the state of the home while a tenant lives in it.

How is the company's fee calculated and which costs are charged separately?

The agreement should state how the fee is calculated, whether it is charged on the rent due or the rent actually received, and which costs you pay on top, such as a letting fee, an inspection fee or a mark-up on repairs.

There are three models, sometimes combined: a percentage of the monthly rent, a fixed monthly amount, and a one-off fee when a new tenant signs. Typical levels for each model on the Bulgarian market are covered in our article on what property management costs.

When the fee is a percentage of the rent, the agreement should say "of the rent received". If the percentage is charged on the rent due, you pay it even in a month when the tenant paid nothing, and the company earns the same whether or not it does anything about the late rent.

A low base fee with separate charges for every letting, inspection, renewal and repair visit can cost more than a higher fee that includes them. Ask for every cost outside the base fee to be listed in a single clause, and write in that nothing outside it is owed. Before you sign, work out what the company would take in a month with no rent paid and one repair done. That figure shows how the fee is really built.

Who collects the rent and holds the deposit, and when does the owner get paid?

The agreement should name the account the rent is paid into. If the company collects the rent, the agreement also sets the day of the month on which it transfers your share. For the tenant's deposit, the agreement states who holds it.

One arrangement gives you more control, the other a faster response. If the rent comes straight to you and the company invoices you for its fee, the money stays with you, but you are the first to see a missed payment and you have to tell the company. If the rent goes to the company, it knows at once that a payment is late and can act, but each month your money sits with it for a while.

When the company collects the rent, the agreement should set the transfer day as a date or as a number of working days after the due date, with a statement attached to every transfer. If the agreement only says "regular transfers", there is no deadline the company has broken when the money is late.

The deposit should be held either by you or by the company in an account in your name named in the agreement. If all the agreement says is that the deposit "is held by the company", it will be hard to find out where the money is and return it to the tenant if there is a dispute with the company or it closes. Ask for the agreement to require the company to keep clients' rent and deposits separate from its own funds.

How much can the company spend on repairs without your consent?

Without your consent, the company can order repairs up to the per-repair amount you write into the agreement. Above it, the company needs your written consent, except in emergencies such as a burst pipe. The amount depends on the property, but the agreement should state an actual number.

Below that limit, the company commissions the work and reports it to you with the invoice. Above it, the company sends a quote, waits for your written consent, and only then commissions the work. For larger jobs, above a second, higher limit, it is sensible to ask for two quotes.

Define in the agreement what counts as an emergency: a water leak, no heating in winter, no electricity, a door that will not lock. Without a definition, any job someone wants done quickly can be called urgent, and the limit stops meaning anything.

Which reports and documents should you get from the company, and how should you keep them?

The agreement should give you a monthly statement of the rent collected and every deduction, a copy of every lease, the handover reports and the repair invoices. File them by tenant as soon as they arrive.

Write into the agreement what you receive and when:

• Every month: a statement showing the rent collected, the fee, every deduction and the amount transferred.
• With every new tenant: a copy of the signed lease.
• At move-in and move-out: the handover report with the furniture inventory and dated photos.
• For every repair: the invoice, before and after photos, and your written consent if the work was above the agreed amount.
• Once a year: a summary of the rent received and the costs paid, to pass on to your accountant.

What the monthly statement should contain is covered in our article on the report to ask for from a management company.

Anything agreed by phone, such as approving a repair or changing the rent, confirm in writing the same day by email or message. If a repair is disputed a year later, what was written down decides it, not what each side remembers.

Keep the documents for each tenant in a separate folder, and keep the management agreement and its amendments apart from them. When a tenant moves out, their folder should already hold everything needed to settle the deposit and any damage claims. Do not throw the folder away afterwards either: ask your accountant how many years to keep it.

Smarter Facility is a rental property management platform in Bulgaria. Owners can manage the property themselves or hand it to a partner agency, and see rents, agreements, repairs and documents in one place. If you have chosen an agency, you follow its work in the platform for owners.

Who signs the lease with the tenant?

The management agreement should settle whether the company signs leases on your behalf or only prepares them for your signature, and which lease terms it can set on its own.

Each model has its drawback. When you sign yourself, nothing binds you without your approval, but every letting waits for your signature. When the company signs, the property is let faster, but you may only learn the terms after the tenant has moved in.

If the company signs, the management agreement should set the limits within which it does so:

• the minimum monthly rent;
• the maximum lease term;
• the type of letting: long-term only, or short-term as well;
• whether pets and subletting are allowed;
• the deposit the tenant pays.

If you do not want short-term letting, say so explicitly. Otherwise the company can let the property for short stays without asking you. If it will sign on your behalf, ask a notary or a lawyer what form the power of attorney must take.

The lease itself has its own essential clauses, which we cover in our article on the rental agreement.

How do you end the management agreement and what must the company return?

The management agreement should allow termination on a notice period stated in it, and list what the company returns: the keys, the original leases, the deposit or proof of who holds it, and a final statement.

Three things make it hard to leave. With a fixed term and no right to end it early, you can only get out of it if you prove the company breached it. If there is a termination fee, you pay to change your mind. And if the company signed the lease, the relationship with the tenant may stay with the company after the management agreement ends. Prefer an agreement either side can end on notice, owing nothing beyond payment for work already done.

The handover when you leave should also be set out in the agreement:

1. The keys and access devices, with how many of each.
2. The original leases and their amendments.
3. The tenant's deposit, or written confirmation of who holds it.
4. A list of unpaid invoices and unfinished repairs.
5. A final statement up to the last day of the agreement.
6. Contact details for the tenant and the regular contractors.

From the day the agreement ends, tell the tenant in writing where to pay the rent. If the company signed the lease on your behalf, ask a lawyer whether it continues unchanged and what you need to do.

Who bears the loss when a tenant causes damage or does not pay?

Any loss the management agreement does not assign to the company in practice falls on the owner. So the agreement should say what can be deducted from the deposit and which losses the company bears. A clause that only limits the company's liability passes everything else to you.

Tell two kinds of loss apart. Damage and unpaid rent caused by the tenant come out of the deposit first, and the rest is claimed from the tenant; the agreement should say who brings that claim. Loss caused by the company itself, such as a missed inspection, a slow response to late rent, or a tenant placed without the agreed screening, is a different matter. The agreement should provide that such a loss is the company's to bear.

Ask which insurance covers what. Building insurance and the company's liability insurance, if it has any, deal with different risks. If the company says its insurance covers losses, ask for the policy to be named in the agreement.

This article is general information, not individual legal advice. For a specific contract or case, consult a lawyer.