In simple terms, a property agreement refers to a legal document. It outlines the terms and conditions between two or more parties wanting to own a property together. The property can be a building, a farmhouse, an apartment, or even land.
The document helps prevent disagreements or miscommunication by clarifying each party’s rights and responsibilities. Some of the important details that this document covers are:
- For what purpose is the property being used
- Expenses to be shared
- The processes for when one party wants to leave or sell the property
When owning a property together, the parties follow a property agreement to keep everything going smoothly.
What is a Property Agreement?
Suppose you’ve come across a property inherited from your parents or bought a farmhouse you want to flip. Having a property manager is a great way to ensure that you’re making a profit from your investment. It also provides that you have higher-quality residents and better-maintained units.
A property management agreement (PMA)is a contractual agreement between the property owner and the property manager outlining their responsibilities in writing. It highlights what will and will not happen during the tenure of your partnership.
Is A Property Management Agreement Worth It?
The short answer is Yes! It is worth it. Documented agreements are important for many reasons. The top reason is that it protects all the parties involved in the property agreement. As with other types of partnerships, like a business venture partnership or even a partnership within a sports team, it is imperative to outline what each individual or partner is responsible for. When it comes to a property management agreement, it is vital to clarify the roles of the property owner and the property manager.
With a property management agreement, everyone involved will know what responsibilities they need to handle regularly. It helps minimize any disputes that could arise during the partnership term. A PMA acts as an action plan instructs the parties involved on their responsibilities, such as overseeing routine maintenance problems, handling specific paperwork, coordinating with workers, and tending to construction plans.
Elements Of A Property Agreement
Property agreements may vary in scope, type of property, and the number of parties involved. However, a few key elements always need to be present. These elements include:
1. Parties involved in a property agreement
As with any agreement documentation, the primary document should cover the “Whos” of the partnership agreement, such as the full legal names of all the people and firms involved. It includes the name of the owner of the property or the rental portfolio of the business and the name and contact details of the property management firm. Provide a precise date of the signing and the effective date of the contract.
It should also clearly state the amount the property owner or landlord will pay the property manager or management company for performing the services.
2. Description of the property and its intended use
Next, specifying how the partnership will use the property is important. For example, the intended use of an apartment building will differ from the intended use of a farmhouse or a plot of agricultural land. Similarly, rental properties may require the management firm to conduct tenant screening and rent collection. During the partnership period, the document should clearly describe the nature and purpose of the property.
The agreement should mention the property’s physical address, the property identification number, and any unique identifiers. Properly describing the property’s intended use can also help the property owners define the scope of the service expected from the managers or management firms.
Common Clauses in Property Agreements
Among the most important elements of the property management agreement is the language surrounding when the contract is effective and when it will end. The document should also describe the processes involved in terminating the contract if the worst should happen.
This section of the document includes what factors could cause the contract to end early and what steps either party needs to follow if one wants out of the contract early. The document should also describe how the parties will meet all outstanding tasks and obligations.
Types Of Property Agreements
Here is a list of the types of property agreements there are.
1. Rental Agreement
Also known as a lease agreement, this type of property agreement is a legal contract between a landlord and a tenant. It includes details describing the terms and conditions on which the landlord agrees to let the tenant rent the property. The agreement document generally contains details such as the lease length, monthly rent, and the duties and responsibilities of each party.
2. Lease Agreement
Similar to a rental agreement, a lease agreement covers a longer-term contract. It is a legal agreement that authorizes the tenant to use and occupy the property for an agreed-upon period. This term period is typically a year or longer. Since a lease agreement often contains clauses for rent increment, renewal choices, and termination conditions, it gives the landlord and the tenant more stability and security. If you are confused about the difference between rental and lease agreements, read this.
3. Purchase Agreement
A purchase agreement is an officially binding contract between a buyer and a property seller. In it, you’ll find details about the property, such as its price and payment terms. All parties must sign the agreement to be valid and protect their interests.
4. Joint Venture Agreement
A joint venture agreement is a legally enforceable contract between two or more parties collaborating on a specific business project or venture. Several parties pool their resources, expertise, and capital to develop property through a joint venture agreement. This type of property agreement outlines the roles and responsibilities, the exact contribution, the allocation of profits, decision-making protocols, and the mechanisms in place if any disputes occur.
The Importance of Property Agreements
Property agreements serve several purposes and are important for several reasons:
- Clarifies ownership rights- It clearly defines and explains the ownership rights of the parties involved. This ensures that individuals or parties recognize their roles. In property agreements, a property’s rightful owner and type of suit against it are determined. It helps in preventing any disputes or conflicts.
- Sets boundaries and limitations- This agreement outlines the boundaries and limitations of a property. These boundaries include physical limits, permitted uses, and zoning restrictions. It provides clear guidelines and instructions on activities to conduct within the property. This can help prevent issues like trespassing, unauthorized use, and encroachment.
- Allocates roles, responsibilities, and obligations- Property agreements outline the roles, responsibilities, and obligations of the property owners and their occupants. It specifies maintenance duties, payment of taxes and related fees, and other commitments such as insurance requirements.
- Eliminates disputes- In disagreements or conflicts, the individuals and involved parties can refer to the agreement to clarify any miscommunications. Property agreement acts as a framework for resolving disputes.
- Provides legal protection- Property agreements serve as legal protection to property owners. They protect the parties involved and safeguard their rights and interests. A breach of a contract can lead to legal action.
Pros and Cons of Hiring a Property Management Company
Here are some pros and cons of hiring a property management company for your real estate.
- Saves time and convenience – Property managers and managing firms can handle several tasks, such as rent collection, tenant screening, and regular maintenance responsibilities. It can free up your time and allow you to focus on other important tasks.
- Utilization of expertise and experience – Property management companies utilize their knowledge and experience to effectively and efficiently manage your properties. They use tried and tested marketing strategies while complying with local laws and regulations.
- Cost: Compared to handling the tasks on your own, property management firms charge fees based on the size and scope of the property you want them to manage. It can affect your profits, especially for small-scale business owners.
- Giving up control: You will lose much of your managerial and decision-making power by giving up your management responsibilities to the property management company. It can result in disagreements and differences in priorities in preferences.
Legal Factors to Consider When Drafting a Property Agreement
Some of the top legal factors to consider when drafting a property agreement are:
- Clear and specific terms: There must be a clear description of all parties’ rights and responsibilities. There are several items in the contract, including the description of the property, the purchase price, and payment terms.
- Compliance with all applicable laws: All local, state, and national laws governing the property transactions, such as proper building codes, zoning regulations, and environmental and housing regulation laws, must be met. Abiding by these regulations in the agreement assures the legitimacy and enforceability of the contract and contributes to the protection of all parties.
- Dispute resolution protocols: Provisions for resolving any issues or disputes between the parties must be clearly outlined and mentioned. It includes elements of arbitration and mediation. By having these protocols, you will provide a structured process for resolving conflicts. It can help avoid expensive and time-consuming litigation.
How to Draft a Property Agreement?
Drafting a property agreement involves several vital steps to ensure optimal accuracy, clarity, and legal compliance.
- Gathering information– Gather all relevant property and transaction details like the property description, the terms of payment, and the purchase price.
- Clearly defining the terms and conditions– Clearly defining all the roles, responsibilities, and obligations of all parties involved and addressing all key elements and legal compliance.
- Using legal language– Using appropriate legal terminology ensures that the property agreement complies with local, state, and national laws. Coordinating with a qualified attorney is advised.
- Being specific and detailed– Providing precise information about the property. Such as its boundaries, physical appearance, and any relevant documents, such as the title deed.
- Reviewing and revising all content– All relevant documents must thoroughly review before being submitted. Ensuring the draft is consistent, accurate, and complete is necessary. Any loopholes or ambiguity should be edited and revised. It is advisable to seek professional assistance.
- Signatures and execution– The agreement is complete once all parties have signed the contract. Verifying and authenticating signatures requires witnesses.
Consult with Realty Experts – Melrose Realty in Oklahoma
If you have queries or are on the road to drafting property management agreements, you can consult with Melrose Realty for our expertise in commercial, residential, retail, multi-family property, and office property management. You can either contact us via our website or book a consultation.
A property management agreement is a legal document that outlines and establishes the terms and responsibilities of the property owners and any other parties involved. It specifies the ownership rights, allocated roles and obligations, sets boundaries, and works to prevent disputes. There are different types of property agreements, such as rental and lease agreements. As it could get complicated, seeking consultations from a property management company can help save time while mitigating any potential loss of finances.