Property Management Agreement in Commercial Real Estate

What is a Property Management Agreement in Commercial Real Estate?

A Property Management Agreement (PMA) is an essential document in the world of commercial real estate. A PMA is a contract that establishes a working relationship between the property owner (often referred to as the ‘landlord’ or ‘principal’) and a property manager (or property management company). The goal is to ensure that the commercial property is well-maintained, tenancies are managed effectively, and the property generates the expected return on investment.

Key Components:

While the specifics can vary, most agreements cover the following areas:

Services and Responsibilities: This section defines the scope of the manager’s duties and this will generally include maintenance, rent collection, tenant communications, handling emergencies, and more.
Compensation: Details on how and how much the property manager will be paid. Property managers are typically compensated based upon a flat fee, a percentage of collected rents, or a combination of both.
Liabilities and Indemnification: Specifies the legal responsibilities of both parties, often stating under what conditions each party might be held liable for losses or damages.
Termination Clauses: Conditions under which either party can terminate the agreement, such as a breach of contract.

Why are Property Management Agreements Important?

Clear Responsibilities: Such agreements eliminate ambiguity in managing the property and various leases by detailing who is responsible for what.
Protection: Property management agreements protect both parties by setting out terms, responsibilities, and liabilities.
Efficient Management: PMAs provide the framework for the efficient management of a commercial property, ensuring it remains profitable and well-maintained.

Things to Consider Before Signing the PMA:

Due Diligence: Ensure that you have vetted the property management company or individual thoroughly. Check independent references, reviews, and credentials.
Negotiation: Some terms can be negotiable. Ensure you’re comfortable with all clauses in the agreement.
Legal Counsel: Parties who are both sophisticated and unsophisticated are advised to consult with legal counsel before finalizing and signing any lease or property management agreement to ensure it meets specified needs and provides adequate protection under the circumstances.

Takeaway:

A Property Management Agreement ensures the smooth operation of the property, safeguarding the interests of both the owner and the manager. As with any legal document, it’s crucial to understand its terms thoroughly and seek expert advice when necessary.

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