terminate a property management contract

How To Terminate A Property Management Contract

There will eventually come a time when owners will want to terminate a property management contract. And when that time comes, it is important to know just how to do it.

 

Want to Terminate a Property Management Contract? You’re Not Alone

Owners hire property management companies because they offer a lot of benefits. When an owner is too busy or ill-equipped to manage a rental property on their own, they generally turn to trained professionals. But, it is not entirely unheard of for owners to cut their management company loose. And this can happen for a number of possible reasons, such as:

  1. The owner is not satisfied with the quality of promised work and services their property manager is delivering. For example, the property manager does not respond to tenant concerns on time (or at all), does not address maintenance and repair issues, fails to screen tenants properly resulting in eviction, and/or fails to conduct routine property inspections.
  2. The property manager has breached Fair Housing laws, thereby exposing the owner to legal trouble.
  3. The property manager has misused tenant and owner funds.

Keep in mind, though, that termination usually requires just cause. The contract will typically detail why and when either party can cancel a property management agreement. As such, before terminating the contract, it is imperative to read through it carefully. Owners may also benefit from consulting a lawyer for advice.

 

How to Terminate a Property Management Agreement

There is more to ending a contract than simply serving the company with a firing notice. Given that contracts often have legally binding durations, terminating them before their expiry can be considered a breach of contract.

Here is how to go about property management contract termination the right way:

 

1. Check the Termination Clause

The first thing rental property owners must do is check the termination clause. This clause will detail what owners must do to end a property management contract, including any specific requirements owners must follow and any fees associated with cancellation.

To ensure the cancellation clause is fair, owners should review this section of the contract prior to signing. Some management companies will intentionally make it hard for owners to terminate the contract early. Other contracts have auto-renew clauses stating that the contract will automatically renew for another set number of years unless the owner cancels before a specified date.

 

2. Give Appropriate Notice

Property management contracts will normally spell out how much notice an owner must provide the company if they want to cancel. The notice requirement can vary from contract to contract, though most require between 30 and 90 days. It is best to follow this notice period to avoid a possible breach of contract. Companies will usually not honor a termination request if notice is not given within the set time period.

In addition to following the notice requirement, owners should also send the termination notice in writing via certified mail. In doing so, owners can make sure there is physical evidence of the notice. This acts as an audit trail in the event of a legal dispute. Even if an owner has already informed the company of their intention to cancel through the phone, sending a written notice is still the gold standard.

A notice period may seem troublesome to a few owners since it does not immediately cancel the contract. But, such notice periods exist to facilitate a smooth property management termination. If an owner is switching to another company, this notice period will also allow the current company to send all necessary information to the new company.

 

3. Get Ready to Pay

Owners must prepare to pay fees when they end a property management agreement. Cancellation fees are common among such contracts, though the exact dollar amount can vary. Some companies charge a flat rate or the equivalent of one month’s worth of management fees. If an owner cancels the contract early, a company may also charge the owner the rest of the management fees for the remaining months on the contract.

In addition to the standard termination fee, a company may also forward any unpaid invoices or work orders. Owners must prepare payments for these after they cancel their contract.

 

4. Make Sure the Company Notifies Tenants of the Change

When property management companies take over the duties of the landlord, they also assume the responsibility of communicating with tenants. This responsibility extends to notifying them of the change in management.

Owners must make sure the exiting property manager informs all tenants that they will no longer be the main contact person. If there is a new property management company involved, the notice should include the name of the new company as well as their contact details. This way, tenants will know who to call for problems and where to send their next rent payments. The notice should also include an effectivity date.

 

5. Obtain All Pertinent Records and Documents

The final step in the termination process is to request the company for all pertinent records and documents. This includes the original lease agreement with tenants, tenant application forms, copies of renters insurance, property condition reports and photos, maintenance records, financial reports, and HOA forms. Owners should also retrieve the keys from the property management company.

 

What Owners Should Do If the Company Terminates

Of course, termination can go both ways. Sometimes, instead of the owner, it is the firm that will want to cancel a property management contract. This may seem like an unlikely situation, but it does happen.

Here are some possible reasons why a company would want to terminate a property management contract with an owner:

  1. The owner refuses to purchase landlord insurance.
  2. There are possible health risks in the property that the owner cannot or refuses to address.
  3. There are safety risks in the property that the owner cannot or refuses to address.
  4. The owner does not want to fix maintenance issues.
  5. It is no longer possible to remain in compliance with local building and safety codes.
  6. The owner is rude to or mistreats staff members.
  7. The owner is not open to compromise and is generally unaccommodating.

When the company terminates the contract, what should an owner do? First of all, the owner should make sure the company is not breaching its own terms. They should have just cause to terminate and pay any applicable fees, too. Owners can consult an attorney for guidance.

The next likely step is to find another management company that will take over. Once the current company sends its termination notice, owners should start looking for a new firm. This way, there is enough time for the transition to take place.

 

The Final Word

At a glance, it might seem difficult to terminate a property management contract. But, with the right steps and careful consideration, owners can even cancel their contract early. They just need to have just cause and be prepared for the possible costs that come along with it.

On the lookout for a new property management company? Start your search today using Rental Choice’s comprehensive online directory.

 

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