How to Terminate a Property Management Contract

The Dos and Don'ts of Firing a Property Manager

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If you are not getting the results you were promised by a property manager or management company, you may need to end the relationship and move on. However, you must do so according to the terms of the management contract you signed to ensure that you do not face legal ramifications for breach of contract. Here are the do's and don’ts of terminating a property management agreement.

Do Give the Proper Notice

Check the termination clause of your management contract. Most contracts will require giving between 30 and 90 days notice to terminate a contract. Make sure you are within this window or one of two things can happen: your termination request will not be honored; or your request could be considered a breach of contract if you still insist on terminating the agreement. In the latter situation, you may find yourself involved in a lawsuit.

Do Make Your Notification in Writing

You need to make sure your notification to terminate the management contract is in writing (and not by email!). You should send the notice by certified mail, return receipt requested, so you will have a record that it was sent and that the property manager received it. Make sure you include the effective date of the contract termination.

Don’t Terminate If You Do Not Have Cause and Your Contract Requires It

Ideally, when you first sign a management agreement, you want to look for one that does not require cause to terminate the agreement. However, if your contract does require cause, you must have a reason, as spelled out in the agreement, to cancel the contract. An example of cause could be, the property manager did not store security deposits according to state regulations. If you try to terminate without cause, your request may be ignored, or you could be taken to court for breach of contract.

Do Understand the Costs Involved

Look at the terms of your agreement. Even if you do give proper notice, some contracts will still charge a fee for terminating the contract early. This fee can be as little as a few hundred dollars or as much as the management fee for the remainder of the contract. You will of course also be responsible for paying the manager all fees they have incurred up until the contract termination effective date.

Do Inform Your Tenants of the Change in Management

Depending on the contract, either you or the current property manager are responsible for informing the tenants that you have parted ways with the current management company. It is also best to do this in writing. You should give the tenants the information about who will manage them from this point forward, and let them know where their security deposits will be held.

Do Terminate If the Manager Has Breached the Contract

If management violates the terms of the contract they have signed, it is in your best interest to terminate the contract. Once they have violated your trust it will be hard for you to feel secure allowing them to manage your property.

Do Give Reasonable Time to Receive Funds Owed to You

You should anticipate waiting for one to two months until you receive all funds owed to you. This is because the manager must make sure they have the necessary funds to pay all expenses owed before they can determine the amount you are owed.

Funds owed to you will include monthly rent collected, any money in the reserve fund you have established and any miscellaneous income, such as revenue from a cell phone tower or billboard. The management company is also responsible for transferring the tenant's security deposits to you or to the new management company you are using. Make sure they are put in the proper account according to your state laws.

Do Obtain Copies of All Important Paperwork

Make sure you are given copies of all leases, records of security deposits and a statement of all income and expenses. These documents should be sent to you immediately upon termination of the contract. There is no reason for a lag of more than three or four days.

Don’t Make It Personal

You need to focus on the numbers and the results. It is easy to let a personal relationship cloud the actual results the property manager is producing. If you like the property manager, but they are not living up to expectations, such as they are taking too long to fill vacancies or are responding to maintenance requests too slowly, you need to cut ties and find someone who will produce better results for your investment.