Ending a Contract With a Property Manager

Proper Ways to Terminate the Agreement

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Ending a contract with a property manager is not easy, but many times, it is necessary. If the manager is not fulfilling the terms of the contract or managing the rental property to your standards, it is time to cut ties and move on. Before terminating any contract, you must make sure you understand the terms of the contract and your legal rights for ending the contract, so that you are not in jeopardy of breaching the contract. Here are the steps a landlord needs to take to properly end a property manager contract.

Need Just Cause to Terminate

Look at the terms of your management agreement. Does it require cause in order to terminate the contract? Some management contracts do not require cause to terminate, while others only allow you to cancel the contract for a number of specific reasons.

If cause is required, the allowed reasons for ending the contract will be spelled out in the contract. Examples of cause could be a property manager not storing the tenants' security deposits according to state law or failing to follow Fair Housing Laws.

If you attempt to end a property management agreement early, and you do not have proper cause, you will be in for a struggle. The manager could ignore your request or take you to court for breach of contract.

End Contract for Property Manager Breaches

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, or put your tenants or rental property in jeopardy, it will be hard to feel secure allowing them to manage your property.

Give the Required Notice

When terminating a property management contract, you must give advance notice. The termination clause of your management contract will specify how much notice must be given.

Most contracts will require between 30 and 90 days notice to terminate a contract. Make sure you are within this window or one of two things can happen:

  1. Your termination request will not be honored; or
  2. Your request could be considered a breach of contract if you still insist on terminating the agreement. In this situation, you may find yourself involved in a lawsuit.

Make Notification to End Contract 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.

Understand the Costs Involved

Even if you 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.

Notify 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.

Allow Time to Receive Funds Owed to You

You should anticipate waiting 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.

Get 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.

Do Not 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.