Property Management Agreement

By K. Michelle Lind & Sue Flucke

Arizona REALTOR® Magazine - July 2010

View a sample of the Property Management Agreement. It will be available on zipForm® starting August 1, 2010.

The Arizona Association of REALTORS® (“AAR”) is pleased to introduce a Property Management Agreement (“Agreement”) for use by AAR members. In 2009, AAR received a request from the president of the Phoenix Chapter of the National Association of Residential Property Managers (“NARPM”), Tammy Billington, and member Sue Flucke to produce a Property Management Agreement form. Sue Flucke was then appointed by the chair of the Risk Management Committee, Gary Nelson, to lead the Property Management Workgroup to develop the form.ⁱ The form was then sent through the “loop”ⁱⁱ for comments and revisions, approved by the Risk Management Committee and slated for approval by the Executive Committee at its next meeting. The form should be available for use in August. The following is a summary of some of the Agreement’s provisions.ⁱⁱⁱ

PARTIES (Section 1): The owner, brokerage firm and salesperson are identified in this section.  The brokerage firm and salesperson are collectively referred to as “Broker” throughout the Agreement.  

EMPLOYMENT (Section 2): The Owner employs and appoints Broker as the Owner’s sole and exclusive agent to lease, operate, and manage the Property. Blank lines are included for any brokerage or property specific addenda. If there is any personal property included, it should be described on an attached addendum or on the blank line. If the property includes personal property, always attach an addendum, signed by the Owner and the Broker, describing all personal property items. Further, any lease agreement for the property should also include an executed addendum describing the included personal property.   

The term is set forth with the Commencement Date and Termination Date. The Agreement renews automatically for the specified period unless otherwise cancelled or terminated. The Broker is required to send the Owner a reminder notice at least thirty days prior to the renewal date as required by A.R.S. §32-2173(2)(a). The Agreement is automatically terminated by sale, condemnation or destruction of the Property. If the Owner transfers the property to a trust, corporation or LLC solely controlled by the Owner, the Agreement remains in force. Either party may cancel the Agreement upon thirty days notice, or as otherwise provided, and the Broker may provide for an early cancellation fee. The Broker may cancel the Agreement in the event of a foreclosure notice, if the Owner fails to comply with any law, or if the Owner refuses to correct a hazardous condition on the Property. One way Owner may fail to comply with a law is violation of fair housing laws. Either party may cancel in the event a petition in bankruptcy is filed.
 
Upon cancellation the Owner assumes all contractual obligations and payment of all outstanding amounts due; however the Broker may withhold funds to pay any amounts due and to close accounts. If the Agreement is terminated or cancelled for any reason other than a foreclosure, refundable tenant deposits are released to the Owner. If the Agreement is terminated due to foreclosure, deposits due to the tenant are to be released to the tenant. The Residential Landlord and Tenant Act (“LTA”), A.R.S. §33-1321, sets forth the legal requirements pertaining to tenant security deposits. Additionally, the AAR Residential Lease Agreement requires ten days notice to the tenant if refundable deposits are transferred from the Broker’s trust account. Tenants are understandably nervous in this market about releasing deposits to the Owner and the Broker should be prepared to discuss this concern.

BROKER RESPONSIBILITIES (Section 3): The Broker is obligated to use its best efforts to manage and lease the Property, including negotiating and entering into leases on behalf of the Owner for the specified period of time and amount. If the Broker receives an offer to lease that differs from the specified period or amount, the Broker should still submit the offer to the Owner, who can accept or reject the offer. The Broker is authorized to advertise the Property for lease; however, it will not be advertised through MLS unless authorized by separate written agreement. 

The use of a lockbox is addressed, and this paragraph is initialed by the Owner to evidence the discussion of the potential risks associated with the use of a lockbox. A lockbox on a tenant-occupied property could be problematic because showing brokers may not have the knowledge of A.R.S. §33-1343 in the LTA that requires at least two days' notice to the tenant before entering the property. 

In addition, the Broker agrees to: 

• Assist the Owner in the employment and supervision of all labor required for the repair and maintenance of the Property. The Owner must approve expenditures in excess of the specified amount for any one item, except in the case of recurring operating expenses or emergency repairs. The Broker should discuss with the Owner and the tenant what constitutes an emergency; tenants tend to think it is always an emergency and Owners tend to think it is never an emergency!
• Deposit all Property rents, income, security deposits and reserve funds into a Broker Property Management Trust Account(s) (“PMTA”). The PMTA may earn interest, which is paid to the Broker as additional compensation. One of the most frequent complaints made with the Arizona Department of Real Estate (“ADRE”) involves property management trust account issues and audits occur regularly. See A.R.S. §32-2175. Comingling monies belonging to others or personal monies is prohibited, however, it is not considered commingling if, when establishing a trust fund account, a broker deposits monies not exceeding five hundred dollars to keep the account open or to avoid charges for an insufficient minimum balance. See A.R.S. §32-2151(B)(2). 
• Disburse rent and other funds collected monthly, after deducting any amounts due. Tenant refundable security deposits, prepaid rent or other prepaid funds are not disbursed until earned, unless instructed otherwise by Owner.
• Issue an accounting report as specified. 
• Report owner income as required by law and issue Owner an IRS 1099 Miscellaneous Income form for all funds received for tax purposes. The Owner agrees to accurately complete a W-9 or any other applicable income reporting form. The Broker must comply with all laws concerning the retention and disclosure of personal and financial information obtained from both the Owner and the tenant. A Broker should consider the advisability of a written privacy policy agreement with the Owner. A sample privacy policy is available on the AAR website at: www.aaronline.com/Documents/broker-privacy-policy.aspx.

OWNER REPRESENTATIONS AND RESPONSIBILITIES (Section 4): The Owner represents that the Owner has the legal authority to lease the Property, no other real estate broker represents Owner; and there is no pending or anticipated sale, foreclosure, bankruptcy or other proceeding that could affect the ability to lease the Property.  

In addition, the Owner agrees to: 

• Disclose in writing all important facts regarding the Property. AAR’s Seller’s Property Disclosure Statement (SPDS) is available for this purpose, but is not required. This paragraph requires the Owner’s initials since the failure to make legally required disclosures may result in liability. 
• Comply with all lead-based paint laws, notify Broker of any known lead-based paint (“LBP”), provide any LBP risk assessments, and use EPA lead-safe certified contractors to perform renovation, repair or painting projects if the Property was built prior to 1978. The Broker needs to be familiar with new EPA guidelines for LBP renovations or repairs, which requires that anyone compensated for performing work on target property be EPA certified. (For more information, see http://www.aaronline.com/Documents/rule-on-lead-paint-renovation-certification.aspx )
• Comply with all applicable swimming pool barrier laws at Owner’s expense prior to the Property being occupied. The Owner agrees to pay for pool barrier compliance to avoid any fair housing issue. 
• Provide all relevant documents pertaining to the Property.  
• Fulfill all Owners’ obligations to tenant. A Broker should consider providing a copy of the LTA to the Owner.
• Not visit the Property or contact tenant without five business days or specified prior notice to allow Broker sufficient time to provide tenant with any legally required notice, and not enter the Property unless accompanied by the Broker. This provision was included because not all Owners are familiar with the two day notice requirement in A.R.S. §33-1343 and thus, could run the risk of violating the LTA. 
• Refer all inquiries to Broker and allow the Broker to conduct all Property negotiations.
• Notify Broker immediately if Owner decides to sell, exchange or transfer the Property.
• Pay all obligations which could lead to a foreclosure action and notify Broker and tenant within ten days after receipt of notice of any foreclosure notice. Broker should be familiar with the federal Protecting Tenants at Foreclosure Act of 2009 and state tenant foreclosure notice provisions contained in HB 2766 (A.R.S. §33-1331). 
• Not hire any employee of Broker to perform any service related to the Property without Broker’s consent.
• Register the Property with the County Assessor, purchase any required licenses and pay any fees or taxes when due. The Broker should become familiar with the applicable city license requirements; some cities require the license to be in Owner’s name, not the Broker’s name.
• Maintain a reserve account operating balance as specified. 
• Maintain adequate insurance on the Property, name Broker as co-insured and provide Broker with Certificates of Insurance or copies of the policies.
• Consult with an attorney, professional tax consultant, or other qualified licensed professional to advise Owner with respect to legal or tax issues. Brokers should be familiar with competent attorneys who are familiar with the LTA and statutory requirements regarding special detainers/evictions.

Finally, the Owner must initial the clause that contains a release of the Broker from claims arising from the management of the Property, except in the case of willful misconduct or gross negligence.

COMPENSATION (Section 5): This section of the Agreement addresses the compensation that the Owner agrees to pay for the Broker’s services. Management fees will be charged each month during the term of this Agreement as specified. A leasing commission is specified, if a rental of the Property is made during the term of the Agreement. A sales commission as specified, if a tenant purchases the Property. Miscellaneous Owner fees for additional services may be specified, such as initial clean up, set up, and advertising fees, etc. Finally, the fees that the Broker may charge the tenant and retain are set forth. Note, that there are no set standards for fees; however, the Broker needs to be consistent with fees they charge individual Owners to avoid any fair housing allegations.    

REMEDIES (Section 6): The Owner and Broker agree to mediate any dispute. In the event that mediation does not resolve the dispute, it will be submitted for binding arbitration, unless one of the parties opts out within thirty days after the conclusion of the mediation. If one of the parties opts out, either party may resort to court action. Reasonable attorney fees and costs are to be awarded to the prevailing party.   

ADDITIONAL TERMS AND CONDITIONS (Section 7): This section of the Agreement addresses: 

• That Broker and Owner shall comply with all fair housing laws.
• Neither Broker nor Owner may assign any Agreement rights or obligations without prior consent. 
• The Owner acknowledges and agrees that Broker may represent other owners and tenants of similar properties.
• The Agreement is governed by Arizona law. 
• Delivery of all notices, statements, reports, and disbursements must be in writing and are deemed delivered and received when hand-delivered, faxed, emailed (if email addresses are provided) or sent by recognized overnight courier service. If the notice is sent by U.S. mail, the notice is deemed received when actually received or five days after the notice is mailed, whichever occurs first.
• All references to days are calendar days unless otherwise provided.
• The failure to initial any page of this Agreement shall not affect its validity or terms.

SIGNATURES AND CONTACT INFORMATION (Sections 8 & 9): The Owner’s signature line, contact information and emergency contact are set forth in section eight. The Broker’s signature and contact information is contained in section nine. 

CONCLUSION
This new form should assist property managers in clearly and unambiguously setting forth the rights and obligations of the Broker and the Owner. Such clarity should reduce disputes and increase professionalism in the industry. 

Sue Flucke is Vice President/Managing Associate Broker with RE/MAX Achievers, Certified Real Estate Brokerage Manager (CRB), Graduate REALTOR® Institute (GRI), a member of the National Association of Residential Property Managers (NARPM), Certified Distressed Property Broker (CDPE), Certified Risk Management Specialist (rCRMS), and RE/MAX Southwest Region Broker/Manager of the Year 2000.

AAR General Counsel Michelle Lind is a State Bar of Arizona board certified real estate specialist and the author of Arizona Real Estate: A Professional’s Guide to Law and Practice.   This article is of a general nature and may not be updated or revised for accuracy as statutory or case law changes following the date of first publication. Further, this article reflects only the opinion of the author, is not intended as definitive legal advice and you should not act upon it without seeking independent legal counsel.

 
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