How to Write a Commercial or Retail Property Management Service Agreement

When it comes to managing commercial property today, you should have a comprehensive property management agreement that correctly reflects the duties to be provided by the agency, and the interaction between the property manager and the landlord as the client.

A correctly prepared document will minimize any service difficulties and misunderstandings.  Every landlord will have their unique requirements when it comes to income collection, expenditure management, and lease management.  The property manager needs to understand the facts and the requirements of the landlord and the property.

The property management processes involved with commercial and retail property are quite unique and special.  For this reason, the property management agreement should be carefully constructed for the requirements of the property, the landlord, and the agency.

Here are some tips to help you compile a property management agreement between the parties:

  1. The agreement should be designed to reflect the needs of the property, the landlord, and the agency; however it should also take into account the requirements of local real estate agency laws and regulations.  There will be certain forms that need to be completed to comply with those local laws.  Both parties to the agreement should sign the document legally and correctly before the services are provided.
  2. Clarity is required when it comes to property management duties and services.  The type of property and the prevailing market conditions will dictate the key areas to be outlined in the services agreement.
  3. Take particular care to explain processes and services provided by the agent in areas such as income collection, expenditure management, tenant communication, reporting, landlord reporting, budgeting, maintenance management, lease management, and risk management.  Each of those categories will have several key factors and standards to be outlined.  The expectations of the landlord should be merged into the services agreement document to prevent any ambiguity or misunderstanding.
  4. The fees for service should reflect the complexity of the property and the demands of the landlord.  Some landlords require unique and special services as part of their property performance and management plan.  A landlord that requires comprehensive reporting and control should pay a higher fee for service.
  5. Properties containing a lot of tenants produce a lot of work.  The same rule applies when it comes to customers visiting the property.  Both of these factors are quite challenging when it comes to the management of a retail property or shopping centre.  The fees for service in such a property type are quite significant given the duties and interaction required of the property manager.  The fees in managing a retail property are therefore significantly larger than those fees obtained for an office property or an industrial property.

Do not base your property management fees on the level of passing income or collected rent; it’s useful for comparisons but that is all.  That is perhaps one of the greatest errors that many real estate agencies make.  Your property management fees should be based on the level of income compared to the complexity of the tenancy mix, the size of the tenancy mix, the number of leases, the demands of the landlord as to reporting and financial control, lease management requirements, and the age of the property.

As a final note, it should be said that a commercial and or retail property management service should not be provided by the agency if the expertise, knowledge, and experience is not available.  Far too many errors can occur that expose the business to litigation.  A top property management service requires experienced and skillful property managers.

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