There are several reasons to terminate a property management agreement. You may decide to manage your property yourself or switch to another manager.
You may also not be happy with your current contractor or need to transition to another property management company. Also, your tenants may have been complaining or not satisfied with their current manager.
These are some of the common reasons. However, whatever the reason for your case, you must go through a process to terminate the current property management company. Also, you need to do some homework to go through this process.
In this post, I will walk you through the process of terminating a property management agreement and explain some other aspects related to this termination.
Let’s get started.
How to terminate a property management agreement
Terminating a property management contract is not a traditional or industry-standard process like eviction. Although there are some similarities, the agreement itself, especially the cancellation policy, is unique.
To cancel or terminate the agreement, follow the following steps:
Review the agreement cancellation policy
Different companies have different cancellation policies. Some companies want to tie with the property at any cost, no matter how hard it is for them or if they are eligible to perform daily tasks.
Some companies have flexible cancellation policies, even money-back guarantees. Some companies are straightforward.
Some of them renew monthly, and some of them renew yearly.
You must take steps as outlined in the agreement based on the cancellation policy. That’s why each termination is different according to its unique policy.
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Prepare for the cancellation fee
There are different types of cancellation policies, but one thing is common: the cancellation fee.
Most property management companies charge a cancellation fee during the agreement. This means that if you cancel an existing agreement, you have to pay for it because of the uncertain cancellation.
So, make sure you have the necessary budget for the cancellation fee.
If you switch to a new property management company, they may charge you fees for creating a new account. Be sure to check with them to see if this applies to you.
As a side note, some companies will tell you they don’t have any cancellation fees, but in reality, you may end up paying extra. There may be some hidden terms and conditions that are generally ignored when signing a new contract. Also, there might be some unclear conditions that will make you pay a fee for early termination.
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Send a formal written notice to your existing property manager
When you decide to cancel your existing agreement and prepare yourself for the cancellation fee, your next step is to send a written notice to your existing property management company.
Avoid verbal communication when terminating. Written notice always has more strengths and acceptance than verbal notice. Most importantly, you can use it as documentation if needed.
In the notice, be sure to include why you wish to terminate. This will help them better understand the reasons and improve their quality.
If your reason is financial challenges, you can mention that as well. Whatever your reason(s), it’s important to mention.
You can’t cancel an agreement instantly. You must send the notice between 30 to 60 days before canceling. However, you can minimize the duration by negotiating with the manager.
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Inform your tenants regarding the changes
Just after terminating the agreement, you should immediately inform your tenants about the changes. You should send them a written letter and also talk to them verbally. This means you have to contact your tenants in both ways (written and verbal).
The written letter to your tenants will help you document things and allow them to use it for future reference, such as finding new phone numbers, emails, etc.
You should also tell them verbally just to make sure they got it. Sometimes, your tenants may ignore the paper and subsequently pay rent to the old manager instead of the new one.
Be sure to include the new manager’s phone number and other contact information in the letter so they can reach out about maintenance requests and other needs.
You can follow the same approach if the transition goes to you instead of a new property management company.
As a side note, if it’s a large property with many tenants, you can send the notification using the existing manager because they already have a system in place, and it will take them less time.
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Collect all the necessary documents from the old manager
These documents could include the property’s lease, rental applications, inspection reports, photos, tenant rental applications, etc.
Having those documents in your hand will make the transition seamless, and the new manager can pick up where the old manager left off.
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To avoid conflict, notify the old manager of the end date and the new manager of the starting date.
When to fire a property management company?
Firing a property management company should be considered when it fails to meet your expectations or fulfill its contractual obligations. Here are some situations in which you might consider terminating the services of a property management company:
Poor communication
If the property management company fails to respond promptly to your inquiries or doesn’t keep you informed about important matters related to your property.
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Lack of maintenance
If they consistently fail to address maintenance issues promptly or neglect regular upkeep of the property, this can lead to tenant dissatisfaction or property deterioration.
Read also: Pros and cons of hiring a property management company.
Financial mismanagement
If you notice irregular financial reporting, late payments, or suspect mishandling of funds.
Read also: What is a good return (ROI) on a rental property?
Tenant issues
Persistent problems with tenant management, such as difficulty finding and retaining tenants or mishandling tenant complaints and disputes.
Legal or compliance problems
If the property management company repeatedly fails to comply with local laws and regulations or doesn’t handle legal matters appropriately, this could be a reason to terminate.
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Performance below expectations
If the property management company consistently fails to meet the agreed-upon performance metrics or doesn’t deliver the level of service promised in the contract.
Conflict of interest
If you suspect a conflict of interest, such as the property management company prioritizing its interests over yours or engaging in unethical behavior.
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High turnover of staff
Constant staff turnover within the property management company can lead to inconsistency and inefficiency in managing your property.
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Before firing the property management company, you must review your contract terms and understand the termination clauses and any penalties for early termination. Additionally, consider discussing your concerns with the manager first to see if you can resolve issues through communication and negotiation.
If problems persist and you decide to terminate the contract, follow the steps I outlined above and ensure a smooth transition to a new property management company.
Conclusion
Firing a property management company is a big hassle and lots of work. So, think twice before moving forward and try to resolve issues beforehand.
Terminating a property management agreement is time-consuming and a hassle for you and your tenants. Selecting the right property management company is crucial and will take some homework. But it will save you time and money in the long term. For more information, see what to look for before hiring a property maintenance company.
Two main aspects of terminating a property management agreement are bad quality work and lack of communication. If your manager consistently fails to communicate with you and tenants on time, this may be time to terminate.
