Property Management Contract: Fill & Download for Free

Let’s put it this way: As an attorney, I’ve had clients with rental properties where:One tenant murdered another tenant.A tenant died from smoke inhalation , about a week after my client hired an electrician to fix a broken ceiling fan in one of the bedrooms (where the fire started).A car drove right through the building, injuring a guest inside.A child is electrocuted after coming into contact with exposed wiring in a rehab, after sneaking through the fence surrounding the property.So, here’s a test: Which of the above may not be covered by insurance?If you guessed #2 and #4, you’d be right. Why? Because insurance will not cover “intentional acts.” The fact-pattern in #2 was unfortunate: The electrician hired wasn’t licensed, insured or bonded. We had to fight the insurance company on this, even in the face of evidence showing the electrician lied about being licensed, insured and bonded on his website.The fact-pattern in #4 was also unfortunate. Turns out the the contractor’s labor didn’t lock the gate on their way out one evening. Insurance was also declined, although they agreed to pay for defense.Insurance isn’t the end-all, be-all for proper liability protection. Even in instances that are difficult to predict or outside your control, you run the risk of insurance attempting to decline coverage claiming some sort of exclusion or intentional act. When you’re renting property, by definition you have other third-parties on your property that you cannot always predict or control their behavior.So, for all the answers that recommend any form of “partnership” or sole-proprietorship, they are speaking purely from a tax perspective and not considering the possibility of a catastrophic event.What do prudent owners of rental properties do? They do the following:First, they form an Anonymous LLC as a Holding Company / Umbrella company to act as a separator between themselves and all their holdings. This provides security, limits the opportunity for being harassed or a target, and maximizes liability protection. This Umbrella company will be the taxable entity. If you want to tax yourself under Subchapter C, then I recommend Wyoming. If you want to tax yourself under any form of pass-through, then I recommend New Mexico. You can learn more here: Maintain Your Privacy With an Anonymous LLC | Law 4 Small Business, P.C. (L4SB)Second, form a separate LLC for EACH property you own. Let’s call these “Property LLC’s”. They will be owned by the Umbrella Company. It’s important that each Property LLC acts as its own P&L, with its own FEIN, bank account, etc. Ideally, the Property LLC just holds property, and does NOT act as the Property Manager. For that, see below. The Property LLC hires a Property Manager to act as the landlord for the place. The Property LLC should be located in the state where the property is located. (Of course, we can do this for you at a very affordable rate, but it’s important you have a professional do this, to help protect anonymity, and minimize liability. Learn more here: Form a Limited Liability Company (LLC) | Law 4 Small Business, P.C. (L4SB).Third, do you want to be your own property manager? If so, make sure you (a) check the local laws in the state where the property is located, because some states require that a broker be involved, and (b) form another LLC as your Property Manager, that actually enters into contracts and charges for its services with the Property LLC’s.Seems like a bit much, but this is all structure. From a tax perspective, all the sub-LLC’s (i.e. Property LLC’s and Property Manager) are solely owned by the Umbrella Company, which means they are “disregarded” for tax purposes. All their profits and losses flow up to the Umbrella company, and you deal with income taxes at that level.[Thank you to Michael Crowe for this:] Some states such as California, require separate tax returns and an $800 minimum tax. So, be sure to talk with a local CPA / business lawyer to make sure you’re doing everything correctly.This structure then provides tremendous liability protection, anonymity, flexibility and scalability.Good luck to you. Larry.

I’m going to answer a related question - what if a neighbour’s tree roots damage your property? This actually happened to us in London many years ago. A Black poplar (thirsty, extensive shallow root system) on neighbouring land near the boundary was sucking water from under our house causing the ground to contract and the house to subside. The solution was very expensive underpinning of the foundations. A legal battle between insurers followed and the neighbour (actually a property management company) was found liable. It was quite a big deal for us as we were not insured against subsidence, but did have the legal cover to fight the case. Had we lost it would have been a financial disaster.

Having signed a Property Management Agreement will help making sure a property management agency to arrange the facility services for your property.For your reference an example Property Management Agreement. You could do an advertisement on a HK website to find suitable property agents in the area.To help you, I would suggest to have a look at this topic: What to discuss in a full-service property management contract?