Once you have acquired your commercial real estate the next most important thing is to maintain the right relationship with the right Property Manager. This starts with the contract and we have found that many times the contracts are in favor of the Property Manager. I often get replies that these contracts are standard, but the truth is that the only standard is that you get what you negotiate for.
Here are a bunch of clauses that you may want to think aboutt :-

Limiting the Property Managers Liability

He is the guy who is on the ground floor everyday taking care of the maintenance and management of the property, so who should be responsible? Yes, he is, and be sure of it in your contract.

Termination Fee

So you’re going to pay the coffin maker to kill you? That’s what you would be doing if you offer your Property Manager a termination fee. First he does a poor job that causes him to deserve being fired, then he gets a termination fee for that? Get real.

Bonus for Lease Signing

This will cause a conflict of interest as they will be rewarded to do a poor job of tenant retention. They will make more money as your tenants keeping moving in and out while you keep losing more money. Yea, I thought that’s what you needed.

Another solution is to have a set period of time a tenant needs to stay for them to realize the lease up fee.

One year Contract

You can’t fire the Property Manage until the year is up? Right, and what if your tenants get driven out within a couple of months? You end up losing the tenants while still keep the property manager on payroll? Right, whatever. Just make sure you never sign anything with more than a 30 day dismissal period.

Right to Represent the Property or First right of refusal at Sale

You’re kidding right? This is an even bigger conflict of interest. First they treat your investment like dirt causing it to go down, then as you have to sell the investment, they get to pick it up and make money from it when it should have made money in the first place. Besides, if they are such good property managers then
why would they be interested to buy a property that they could not successfully manage anyway? Hmmm.

Performance Clauses

There should always be specific performance measures in the contract that bind the Property Manager. Ideally these asset management metrics would have been mutually planned and agreed therefore getting them to agree to this clause should not be difficult if you are really working with a professional.

Different Properties

Even if you the same Property Management Company for the different properties that you own, you should make sure that you have different contracts for each property. Each contract having its own property specific performance clauses.

In Commercial Real Estate negotiations will occur at all levels of the contract. You need to make sure that you negotiate a property management contract that protects your investments and your investors. The last thing that you want is a poorly performing property manager and no easy way out!

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