The short version
- The agreement is an agency appointment. What the manager does within the authority you granted binds you, and the tenant's statutory claims still run against you as landlord.
- The spending limit is the number worth negotiating. Below it the manager acts alone; above it they must ask — except under the emergency carve-out, which is where the limit quietly stops applying.
- A fee charged on rent actually collected puts vacancy and arrears risk on the manager. A fee on scheduled rent leaves it with you, and you pay on empty units.
- Managing property for someone else for a fee is broker-licensed work in most states. California treats collecting rent for another as broker activity outright, and Texas treats controlling the acceptance of rent from a single-family unit the same way.
You are appointing an agent, not buying a service
The distinction sounds academic and is not. A contractor performs work and answers for it. An agent acts in your name, and what they do within the authority you gave is treated as though you did it.
One consequence runs through everything below: the manager's mistakes land on you first. A tenant whose deposit is returned late sues the landlord, and the landlord is the owner. A complaint about how applicants were screened names the owner. A lease you would not have agreed to is still your lease. Your recourse against the manager is worth exactly what their indemnity and insurance are worth.
The spending limit is the number to argue about
Every management agreement grants a bundle of authority. Read it as four separate grants, because only one usually gets any attention.
The authority clause, taken apart
What the manager may do without asking
A workable limit is one you can live with being spent without a phone call, several times a year. Set it low and you become the maintenance department; set it high and you first hear of a four-figure invoice on the monthly statement. The figure matters less than the two things around it: a definition of emergency that names situations, and a duty to notify you of emergency spend within a stated number of days.
Collected rent or scheduled rent
The management fee is a percentage, and the argument is not about the percentage. It is about what the percentage is charged on, which is where the risk of an empty unit sits.
What the fee structure rewards
How re-letting is paid for
The management fee is charged on
Rent actually collected
Rent scheduled in the lease
No separate leasing fee
Aligned
The manager earns only while a paying tenant is there, and gains nothing by replacing them.
Vacancy costs you twice
You pay a fee on an empty unit, and the manager loses nothing by leaving it empty.
A leasing fee each new tenancy
The common structure
Workable, but a turnover pays better than a renewal unless the renewal fee is comparable.
Both incentives point away
Income is insulated from vacancy and re-letting is rewarded on top.
| Fee line | Usual shape | What to pin down |
|---|---|---|
| Management fee | A percentage of monthly rent | Collected or scheduled, and whether it runs during vacancy |
| Leasing or placement fee | A share of one month's rent | Whether it recurs if the tenant leaves inside the first year |
| Renewal fee | A flat sum or smaller share | Whether one exists — no renewal fee beside a full leasing fee rewards churn |
| Maintenance markup | A percentage on vendor invoices | Disclosed, capped, and evidenced by the original invoice |
| Late and application fees | Collected from tenants | Who keeps them — most drafts say the manager |
Property management agreement
Free full text: the scope of authority and the spending limit, the fee schedule, trust account and reporting duties, indemnity and insurance, and a termination clause with the handover list.
Trust accounting is the part with a regulator behind it
Rent and deposits collected by a manager are not the manager's money. In licensed states they are trust funds, and the rules around them are the strictest part of the arrangement — which is useful to an owner, because a real estate commission enforces them rather than you.
California is a clear illustration. A broker must place funds accepted on behalf of another into the owner's hands, a neutral escrow depository, or a trust fund account not later than three business days after receipt, kept separate from the broker's own money, with any interest not benefiting the broker. Arizona reaches the same place by regulating the document: a management agreement must state how collected funds including tenant deposits are handled, the terms for interest on trust monies, any operating reserve, and the frequency of owner reports.
Four questions about the money
- Whose name is the account in, and is it a client trust account or the firm's operating account?
- How often is it reconciled, and do you see that or only a summary?
- What reserve is held from your funds, and what may it be spent on unasked?
- On what day is the owner distribution made, and who keeps interest earned before then?
Who holds the deposit, and who pays if it goes missing
Security deposit statutes impose their duties on the landlord. The manager holding the money is your agent, so a claim over a late or unitemised statement is a claim against you — and in several states a procedural failure forfeits the right to deduct at all, whatever the property looks like. Virginia puts it plainly: whoever holds the landlord's interest at the end of the tenancy must return the deposit, however acquired.
So the question is not who holds the money, but whether the holder will meet a deadline that penalises you. What can and cannot come out of a deposit is set out in security deposit deductions; the agreement should name your state's deadline and put the duty on the manager.
Read the indemnity to see which way it points
In most standard forms the indemnity runs one way: the owner indemnifies the manager against claims arising out of the management. That is not unreasonable in principle — the manager acts on your behalf and the liabilities are yours. What makes it unreasonable is drafting with no carve-out, leaving you indemnifying the manager for their own negligence.
- Carve out fault. The indemnity should not reach the manager's own negligence, wilful misconduct, breach, or acts outside the authority granted.
- Get named. Ask to be an additional insured on the manager's general liability policy, and ask for the certificate, not an assurance.
- Ask about errors and omissions. General liability covers injury and property damage, not a botched eviction, a mishandled application or a badly drafted lease.
- Ask about fidelity cover. Employee theft from a trust account is a crime-policy question, which general liability will not touch.
- Check your own policy. Cover written for a self-managed property may need endorsing once a manager and tenants are involved.
Licensing: in most states this is broker work
Managing someone else's property for a fee is regulated real estate activity in most of the United States. California defines a broker to include anyone who, for compensation, leases or rents real property, solicits prospective tenants, or collects rents. Texas gets there from a different angle, treating a person who controls the acceptance or deposit of rent from a resident of a single-family unit as acting as a broker.
Exemptions exist and matter: an on-site resident manager, and an employee of the owner managing the owner's own property, are commonly outside the requirement. An independent firm collecting a percentage of your rent generally is not.
For an owner this is due diligence rather than a risk to lose sleep over, and it takes a minute. A licence number belongs on the agreement and can be checked against the regulator's public register. A licensed firm brings audited trust accounts, a complaints process that costs you nothing, and in some states a recovery fund.
Termination, and getting the property back
The exit is the weakest part of these agreements, because it is drafted by the party that does not want you to use it. Check two things: what it takes to leave, and what has to come back.
What a handover looks like when a statute sets it
Day 0
Records and keys
Leases, applications, plans, inspection reports, contracts, warranties and keys, delivered immediately.
Day 5
The deposit list
A list of the tenant security obligations the firm holds for you.
Day 35
The money
Remaining monies in the account, less unpaid obligations, reimbursed to the owner.
Day 75
Final reconciliation
Closing receivables and payables, and the bank reconciliation.
Oregon adds the piece owners forget: on termination the manager must tell each tenant, by the next calendar day, where their deposit is going, and must transfer funds, deposits, accountings and copies of the current rental agreements within sixty days. Tenants not told promptly keep paying the old manager.
Three things decide whether the exit clause is usable: the notice period, whether an early-termination fee applies and how it is calculated, and whether termination for cause is immediate. Watch for automatic renewal, common here and working as it does everywhere — the deadline is the notice date, not the end date, as auto-renewal clauses explains.
What the agreement cannot fix
A good agreement will not make a bad manager acceptable, and a bad one will not stop a good manager doing the job well. What the document decides is what happens on the two or three days a year when something goes wrong: a deposit deadline missed, an emergency invoice, a tenant suing, or you wanting to leave. Read it for those days rather than the ordinary months, and keep your own copy of the rental agreement and the inspection report for every unit.
Sources
- California Business and Professions Code § 10131 — leasing and collecting rents as broker activity
- Cal. Code Regs. tit. 10 § 2832 — trust fund handling and the three-business-day rule
- A.R.S. § 32-2173 — property management agreements: contents and termination
- OAR 863-025-0070 — termination and transfer of property management
General information, not legal advice. This guide explains how these documents and rules generally work. Law varies by jurisdiction and changes, and none of it is applied to your circumstances here. For anything consequential, consult a licensed attorney where you are.
Frequently asked
What percentage do property managers charge, and what is it charged on?
The percentage varies by market and portfolio size, and it is the less important number. What matters is whether the fee is charged on rent actually collected or on the rent scheduled under the lease. Charged on collected rent, the manager earns nothing on an empty or non-paying unit. Charged on scheduled rent, you pay regardless, and the manager carries no part of the vacancy risk.
Does a property manager need a real estate licence?
In most states, yes — usually a broker licence or work under a licensed broker. California defines leasing, soliciting tenants and collecting rents for compensation as broker activity, and Texas treats controlling the acceptance of rent from a single-family unit the same way. On-site resident managers and employees of the owner are commonly exempt. Check the licence number against the state regulator's public register before signing.
Who holds the security deposit — me or the property manager?
Either can, but the statutory duty falls on the landlord, which is you. If the manager misses the itemisation deadline or fails to return the deposit, the tenant's claim runs against the owner, and in several states a late statement forfeits the right to deduct anything at all. Put the deadline in the agreement and require the manager to indemnify you specifically for statutory penalties.
How much can a property manager spend without asking me?
Whatever the spending limit in the agreement says, plus whatever the emergency carve-out lets them treat as urgent. The carve-out is the part to negotiate: an undefined emergency clause makes the limit above it largely decorative. Define what counts, and require notification of any emergency spend within a stated number of days rather than on the next monthly statement.
How do I terminate a property management agreement?
By following the notice clause exactly — the period, the method and the address it names. Check for an early-termination fee and for automatic renewal, which is common in these agreements. Then chase the handover: leases, applications, keys, plans, warranties, tenant deposits, the final accounting and written notice to every tenant telling them where their deposit has gone.