A property management agreement spells out who does what, but for the accounting side it also answers a simpler question: how does the money move? Fees, reserves, deposits, statements and the final settlement when the contract ends all come from what the document says. This article walks through the financial clauses an owner, manager or broker should read closely. It is an accounting view of the contract, not legal advice, so have an attorney review the wording before anyone signs.
What a Property Management Agreement Should Say About Money
Most disputes between owners and managers are about money, and most money disputes trace back to a clause that was vague or missing. If the agreement does not say when the manager may pay itself, the bookkeeper has to guess. If it does not define the reserve, the first repair bill turns into an argument.
Rules for these agreements differ by state, and brokerage licensing rules sometimes dictate what has to be in them. Confirm requirements with your state’s real estate commission or a licensed professional. What follows is a checklist of financial topics to look for, not a template.
Management Fee Clauses in a Property Management Agreement
In the property management agreement, start with how the manager gets paid. Look for a clear statement of the base fee and what it is calculated on, such as collected rent or scheduled rent. The difference matters when a unit is vacant or a tenant is behind.
Then look for everything else that can be charged: leasing fees, renewal fees, set-up fees, inspection fees, maintenance coordination fees, and markups on vendor invoices. Each one should be named, with the basis for calculating it. Our article on how much property management charges covers the usual fee structures so you know what you are reading.
A good property management agreement also states when fees are withdrawn. If the manager takes fees from collected rent at month end, say so. If the fee is paid after the owner statement is issued, say that instead. Whatever the choice, the accounting has to follow it.
Trust Account Language in the Property Management Agreement
The property management agreement should say where owner and tenant money is held, in what kind of account, and who can sign on it. Security deposits and owner funds are not the manager’s money, and mixing them with operating funds creates problems. Investopedia defines commingling as mixing personal and client funds, and it is a well-known compliance issue for anyone holding money for others. We cover the details in our piece on commingling of funds in property management.
State rules for trust accounts vary, so use the agreement to say plainly that funds are held in a trust or escrow account as your state requires, and that the manager reconciles it. For the mechanics, see property management trust accounting.
Reserve and Repair Limits in a Property Management Agreement
Owners often ask managers to keep a minimum balance on hand for surprises. The agreement should state that amount, whether it is replenished from rent, and what happens when it falls short. It should also set a spending limit above which the manager needs the owner’s approval before paying a repair bill, with an exception for emergencies.
Vague language here creates trouble. If the clause says only that the manager may make “necessary repairs,” the bookkeeper cannot tell whether a large invoice needs sign-off before it is paid. A dollar limit and an emergency definition settle that.
Security Deposits in a Property Management Agreement
The agreement should say who holds the deposit, in which account, and who is responsible for accounting for it at move-out. Where a manager holds deposits in trust, the deposit liability should match the bank balance every month. If the owner holds them instead, the agreement should say so and describe how the manager will confirm the amounts.
It should also address forfeited amounts, deductions for damage and interest, where state law requires it to be handled a particular way. You do not have to restate the law in the contract, but the agreement should not contradict it. Our guide to security deposit trust account reconciliation shows how the balances are proven each month.
Reporting Clauses in the Property Management Agreement
Owners should know what they will receive and by when. A solid clause lists the reports, such as an owner statement, an income statement, and a rent roll, and sets a monthly delivery date. It should also say when owner distributions are paid and how, including the method and the cutoff for including that month’s receipts.
- Which statements are sent each month, and by what date
- When net proceeds are disbursed to the owner
- How reserves and pending expenses are held back
- How the owner can request supporting documents such as invoices
To see what a well-built statement includes, read our article on owner statements explained.
Records, Access and Audit Rights
The property management agreement should state how long the manager keeps records and whether the owner can inspect them. Retention periods and access rules are set by state licensing requirements, so confirm them locally. From the accounting side, what matters is that invoices, bank statements, reconciliations and lease files are kept in an organized way that you can pull up if the owner asks.
If the owner wants an outside accountant to review the trust account, the agreement should allow it. Managers who welcome that review tend to have cleaner books.
Ending a Property Management Agreement: Final Accounting
The end of the relationship is where sloppy accounting shows up. A good agreement explains what happens to the owner’s funds, tenant deposits, prepaid rent and outstanding payables when the contract ends. It should give a timeline for a final statement and for transferring balances and records to the owner or the next manager.
Check whether any termination fee applies and how it is calculated. Check who pays vendors with open invoices at the date of transfer. These are the questions that produce arguments if the document is silent on them.
Special Situations Worth Writing Down
Some events do not happen every month, which is why they get left out. Ask whether the document covers each of these:
- Vacant units: does the fee apply, and are there any minimum monthly fees?
- Capital projects such as a roof or a remodel: is a supervision fee charged, and on what basis?
- Insurance claims and legal costs: who advances the money, and who is repaid first?
- Owner draws between statements: can the owner request one, and does it come out of the reserve?
- Sale of the property: how are deposits, prepaid rent and open payables handled at closing?
A short paragraph in the contract for each of these costs almost nothing to write and can save a long email chain later. From an accounting standpoint, every one of them creates a transaction that needs a home in the books, so the more clearly the contract describes it, the more consistently it gets recorded.
It also helps to attach a simple fee schedule as an exhibit rather than scattering amounts through the text. An exhibit is easy to update when terms change, and the bookkeeper can work from a single page instead of hunting through clauses.
A Short Property Management Agreement Checklist
- Fees named, with the basis for each and the date they are withdrawn.
- Trust account described, with reconciliation stated as a duty.
- Reserve amount and repair approval limit written as numbers, not adjectives.
- Deposits: who holds them and how they are reported.
- Statement list and delivery dates.
- Records retention and owner access.
- Closing procedure and final accounting timeline.
Brokers who add management to their business often borrow a property management agreement form from a peer. If you do, review every financial clause against this list. Professional bodies such as the National Association of REALTORS®, NARPM and ARELLO are useful places to learn about standards and where regulators sit in your state.
If you want the accounting behind these clauses handled consistently, our Property Management Accounting service covers trust account reconciliations, owner statements and disbursements exactly as your agreement describes them.
Property Management Agreement FAQ
Should a property management agreement name the trust bank?
Many owners like to see the account type and bank identified, although what you must disclose depends on your state.
How long should a property management agreement run?
Term length is a business and legal decision. From the accounting side, just make sure the notice period and final settlement steps are written down.
Related reading: if this topic is on your plate, these guides go deeper: how a rent roll is built and kept accurate.
How Property Ledger Solutions Helps With Your Agreement
We are an accounting office, not a property management company, and we do not write or review contracts. What we do is make the numbers behave the way your property management agreement says they should: fees calculated on the right base, funds reconciled, statements issued on schedule, and a clean final accounting when a relationship ends. Our Monthly Accounting service closes the books each month with bank reconciliations and financial statements.
If you are drafting or revising your form and want to sanity-check the accounting side, book a free consultation. To your clients and tenants, we’re simply the accounting support behind you – the relationship stays yours.