2.1 Client objectives. The management company shall identify and confirm in writing the client’s objectives for owning the property.
Explanation of best practice 2.1. The purpose of real estate management is to achieve the goals and objectives of the property’s owner. Not everyone owns real estate for the same reason. Typical goals are periodic income from cash flow; return on investment through capital growth; capital appreciation; income tax advantage; use for business; investment control; financing leverage; and pride of ownership – and frequently more than one of these. Because different goals can suggest different management responses, the client’s goals establish the parameters for the primary direction for the management of the property. As such, they determine how the property is managed on a day-to-day basis and how much authority the manager will have in handling fiscal and other issues.
The management company should insist that clients clearly articulate their objectives and confirm them in writing. These objectives, including the proper management and maintenance of physical components of the property, in turn, will be reflected in the management agreement, which establishes operating parameters that allow these goals to be met, and the management plan, which outlines how the goals and objectives will be achieved. Detailed objectives as they relate to capital improvements, optimal tenant mix, and asset preservation can also be documented and attached.
2.2 Management agreement. A written management agreement shall be in place that establishes the business relationship between the management company and the client and defines and explains the tasks, functions, actions, responsibilities, and obligations of each party and the authority of the management company.
Explanation of best practice 2.2. To minimize the possibility of misunderstandings and the problems they can cause, the relationship between the property owner and the management company is documented in writing in the form of a management agreement. The management agreement is a formal and binding contract between the management company and the property owner that establishes the manager’s legal authority over the operation of the property. It identifies the property owner and the management company as parties to the agreement; establishes the relationship between the owner and the manager for a fixed period; defines the manager’s authority and compensation for services provided; outlines procedures; specifies limits of the manager’s authority and actions; states financial and other responsibilities of the property owner; specifies insurance requirements each party will maintain; includes indemnification language; and provides for termination of the agreement at a certain time or under specific conditions.
2.3 Scope of authority. The management company shall not act beyond what is specified in the management agreement without documented client approval.
Explanation of best practice 2.3. One of the primary purposes of the management agreement is to spell out the management company’s scope of authority and specified monetary approval limits, if any – the limitations placed upon the management company without obtaining further approval. The concept of scope of authority for a management company operating as an agent has specific legal meaning and relates to the performance of legal obligations or duties that are assigned to an agent by a principal, either expressly or implied, then documented in the file.
2.4 Customer service. The management company shall have customer service goals for serving its clients.
Explanation of best practice 2.4. Because serving the client, which is reflected in the level of service to the property and the degree of attentiveness to the client, is one of the management company’s top priorities, the company should have customer service goals that create the platform for delivery of a high level of customer service throughout the organization. Thorough goals address responding to client requests and needs in a timely and professional manner; regular contact and communication with the client; optional client surveys to determine customer service levels and identify areas of improvement; staff training aimed at providing a high level of customer service; client communications based on notifying clients of conditions and incidents at their properties; having the technology infrastructure and optional training to meet client needs; and fulfilling the client’s goals and delivering on expectations.
As agent for the property owner, the management company accepts responsibility for communications with tenants and users of the property. This is a distinctly separate aspect of providing customer service. The quality of service provided is a reflection on the owner of the property as well as an indication of the management company’s performance in service to the owner.
2.5 Operating reports. Accurate and complete financial and operating reports shall be provided to the client on a regular, timely basis in accordance with the client’s instructions with respect to content, format, and frequency.
Explanation of best practice 2.5. Scheduled reports to the client represent the primary written communications link between the management company and the client. To a large degree, they form the basis for determining the performance of the property, as well as the client’s assessment of the performance of the management company. It is management’s responsibility, at the outset, to verify the client’s requirements with respect to the timing of these reports (typically monthly, although some owners prefer quarterly reports) as well as their content and the format in which they are to be prepared and delivered – and to submit reports to the client in accordance with these mutually agreed-upon requirements.
Generally, operating reports will contain both financial and narrative reports which, taken together, present a clear and accurate description of what of relevance has happened on and around the property and the impact of these occurrences on property operations. Reports should be prepared consistently from one period to the next and in a manner that is clear, understandable, and easy to use. While the scope, depth, and frequency of reports may vary from one client to another and from one type of property to another, management’s ability to comply with the client’s requirements with respect to providing timely, accurate, complete, useful, and truthful reporting is critical to the effective delivery of management services.
2.6 Property audit. The management company shall recommend that the client perform an annual review or financial audit of property operations and shall fully cooperate in the conduct of such a financial review or audit if performed by the client.
Explanation of best practice 2.6. The management company is responsible for significant assets. An audit of property accounts and property operations gives assurance to the client that these assets are being properly and accurately accounted for and safeguarded. The property owner usually has the right to audit the accounts of the property at any time, although the owner and manager may agree to a routine audit schedule and specify the schedule in the management agreement. In all cases, the management company should encourage the client to perform an audit at least once a year and fully support and cooperate in the performance of the audit.
2.7 Client property insurance. The management company shall provide assistance and support to the client by referring the property owner to a qualified, licensed, and insured insurance agent, when requested by the client.
Explanation of best practice 2.7. Responsibility for obtaining insurance coverage typically rests with the property owner. Current property insurance policies exclude coverage for many types of losses. In order to protect the management company, it is incumbent upon the management company to encourage adequate insurance that only the property owner can secure to protect both parties. This might include moisture-related loss coverage (mold coverage), cyber liability coverage, or other coverages particular to the property. The property owner usually gives the management company the responsibility to hold the policies, file claims, and ensure that premiums are paid.
2.8 Client property taxes. The management company shall provide assistance and support to the client in complying with all property tax obligations and appealing tax levels and assessments when requested by the client.
Explanation of best practice 2.8. Although the management company may not be responsible for property tax matters, clients frequently look to management for assistance in filing appeals and complying with tax obligations and should be prepared to assist the owner as may be requested.
2.9 Loyalty to client. The management company shall exercise loyalty to the interests of the client and shall not engage in any activity which could reasonably be construed as contrary to the best interests of the client without full disclosure.
Explanation of best practice 2.9. The management company may represent any number of clients, and properties in its portfolio may be competing in the same market or may even have some direct relationship to one another. The management company should make the client aware of the management of competing properties or interests by fully disclosing all such potential conflicts, ideally in writing. This is especially true whenever there is common ownership of a competing property and the management company.
2.10 Disclosure. The management company, as a fiduciary for the client, shall not accept, directly or indirectly, any rebate, fee, commission, discount, or other benefit, monetary or otherwise, that has not been fully disclosed to the client.
Explanation of best practice 2.10. It is common for suppliers and service providers to seek business from management companies in their capacity as agents for property owners. Because management companies represent multiple properties, there is a greater potential for business to the provider with fewer contacts and effort. As a result, providers may see an advantage in discounting their service or product based on volume. If the full benefit is afforded to each property or client, disclosure would not be necessary, although it might be worthwhile to keep clients informed of the benefit to them created by virtue of the agent’s aggregation of properties under management. However, if there is any financial or other benefit to the management company or its principals, it must be disclosed.
2.11 Client obligations. The management company shall provide non-financial assistance and support to the client in complying with the client’s incumbent obligations and responsibilities to other parties when so requested by the client, provided such assistance is within the scope of expertise of the management company.
Explanation of best practice 2.11. The client may have obligations to other parties, including but not limited to government and regulatory entities, tenants and residents, and other investors. These obligations may include or arise from leasehold, contractual, statutory, regulatory compliance, legal, and reporting requirements. The client is responsible for fulfilling these obligations but may look to the management company to provide assistance and support of a non-financial nature in acknowledging and fulfilling these obligations. The management company should be prepared to assist the owner as may be reasonably requested, as long as the management company has the expertise necessary to provide the assistance.