3.1 Management plan. The management company shall prepare a management plan for managed properties in accordance with client directives.
Explanation of best practice 3.1. The management plan provides a detailed outline of the management company’s operation of the property for the next period of time – typically one year, but sometimes for longer periods – to meet the client’s objectives. Having the plan in writing ensures there is no misunderstanding as to the direction to be taken in managing the property.
The purpose of the management plan is for the management company to look at every facet of the property and determine the best course of action for the coming period in concurrence with the objectives of ownership. To this end, it represents a logical, deductive, intensive analysis of all factors related to a property. This typically includes a regional analysis, neighborhood analysis, property analysis, market analysis, budget and cash flow projections, and analysis of alternatives, followed by recommendations and conclusions.
3.2 Property budget. The management company shall prepare an annual operating budget for the property, submit it to the client in a timely manner in accordance with the client’s instructions with respect to content and format, and obtain appropriate approvals as applicable.
Explanation of best practice 3.2. A property budget is an itemized projection of income, expenses, and capital expenditures over a specific period for that property. A budget serves as a guideline for operating a property. It should be consistent with the owner’s goals and objectives and form the foundation for the overall management plan. It is used to measure the performance of the property and, by extension, the performance of the management company and to measure the achievement of the owner’s financial goals and objectives.
The budget helps the management company minimize variance of the property’s net operating income and assess the current cash balance of the property at a given time. The operating budget lists the principal or regular sources of income and expenses for the property, usually on a monthly basis, and also indicates when the transactions are expected to occur. The budget can form the basis for making periodic financial operating reports to the owner as may be required.
Presentation of the budget to the owner offers a natural opportunity to discuss the past performance of the property and make adjustments to individual budget items as the coming year is contemplated. The management company can explain how anticipated income and expenses are expected to affect the property’s performance.
In addition to the annual operating budget, a multi-year capital budget projection should be provided.
3.3 Property policies and procedures. The management company shall establish, enforce, regularly review, and update as needed written policies and procedures relative to the operation of each managed property, making such policies and procedures readily accessible to all company and property staff.
Explanation of best practice 3.3. Policies and procedures are needed for each managed property. Although there will be many similarities from one property to the next, each property has unique characteristics, and its policies and procedures should focus on the particular requirements of the property. Moreover, a property’s policies and procedures may incorporate components from the client’s operations manual or adaptations of the management company’s policies and procedures modified to be consistent with the client’s requirements. Usually the differences are in the details because each property has unique features, and the management company must address them specifically in order for the management of the property to be efficient and cost-effective. Policies and procedures should be consistent with current laws and regulations. They should be reviewed regularly and updated as needed to represent current operational procedures and to ensure compliance with changes in laws or regulations.
Policies and procedures serve to inform employees of policies, instruct employees in procedures, provide technical data for reference, and define the scope of the job and relate it to the total organization. Similar to company policies and procedures, property policies help ensure that workplace behaviors conform to legal requirements and organizational expectations.
Policies and procedures typically are compiled into an operations manual, often supplemented with sample forms and letters, and made available to employees in printed format or electronically in a readily accessible manner.
3.4 Routine, custodial, and corrective maintenance. The management company shall assess, develop, and implement a plan for the routine, custodial, and corrective maintenance of the property consistent with client directives.
Explanation of best practice 3.4. Routine maintenance focuses on the day-to-day upkeep of the property that is essential to ensure that the owner’s asset is maintained at a consistently high level to maintain value, increase reliability, and reduce premature repair/obsolescence while preserving the property’s appearance and optimizing the tenant environment.
Routine maintenance plans include the performance of regular routine inspections. Custodial maintenance generally includes cleaning of building components, common areas, and, in the case of some commercial properties, tenants’ leased premises. Corrective maintenance represents after-the-fact maintenance in which a problem needs to be repaired or corrected, often identified during a property inspection or, on occasion, through tenant requests. Making corrective repairs as soon as possible after a problem is discovered will prevent further damage to the system or equipment and avert a more costly, more time-consuming repair at a later time. Routine, custodial, and corrective maintenance can be done through in-house staff or under a service contract with an outside vendor.
3.5 Preventive maintenance. The management company shall assess, develop, and implement a plan for the preventive maintenance of the property consistent with client directives.
Explanation of best practice 3.5. Preventive maintenance is a proactive program of regularly scheduled inspections, servicing, and repairs designed to prolong the useful life of equipment and other items while helping to avoid more costly breakdowns. Preventive maintenance is a valuable management practice that can add years to the life of equipment and sustain a property in good to excellent condition. Preventive maintenance should be scheduled so that the work can be done in a timely fashion regardless of a building’s other maintenance needs and planned when equipment is not being used or when use is not at peak capacity.
A preventive maintenance program can play a significant role in risk management. Regularly inspecting and repairing property assets helps to avoid equipment damage or failure and mishaps or accidents. A preventive maintenance program will help defer and perhaps eliminate certain emergencies that could endanger peoples’ health and welfare because all systems, equipment, and premises are regularly inspected and kept in good operating condition.
A preventive maintenance plan typically is based on inventorying and servicing the mechanical, electrical, plumbing, and other essential components that support the property. Information and instructions provided in the operating manuals and manufacturer’s warranties for each piece of installed equipment identify the service to be performed. Records are maintained of maintenance performed, observed problems, corrective actions taken, and replacements, as well as spot checks by supervisors.
3.6 Capital improvements. The management company shall recommend and assist in implementing capital improvements consistent with client directives.
Explanation of best practice 3.6. Every building has a life cycle. Over time, the fixtures, appliances, decor, and the building itself become obsolete or wear out. Eventually, replacement is needed, and replacing and renovating parts of a building often entail large outlays of cash and are regarded as capital improvements. A capital improvement is a betterment to a building or equipment that extends its life or increases its usefulness or productivity. Examples include change-out of appliances, roof replacement, HVAC system upgrades, building additions, alarm installation, and tenant improvements. The cost of a capital improvement is added to the basis of the asset improved and then depreciated, in contrast to repairs and maintenance, which are expensed currently.
A sound capital improvement and replacement plan begins with a comprehensive assessment of the condition of the property. The assessment should include information about the infrastructure, site improvements, structures, systems, and fixed assets.
3.7 Receipt of funds. The management company shall receive, record, deposit, and account for incoming funds accurately and in a timely manner and in accordance with accepted accounting principles, client directives, and applicable laws and regulations.
Explanation of best practice 3.7. Close management of receivables helps keep a constant and even flow of cash into a company. Receivables should be collected as quickly as possible and should be deposited in the bank promptly. At a rental property, whether residential or commercial, close attention to receivables means keeping track of rent payments, noting late payments, and quickly contacting tenants who have not paid on time per their lease obligations.
3.8 Deposit of funds. The management company shall exert due diligence for the protection of client’s funds against all foreseeable contingencies, depositing such funds in an escrow, trust, or agency account with an insured financial institution or as otherwise required by the client.
Explanation of best practice 3.8. Policies and procedures should be established for consistent and timely processing of funds received, including checks and balances to avoid unilateral or exclusive control of funds by any one individual to effectuate a separation of duties. The handling of the funds from receipt to deposit should be managed in such a manner to protect both the owner and management company from any loss of funds. The management company’s procedures should provide proper accounting to monitor the timeliness of the receipts and to ensure that funds are applied to the correct accounts. The management company must ensure that its policies and procedures for deposit of funds comply with applicable laws and regulations. Management company personnel who handle client funds should be bonded, and adequate audit trails should be in place.
3.9 Disbursements. The management company shall disburse and account for outgoing funds and payables accurately; in a timely manner; in accordance with accepted accounting principles, client directives, and relevant laws and regulations; and with proper approvals.
Explanation of best practice 3.9. The management company will establish purchasing policies as a way to monitor the many expenses it incurs for supplies, services, and materials on behalf of a property. The management company is charged with paying bills, disbursing funds, and accounting for all disbursements in an appropriate manner while avoiding unilateral or exclusive control by any one individual to effectuate a separation of duties. To monitor how money flows from a property, it is important to make sure that the invoice itself is accurate, that the payment is made on time, and that the payment goes to the right company or person. In some cases, purchase orders are used to control and monitor disbursements.
3.10 Contracted vendors. The management company shall assess the needs of the property and use reasonably diligent efforts to hire qualified and experienced firms to perform services in accordance with client objectives.
Explanation of best practice 3.10. A contractor is a person or a company that is a separate business entity engaged by the management company to complete a task on or provide services to the property. The management company and owner determine the appropriate allocation of labor between employed staff and contracted services to meet the needs of the property. It is incumbent upon the management company to determine the appropriate scope of work needed for each vendor and retain the services of a qualified company that can best meet those needs. The management company shall oversee the vendor to ensure the contracted services are provided as agreed and to take the necessary steps when they are not.
3.11 Contractor insurance requirements. Contractors providing goods or services to a managed property shall be required to meet minimum insurance requirements, unless waived in writing by the owner. The management company shall develop and implement a system for the collection and monitoring of contractor certificates of insurance and compliance with insurance requirements.
Explanation of best practice 3.11. The management company should confirm and monitor that the contractor has insurance and reasonably provides that the property, the property owner of record, the owner’s legal representative, and the management company are not exposed to loss from any negligence on the part of the contractor who provides services to the property. At a minimum, contractor insurance will provide coverage for persons coming onto a property to perform work. Many properties have set limits that contractors must meet. The management company should seek confirmation that vendors are in compliance with all insurance requirements by requesting certificates of insurance from contractors. The certificate of insurance is a document issued by an insurer that evidences that an insurance policy exists and identifies the insurer, insurance agency, insured, types of insurance, policy numbers, effective dates, limits, certificate holder, cancellation procedure, special provisions (e.g., additional insured), and the name of the representative who authorizes the certificate to be issued.
3.12 Insurance claims. The management company shall first consult with the property owner and allow them to decide whether to make an insurance claim for a particular loss. For insurance claims filed on a managed property, the management company shall establish and follow a systematic procedure for reporting loss claims and potential loss claims relating to the property and for managing the claims process.
Explanation of best practice 3.12. Even with all the precautionary measures a management company may take, incidents will occur that may result in potential losses. Policies and procedures for consistently responding to potential loss claims at a property ensure that all necessary steps are followed and responses are consistently applied. It may be strategically advantageous to the property owner to not make a claim, which could result in increased rates for the subject property and potentially other properties insured under a multi-property policy. The steps in responding to an incident should, at a minimum, include:
Procedures for documenting and reporting a loss ensure that these steps are followed in a complete and accurate manner. Reporting a property loss can include: name and contact information of insured; name and contact information of person to be contacted for additional information; date and time of loss; location of damage; estimated cost of repairs and replacement based on bids received; identification of who will do the work; original builder of damaged property or original manufacturer of damaged item; date of completion or purchase date of manufactured item; identification of witnesses or notification of authorities (such as fire department, police department); detailed description of damage and cause; signature of person filing report; date of submission; photos; and videos as applicable.
Liability losses require different types of information to be reported on an accident report, particularly if a person was injured or property was damaged.
Before any losses are experienced, the management company can take steps to facilitate claim adjustments in the event of losses by creating and maintaining detailed written records of items that are insured and where appropriate provide photographic records of equipment in place as well as structural and finish elements.
3.13 Emergency preparedness and response plan. The management company shall establish and, when necessary, follow emergency preparedness and emergency response plans and procedures for managed properties.
Explanation for best practice 3.13. Emergency preparedness and response plans provide for optimum protection of people and property during and after emergency conditions and minimize the time needed for restoration. A thorough and well-designed emergency procedures plan enables the property staff to be prepared before a disaster occurs, in order to minimize and perhaps prevent injuries to people and damage to property. Examples of events to address in this plan include: fire emergencies, bomb threats, flooding, pandemics, earthquakes, hurricanes, active shooters, and medical emergencies.
Every property, regardless of size or function, should have an emergency procedures plan that addresses the property’s unique needs. The plan should spell out how the property staff will respond to different types of emergencies; identify and establish a notification process to the proper authorities and interested parties (lease holders, ownership, insurance companies, local emergency authorities, management company personnel); and inform tenants of management’s role in an emergency and how tenants should respond.
A comprehensive safety and emergency plan reduces the threat of emergencies through prevention, early detection, notification, and evacuation and relocation plans. Further risk is reduced through control and mitigation of recovery operations. Once a plan is in place, it should be maintained and updated periodically and at least annually; should be communicated frequently and made readily accessible to all affected parties; and should be supported through employee and tenant training and familiarization programs.
3.14 Maintaining a reasonably safe environment. The management company shall seek to maintain a reasonably safe environment to mitigate the risk of personal injury, theft, and property damage at the property.
Explanation of best practice 3.14. While no property is immune from crime and safety hazards, policies and procedures designed to minimize risk of personal injury, theft, and property damage to personal possessions or vehicles for a managed property shall be established as appropriate, with periodic reviews conducted as needed or for changing conditions.
3.15 Safety. Emergency and life safety equipment and components of a managed property shall be maintained in proper working condition and in compliance with all applicable codes, laws, and regulations, and as determined by the leases between parties.
Explanation of best practice 3.15. The management company should prepare and adhere to proper maintenance procedures, periodic inspection and testing, and documentation for equipment and components designed to protect tenants and other occupants.
3.16 Environmental and health safety and hazard control. The management company shall establish and maintain environmental and health safety management practices, where appropriate. Hazards shall be reported immediately to the client with a response plan.
Explanation of best practice 3.16. Every type of property faces serious and numerous risks from potential environmental hazards. The presence of toxins on a property can cause poor indoor air quality and potentially expose occupants to harmful contaminants that threaten a person’s health or cause illness. Examples of such contaminants include mold, radon, volatile organic compounds (VOCs), viruses, and other harmful toxins. Failure to address and properly remediate known concerns exposes the owner and management company to significant liability. New laws, changes in regulations, and changes on a site suggest that conducting a thorough review of the risks and liabilities at a site at least once a year is a prudent practice. Qualified environmental professionals should be consulted when developing remediation plans for specific concerns.
3.17 Marketing plan. The management company shall develop and implement a written marketing plan for each managed property consistent with the client’s objectives.
Explanation of best practice 3.17. A marketing plan is designed to effectively attract potential tenants to lease the current and future vacant space at a property. This includes identification of the most likely tenants for the building, the desired tenant mix, the types of tenants that will complement others and guidelines for reaching them, and a budget to fund the planned advertising and promotional activities. The purpose of the marketing plan is to shape and focus all marketing and leasing efforts for the property.
3.18 Leasing policies and procedures. The management company shall develop and implement written leasing policies and procedures as appropriate for the property and in accordance with client objectives, company policy, and applicable laws and regulations.
Explanation of best practice 3.18. Leasing policies and procedures are tools to effectively seek potential tenants for current and future vacant space which enhance the respective tenant mix and value of the property. Whether leasing functions will be performed by employees of the management company or by independent leasing agents, it is the responsibility of the management company to establish policies and procedures acceptable to the client.
3.19 Leasing plan. The management company shall have a written leasing plan for each managed property as appropriate for the property and in accordance with client objectives.
Explanation of best practice 3.19. A leasing plan is an outline for leasing to and placing occupants in a property. The information in the leasing plan will depend on the property type and may include items such as unit rental rates and locations for residential properties; square footage and space plans for office buildings; and merchandise categories, tenant mix, and tenant placement for retail properties. The leasing plan can be considered a component of the broader overall marketing plan.
3.20 Rental rates. The management company shall establish rental rates based on assessment of the market and client objectives as appropriate for the property.
Explanation of best practice 3.20. Rental rates determine a property’s income which in turn determines value. Rental rates begin with a market analysis that allows management to position the property in the correct market and evaluate it according to the standards of that market. Establishing rental rates requires assessment of the desirability of the property, viability of the neighborhood, and overall strength of the market. Base rent is established at which space can be leased to yield a satisfactory occupancy level without being underpriced.
3.21 Property staffing. The management company shall provide for the adequate staffing of the property and supervision of property employees in accordance with client objectives.
Explanation of best practice 3.21. The management company applies human resource planning to ensure that it has the right number of employees with the right skill sets to deliver the desired level of service to the property that is being managed. A needs assessment typically forms the basis of determining staffing needs and ensuring that the appropriate employees will be hired and retained.
3.22 Legal compliance. The management company shall manage property with knowledge of and in compliance with all applicable laws and regulations.
Explanation of best practice 3.22. The management company is responsible for having a good understanding of the agencies that have authority over each property under management and gaining knowledge of the laws and regulations that apply to the services provided by the company and the properties under the company’s responsibility. In all aspects of managing the property, legal compliance lessens risks to regulatory actions and lawsuits. Acting with knowledge of and in compliance with laws and regulations also enhances the reputation of both the property owner and the management company.
3.23 Sustainability. The property management company shall be knowledgeable about sustainable alternatives and able to integrate sustainable maintenance and operational practices into the management of a property consistent with client directives.
Explanation of best practice 3.23. Sustainable real estate management practices can have the effect of reducing a property’s operating expenses and preserving the value of the asset. Moreover, investors, tenants, and residents in greater numbers are demanding sustainability, and owners and their managers are under increased pressure to respond. This is supported by experts in sustainable real estate management who suggest that investor, tenant, and resident demand, especially in non-residential real estate, is one of the primary drivers toward sustainability. The real estate management company shall craft a sensible sustainability strategy for a property consistent with the client’s directives and make sound management decisions to achieve sustainability goals with respect to energy efficiency, water efficiency, indoor environmental quality, and waste output and disposal. This strategy should be updated annually or as may be required.
3.24 Benchmarking. The property management company shall utilize benchmarking as a tool to assess property performance with the goal of identifying areas of improvement.
Explanation of best practice 3.24. Benchmarking is the process of comparing processes and performance metrics in order to improve one’s own results. It is most frequently used to measure performance based on a specific metric – for example, operating expense per square foot – that is then compared to others.
Benchmarking typically involves four steps: (1) understanding one’s own processes and internal performance metrics; (2) identifying the business processes of others that result in superior outcomes – e.g., the best practices; (3) comparing one’s own processes to those best practices; and (4) taking the steps to close the gap in performance, typically by doing things better, faster, or more efficiently. Ideally benchmarking is not a one-time exercise but rather becomes an integral component of a continual process improvement strategy.
In building operations, benchmarking of energy and utility usage has become especially critical in identifying under-performing buildings; detecting opportunities for efficiency improvements; and receiving recognition for superior energy performance via the U.S. Environmental Protection Agency (EPA) ENERGY STAR® certification, the IREM Certified Sustainable Property (CSP) certification, Leadership in Energy and Environmental Design (LEED®), and the like.