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MODEL MANAGEMENT LETTER AGREEMENT
The following model document is provided
with no guarantee or warranty at all,
and does not define a “minimum standard of
practice.” Consent is granted
for any attorney to use and adapt this model
document for specific
but only where appropriate and correct in context.
Description. This Model Document is a letter agreement in
which an owner engages a management company to manage a relatively small and
straightforward parcel of real property, such as a small apartment house
outside of New York City, designed for use where we represent the owner, but
the owner desires a simple, short and relatively nonlegalistic document that
does, however, cover the fundamental points.
This Model Document was originally prepared for possible use at a garden
apartment complex in New York State (outside the City) taken back as REO.
Substantive Comments. Please note these substantive issues when
using this document.
Type of Real Property. This model form was originally prepared for
use with an apartment complex. It does
not include provisions that might be unique to retail or office buildings.
Insurance. This form assumes Owner will provide
insurance covering Manager’s negligence, as well as other insurance. Confirm appropriateness and feasibility of
all insurance provisions with the client’s insurance advisers. Should manager provide insurance? Should insurance be paid from the operating
account or by owner separately as part of a blanket policy? Revise as appropriate.
Personnel Costs. The cost of the Building Manager can be
charged to the operating account or paid without reimbursement by Manager,
depending on the circumstances. Adjust
accordingly. Manager pays for personnel
above Building Manager.
Termination. This form provides for a wide-open
termination option, under the theory that ease of termination cures almost all
Prenegotiated Terms. The following terms were “prenegotiated” in
favor of the other party to this document.
Consider taking a more aggressive position.
Signing of Leases. Manager is authorized to sign leases that
comply with this agreement.
Other Documentation. This Model Document may require the
following additional documents, exhibits, etc.:
Management Transition. Client to coordinate such matters as bank
account, notices, delivery of management documents.
Points Not Covered. The following points could be covered in a
document of this type, but are not covered in this Model Document for the following
Check Signing. May wish to require Owner’s signature for
checks over a certain amount.
Extensive Detail. Most of the detail in a typical management
agreement has been excluded from this document, which covers only the major
bases. For an example of a “full-blown”
management agreement, see document 0011000.
Lockbox. Any coordination or compliance activities
relating to a lockbox arrangement imposed by a building lender.
[PROPERTY OWNERSHIP ENTITY]
Management of ________, ________ Street,
____________, New York (the “Building”)
This letter will confirm that we (“Owner”) are
engaging you (as “Manager”) to manage the Building on our behalf
beginning on the date of this letter and continuing until the Termination Date
as defined below.
and Standards. Manager shall
provide all management services typically provided by a manager of properties
similar to the Building, all to a standard of quality reasonably satisfactory
to Owner, but in any case to a standard no lower than that previously
maintained for the Building. Manager’s
management services shall include: leasing; preparation of units for rental;
payroll; operation of all Building services; maintenance of an operating
account for the Building; disbursement of all operating expenses; advertising
and marketing (subject to Owner’s prior written approval of Manager’s budget
and plan); and oversight and management of all construction projects. Manager shall comply with Owner’s reasonable
instructions regarding how Manager performs its obligations under this
agreement. Owner shall be responsible
for the actual cost of operating, maintaining, repairing, and improving the
Building. Manager acknowledges that the
relationship established by this agreement is of a fiduciary nature.
Approvals. Manager shall make
normal and routine disbursements, all by check, from the operating account,
which shall at all times remain Owner’s property and be held and maintained in
trust by Manager for Owner’s benefit.
Manager’s operations and disbursements must substantially comply with
the most recent budget approved by Owner, except to the extent that Owner
authorizes deviations or as necessary in an emergency as provided for
below. Owner’s prior approval, and
competitive bidding (unless waived by Owner) shall be required for any
disbursement that either: (a) exceeds
$________ (the “Approval Threshold”) and is otherwise of a nonrecurring
nature; or (b) constitutes a capital item.
Manager shall disburse excess funds in the Building account to Owner
when and as reasonably instructed by Owner.
At all times at least two employees of Owner shall have signature
authority over the Building account.
Management Fees. Manager shall receive as its entire
compensation for all services to be provided pursuant to this letter agreement,
including all leasing, marketing and construction management: (a) ________ percent of gross rental income;
plus (b) ________ percent of the cost of any construction project whose cost
exceeds the Approval Threshold. Manager
may disburse its fee directly from the Building account. No indirect, overhead, or central office
expenses of Manager (including any personnel costs of [the Building Manager or]
anyone senior to the Building Manager) may be paid from the Building account or
otherwise reimbursed, except as expressly provided in this agreement.
Reporting and Audits. Manager shall provide Owner with whatever
reasonable budgets, reports, rent rolls, and other documentation Owner
reasonably requests, within a reasonable time after request. Manager shall allow Owner to reasonably
inspect, audit, and copy Manager’s books, records and files relating to the
Building, all of which Manager shall maintain separately from other properties.
Leasing. Manager shall lease vacant apartments (and
renew existing leases) for terms of up to one year in accordance with Owner’s
written guidelines as in effect from time to time, using a standard form of
lease approved by Owner. Manager shall
perform credit checks on potential tenants.
Manager may sign leases and extensions as Owner’s agent provided they
comply with this paragraph.
Compliance with Law;
Reporting. Manager shall at
Owner’s expense (but at Manager’s expense as to any obligations that arise
because of Manager’s intentionally wrongful or grossly negligent acts) comply
with all laws and codes affecting the Building, including antidiscrimination
law. Nonemergency expenditures in
excess of the Approval Threshold as necessary for legal compliance must be
approved in advance by Owner. Manager
shall promptly notify Owner of any casualty, condemnation, litigation, claims
by a governmental authority, tenant default (continuing for more than thirty
days), or other material event affecting or potentially affecting the
Building. Manager shall obtain Owner’s
prior approval of any filing or application with any governmental authority
relating to the Building.
Building Manager. Manager shall consult with Owner before
hiring or replacing the Building manager or other comparable individual having
primary responsibility for managing and operating the Building (the “Building
Manager”). Manager shall at all
times have a single Building Manager designated for the Building.
Emergencies. Manager shall be
responsible for the intentional or fraudulent acts of Manager’s principals and
employees with respect to the Building.
Owner shall provide insurance to cover the negligent acts of Manager’s
principals and employees in rendering services within the scope of, and in
compliance with, this agreement.
[Owner] shall provide workers’ compensation insurance and other insurance
normally carried with respect to buildings similar to the Building or as
required by Owner. Manager shall
maintain fidelity and theft insurance on Manager’s employees, at the expense of
[Owner], all in a manner reasonably satisfactory to Owner. In an emergency, Manager shall take such
actions and make such expenditures from the Building account as may be
reasonably necessary, but shall seek to minimize such expenditures and shall
notify Owner thereof as promptly as reasonably possible.
Use of Affiliates. Manager may,
as Owner’s agent, enter into normal and reasonable third-party service
contracts for the Building provided they are terminable without penalty on no
more than thirty days notice and contain such Owner protections as Owner shall
require. Manager may engage companies
affiliated with Manager to provide Building-related services of a nature that
would otherwise be purchased from third parties and paid for by Owner, but only
if Manager has notified Owner of the affiliation in writing; has certified to
Owner that the fees and charges of Manager’s affiliate do not exceed market
rates; and has completed such competitive bidding, if any, as Owner shall have
Professional Services. If Manager desires to evict any tenant or
otherwise enforce any lease, Manager shall first obtain Owner’s approval. Reasonable legal fees for approved evictions
and other lease enforcement activities may be paid from the Building
account. Manager shall not engage
outside accountants without Owner’s approval.
Manager shall provide, as part of its services under this agreement (and
without reimbursement), all accounting, bookkeeping and payroll services
necessary to comply with this agreement.
To the extent that Manager, with Owner’s approval, engages outside
accountants, Manager may pay their fees from the Building account. This agreement does not cover brokerage
services in connection with the sale of the Building. If Manager receives any inquiries from potential purchasers,
Manager shall promptly refer them to Owner without expectation of payment.
Owner Protections. Manager shall have no authority to bind
Owner except as expressly provided for in this agreement. Notwithstanding anything to the contrary in
this agreement, Owner’s liability under this agreement shall in no event extend
beyond Owner’s interest in the Building, including the proceeds thereof. Manager shall cooperate with Owner as
reasonably requested in connection with any sale or refinancing of the
Building, such as by providing information and documents and signing a
subordination agreement with any mortgagee in the form required by such
Termination. The “Termination Date” shall mean whichever
of the following occurs first: (a)
Owner’s sale or other transfer of the Building (including as the result of foreclosure
or deed in lieu of foreclosure, unless the transferee elects to leave this
agreement in place for the time being); (b) the date thirty days after Manager
or Owner gives notice terminating this agreement; (c) any termination date
designated by Owner (for any reason or no reason) on less than thirty days
notice, provided that Owner’s notice of termination is accompanied by a payment
estimated to equal the incremental management fee that Manager would have
earned under this agreement if Owner had instead given thirty days notice of
termination; (d) if Manager breaches this agreement and fails to cure such
breach within ten days after written notice from Owner; or (e) at Owner’s
option, without prior notice or payment by Owner if Manager commits any fraud
or abuse, including kickbacks, noncompetitive bidding, improper handling of
funds, or failure to disclose payments to affiliates. On any Termination Date, Manager shall deliver to Owner or as
Owner directs all documentation in Manager’s possession relating to the
Building; shall transfer the Building account as Owner shall direct; and shall
otherwise cooperate to achieve a smooth and successful transition. Any outstanding liabilities and obligations
of the parties shall survive the Termination Date.
We look forward to your
successful management and operation of the Building in the coming period, and
to a mutually satisfactory relationship.
Very truly yours,
[PROPERTY OWNERSHIP ENTITY]
Agreed to and accepted.