A Property Management Agreement sets the terms under which an agent manages real estate on behalf of an owner. This playbook outlines duties of care, indemnification, and compensation structures.
Why This Matters: Uncapped or ambiguous escalation clauses can cause unexpected liabilities and cash flow disruptions. Clear payment terms reduce disputes over amounts and due dates.
Negotiation strategy
If you're the Manager:
Negotiate for a cap on additional charges and ensure transparency in billing. Advocate for a predictable escalation mechanism tied to a reliable index.
If you're the Landlord:
Ensure the base rent and additional charges are clearly defined and justified. Propose an escalation mechanism that reflects market conditions while maintaining flexibility.
Essential elements
1
Base Rent
Monthly payment for property use.
2
Additional Charges
Costs beyond base rent.
3
Escalation Mechanism
Annual rent increase terms.
Action framework
ACCEPT
Propose edits if the escalation mechanism lacks a cap or if additional charges are not itemized.
EDIT
Reject clauses that allow unlimited escalation or undefined additional charges.
ADD
Add clauses for transparency in charges and cost-pass-through caps.
PRO TIP
Always ensure that escalation mechanisms are tied to a reliable index to prevent excessive increases.
Example clauses
FAVORABLE
Preferred Base Rent Clause
"The Tenant shall pay to the Landlord a base rent of [insert amount] per month, payable in advance on the first day of each calendar month during the Term. The base rent shall be subject to an annual increase of [insert percentage] on each anniversary of the Commencement Date."
NEUTRAL
Template Escalation Mechanism Clause
"The base rent shall be subject to an escalation mechanism, whereby the rent shall increase by [insert percentage] annually. The escalation shall be calculated based on the Consumer Price Index (CPI) for the preceding year, provided that any increase shall not exceed [insert cap percentage] per annum."
UNFAVORABLE
Uncapped Escalation Clause
"The base rent shall increase annually without a specified cap, based on market conditions."
Fallbacks
High-Inflation Jurisdictions
Adjust the escalation mechanism to allow for a higher cap percentage in jurisdictions with high inflation rates, ensuring it remains tied to a reliable index.
Short-Term Leases
For short-term leases, negotiate for fixed rent without escalation to maintain cost predictability.
New Developments
In new developments, ensure additional charges are clearly defined to avoid unexpected costs as the property matures.
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