managing owner relations

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P R E P A R E D B Y :

S I T I H A S N I Z A B I N T I R O S M A N

U N I V E R S I T I T E K N O L O G I M A R A ( U I T M )

MANAGING OWNER RELATIONS

TABLE OF CONTENT

1) Nature of the Relationship

2) The Management Contract

3) Take Over Procedures

4) Continuing Owner-manager Relations

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NATURE OF THE RELATIONSHIP

Three basic relationships can exist between a property manager and the individual or corporate owner of a building:

1. Employer-employee arrangement

2. Formal fiduciary relationship (trust)

3. Principal-agent arrangement

Employer-employee Relationship

The employer-employee relationship is found most often in banks, colleges, large corporations and other private institutions that require managerial services for their properties.

The employee-manager is directly responsible to the officers of the owner-employer corporation or institutions, which may be the principal occupant of the property.

No formalized contract is necessary in an employer-employee relationship.

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Employer-employee Relationship

The manager should obtain from the employing corporation written authorization to sign binding leases.

This authorization is sometimes limited in the dollar amount or length of the lease, many lessees, especially government agencies and corporations, request a copy of this authorization from the employee-manager.

Trusts

A trust is a device by which one person or institution transfer legal ownership of property to someone else to hold or manage for the benefit of o third party.

Trusts are created by written agreements that establish formal fiduciary relationships.

In a formal fiduciary relationship, the property owner, called a trustor, transfers the legal title to property to a trustee (who will manage the property) and transfers the equitable title to one or more beneficiaries.

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Trusts

Beneficiaries may include the trustor, members of the trustor’s family, or third parties, such as organized charities or an employee group.

Property managers who find opportunities in this area must take special precautions to learn and define the legal responsibilities and requirements of the relationship.

Principle-agent Relationship

The most common relationship is that of principal-agent and is created by a written contract signed by both parties.

Agency is the word used to describe the special relationship between the principal (the one who hires) and the agent (the one who does the work).

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Scope of agency authority

A general agent can act on behalf of the principal on a range of matters and can obligate the principal to any contracts signed by the agent that are within the scope of that agent’s duties.


Fiduciary duties

An agent has a fiduciary relationship to his or her principal, a confidential relationship marked by trust and confidence that requires the highest degree of loyalty on the part of the agent.

The duty of loyalty means that the property manager must always put the property owner’s interests first, above his or her own interest.

The property manager must act without self-interest.

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Fiduciary duties

The duty of care requires the property manager to exercise a reasonable degree of skill while managing the property.

The duty of obedience means that the property manager must carry out, in good faith, the property owners’ instructions.

The duty of accounting requires the manager to accurately report on the status of all funds received on behalf of or from the property owner (such fund are deposited into trust accounts).


Fiduciary duties

The duty of disclosure impose on the property manager the duty to keep the owner fully informed of all material facts regarding the management of the property.

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States statutes

Each state has licensing laws and regulations governing the conduct of persons and organisations acting as real estate agents.

These laws apply mainly to sales of real estate, activities of those engaged in leasing, renting or managing property for others are often included in the coverage of these laws.

Property managers should investigate the statutes of the states where they manage property to be sure they are in compliance with those laws.

THE MANAGEMENT CONTRACT

A dated agreement signed by both the manager and the owner (or the owner’s authorized representative) defines the relationship between the parties, serves as a guide for the operation of the property and provides a basis for the settlement of any future disputes.

The terms of management contracts are as varied as the types of real property and the forms of real estate ownership.

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Specific circumstances aside, most management contracts share the following essential elements:

Identification of the parties and the property;

Period over which the contract is to run;

Terms vary

Termination


Authority and responsibilities of the owner;

Monthly reports

Surety bonds

Handling funds

Authority to rent, operate and manage premises

Expenditures

Marketing costs

Agents’ control over personnel

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Responsibilities of the owner;

Payroll: maintenance, security and supervision

Insurance: employee and fidelity premiums

Purchasing: book keeping and auditing

Building: office telephone

Advertising for tenants

Management fees


Fees and leasing/sales commissions;

Flat or fixed fee versus percentage fee

Commissions to outside leasing agents

Early termination

Antitrust issues

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TAKE OVER PROCEDURES

The contract between the owner and the property manager has been signed, the transfer responsibilities for the property from the owner or the current manager should take place as soon as possible.

The owner should take the responsibility for providing the manager or management agency with all data necessary for the efficient operation of the property.

Minimum Information Required

The manager should obtain the owner’s name, address, telephone number, as well as the name, address and telephone number of the owner’s attorney, accountant, insurance broker and any other consultants for the property.

To assist in calculating the expected income from the property, the manager must have a listing of all rental units, copies of the leases and a scheduled of rental rates for each space.

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Transfer of Working Capital Fund

A working capital fund for operating expenses is essential and should be an amount equal to one month’s uncontrollable expenses, such as debt service and salaries.

Security Deposits

Accounting for tenant security deposit balances is an essential part of any take over.

Failure to return deposits or pay interest when required is a violation of the landlord-tenant law and is grounds for real estates licensee disciplinary action and may also incur costly monetary damages.

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CONTINUING OWNER-MANAGER RELATIONS

The manager must then maintain a mutually satisfactory relationship with the owner.

The owner or the owner’s authorized representative should get to know the person or persons who will actually manage the property.

Monthly Reports

The principal means of regular communication between the manager and the owner or owning corporation is the monthly earnings report.

This report to the owner usually includes rental receipts, miscellaneous income, gross income, an itemized list of all disbursements and operating expenses, total expenses for the month, cash on hand at the beginning of the month, amount forwarded to the principal (owner) and cash balance on hand.

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Personal Contact

Personal contact with the owner or owner’s representative can be made by a short visit or a telephone call.

A successful property manager must have the ability to manage human relations, and effective communication is a large part of this facet of the property manager’s job.

Personal Contact

The manager’s ability to care for the property, coupled with the goodwill arising from personal contact with the owner, will build a lasting and mutually profitable business relationship between the parties.

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The End

managing owner relations

Real Estate