Management Agreements: Here’s What You Need to Know
Imagine for a moment you’ve invested most of your life savings into a business; perhaps you invested in a hotel or a multi-family property. You’ve done your best to juggle the management of this investment, your daily life responsibilities, and pursuing future business opportunities.
After all this juggling, you realize your talents lie in finding, negotiating, and securing business opportunities and not in the day-to-day management of the business. So, like many business owners, you decide to hire someone else to manage your business, which frees you up to handle other matters.
Then problems start to arise; for example, bills start coming in for maintenance costs that you did not approve. Maybe some employees received raises without your knowledge. Expenses that you didn’t approve start to add up, and now you discover your business is deep in debt. What do you do? How to stop this mismanagement from continuing? Without having a management agreement, you could find yourself in a similar situation and unsure about your rights, responsibilities, or what to do next.
What is a Management Agreement?
A management agreement is a contract between parties (the owner and the management company), which typically spells out the expected services, a list of responsibilities, the administration, and management of services provided, and the compensation for these services. The contract should also include provisions for renewal, termination, and dispute resolution.
Types of Management Agreements
- Management services – usually between a company and a consultant or independent contractor
- Construction management agreements – a contract between the property owner and the construction company or foreman
- Developer management agreements – agreements made between landowner and developers
- Commercial management agreements – a contract between a commercial property owner and a commercial management company or person hired to manage a commercial property
- Technical management agreements – agreements usually between owners and shipping companies to have products shipped
- Property management agreements – a contract between a property owner and the person or company hired to manage the property
- Investment management agreements – an agreement between an investor and an investment advisor
Types of Businesses or Industries That Need Management Agreements
- Hotels and Motels
- Multi-family property landlords or owners
- Commercial landlords or owners
- Companies who hire independent contractors
- Bars and nightclubs
- Adult entertainment establishments
- Entertainment industry
- Security industry
What Should A Management Agreement Include
We advise that you consult with an experienced attorney regarding your specific business to address your specific needs, but these are a few of the areas you may want to address in your management agreement.
- Management fees
- How to renew or terminate the contract
- Identify conflicts of interest
- Non-compete/non-solicitation clause
Why You Need a Management Agreement
If you own a business or property and you feel you need someone else to manage it, or perhaps you need to hire independent contractors to help you with your company, then we advise our clients to secure a management agreement.
Many of the most successful people know how to delegate and know how to surround themselves with the right people for the job. Hiring a management service to run your business may be the right business decision but the responsibilities and terms must be clear.
Here are just a few of the more common reasons why many business owners or investors hire a management service or independent contractor:
- To take care of selection, promotion, and supervision of staff and employees
- To negotiate basic leasing and concession arrangements, including equipment leases and service leases, with owner’s approval if required
- To obtain and maintain necessary licenses and permits required by laws, statutes, and ordinances
- To submit a budget for the day-to-day operations and capital expenditures for review
- To maintain adequate supplies, inventory, and equipment necessary for the day-to-day operations of the business
- To manage the advertisement and promotion of the business
- If your business is a franchise, to oversee compliance with the terms of any franchise agreement
- To maintain records and proper accounting
- To oversee appropriate insurance coverage
- To manage any construction
There are many reasons to enter into management agreements. Just remember that a management agreement needs to define your objectives clearly.
Management agreements can be complex and lengthy, we advise that an attorney help you with preparing the agreement. Seeking the advice of an experienced attorney will give you peace of mind and help your business prosper.