Drafting a management agreement: this is what belongs in it

Drafting a management agreement revolves around four questions: what exactly is the manager permitted to do, where does their authority end, how do they render account, and how does the collaboration come to an end? The rest of the contract is the details to be filled in. Because a management agreement is legally a contract for services (Article 7:400 of the Dutch Civil Code), the law already provides a basic framework: duty of care, following instructions, informing, and accounting. However, this basis is too limited for practical application, and it is precisely on the points that incur costs that the law leaves room for you to fill in yourself.

The short answer

1. Tasks: list technical, administrative, and commercial management separately, with a list of what does not fall under them.
2. Authority: establish the power of attorney (Art. 3:60 et seq. of the Dutch Civil Code) with threshold amounts and excluded decisions.
3. Money: compensation, pass-through of costs, VAT and a separate account for the owner's funds.
4. Accountability: reporting and accounting, Art. 7:403 BW, with frequency and format.
5. Termination: duration, termination (Art. 7:408 BW) and a specific transfer arrangement.

Drafting a management agreement: start with the terms of reference

Most disputes do not arise from what is stated in the contract, but from what is not stated. Therefore, split up the management:

• Technical management: complaint handling, periodic maintenance, breakdown service, contracting, inspections, and multi-year maintenance plan.
• Administrative management: rent collection, indexation, service charge settlement, debtor monitoring, reminders, and file management.
• Commercial management: vacancy reduction, candidate selection, negotiation of lease terms and renewals.

Be sure to explicitly state what falls outside the scope of the assignment. Consider conducting legal proceedings, the sale or encumbrance of the property, insurance matters, tax returns, and arranging financing. In the case of business management, the dividing line is different: the question then is whether the manager only handles the day-to-day operations or is also authorized to make strategic decisions, and whether or not he becomes a statutory director.

The limit of jurisdiction: the most important article

The management agreement governs the internal relationship. Whether the manager can bind the owner vis-à-vis third parties depends on the power of attorney. Therefore, include a separate power of attorney clause and bear in mind that an owner may also be bound by apparent authority (Art. 3:61, paragraph 2, Dutch Civil Code). Practical implementation:

• a threshold amount per assignment, for example €2,500, above which written permission is required;
• an annual budget for maintenance, with a reporting obligation in the event of an impending overrun;
• an emergency clause for calamities, with an immediate reporting obligation afterwards;
• a list of excluded actions: terminating a lease, amicable settlements exceeding a certain amount, initiating legal proceedings, entering into long-term contracts;
• the authority to engage auxiliary persons , with the provision that the manager is liable for their errors (Art. 6:76 BW)

Also regulate conflicts of interest. A property manager who awards maintenance to his own company must disclose this in advance, and the owner must be able to refuse permission. Moreover, in the case of mediation for residential accommodation, there is a statutory restriction on serving two masters and on charging costs to the tenant (Article 7:417, paragraph 4 of the Dutch Civil Code).

Remuneration, costs and third-party funds

Choose a clear compensation structure: a percentage of the rent received, a fixed amount per unit per month, an hourly rate for overtime, or a combination. Additionally, arrange:

• which costs are included in the remuneration and which are charged separately (Article 7:406 of the Dutch Civil Code concerns expenses associated with the assignment);
• whether a separate fee applies in the event of a new rental or change of tenancy;
• indexation of the remuneration and the reference date;
• VAT treatment, especially if the object is leased subject to VAT;
• payment term and/or offsetting against collected rents is permitted.

Keep the owner's funds separate from the manager's assets. A separate account or third-party funds foundation prevents commingling in the event of the manager's bankruptcy and clarifies that rental payments accrue to the owner. Establish a remittance period, for example, monthly within ten working days, and exclude set-off against disputed items.

Reporting, liability and insurance

Article 7:403 of the Dutch Civil Code obligates the administrator to provide information and to render an account. Make this concrete: a monthly rent statement and change overview, a quarterly report on maintenance and arrears, an annual overview including the service charge settlement, and a right of inspection of the underlying documents. Agree that the administration is the property of the owner and will be made available upon first request.

Articles 7:401 and 6:74 of the Dutch Civil Code apply to liability. A limitation is permitted, but ensure it is defensible: link the maximum to the insured sum or to the management fee over twelve months, exclude intent and conscious recklessness from the limitation, and require the manager to have professional liability insurance with minimum coverage. Also include a limitation period for claims. If the manager processes personal data of tenants, a data processing agreement is required.

Duration, termination and transfer

Pursuant to Article 7:408 paragraph 1 of the Dutch Civil Code, the client may terminate the contract at any time. A contractual notice period is permitted and customary, for example, three months effective at the end of a calendar quarter. A manager acting in a professional capacity may only terminate the contract for an indefinite period or for serious reasons (Article 7:408 paragraph 2 of the Dutch Civil Code). In the event of early termination, he may claim a reasonable portion of the remuneration (Article 7:411 of the Dutch Civil Code).

Work out the transfer in practice: return of keys, files, rental agreements, digital access, and balances within a fixed period, a conclusive final settlement, cooperation in the transfer to a successor, and an explicit exclusion of suspension or retention of the records. The latter prevents a dispute regarding the final invoice from holding your rental administration hostage.

Honest recommendation

For a single property with a manager who only performs executive work, does not collect fees for you, and does not sign anything on your behalf, you do not need a lawyer. A short contract outlining duties, compensation, reporting requirements, and a notice period is sufficient, provided you define the limits of authority yourself.

Do engage a lawyer as soon as a power of attorney is involved, the manager collects rent, it concerns a portfolio or Owners' Association, or the manager actually manages a business. In that case, also request a review of the template provided by the manager himself: those contracts are usually written in his favor, particularly regarding liability, set-off, and notice period.

Read more: what is a management agreement and having a management agreement drawn up. You can arrange this directly via the management agreementpage.

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