Private Property Management Agreement: Caution Regarding Termination Terms
A private property management agreement is a mandate by which a property owner (the principal) entrusts a licensed real estate agent or property manager with the full management of a property, including tenant search, rent collection, supervision of works, and handling of insurance claims.
Concluded for a fixed term, this agreement commits both parties over the long term and provides for the remuneration of the property manager. Any early termination, regardless of its cause, entails financial consequences.
Legal Framework and Specific Obligations of the Property Manager
This type of agreement may only be concluded with real estate agents registered with the Professional Institute of Real Estate Agents (IPI). Such agents are subject to the IPI Code of Ethics, approved by Royal Decree of 29 June 2018 (published in the Belgian Official Gazette on 31 October 2018), as well as to the ethical directive relating to the real estate agent’s third-party account, concerning Articles 29, 66 and 68 of the IPI Code of Ethics.
In addition, the agreement must comply with the provisions of the Belgian Code of Economic Law and the implementing decrees thereto, where applicable.
The Three Scenarios of Early Termination
Termination by the Principal
Where the property owner terminates the agreement before its expiry, the principal is generally required to pay the property manager a lump-sum indemnity, the calculation of which varies depending on the contractual terms.
By way of example, an agreement may provide for compensation equal to 50% of the fees that would have remained payable until the end of the term, subject to a minimum lump sum.
Termination by the Property Manager
For reasons of contractual balance, if the property manager terminates the agreement prematurely, the principal may in turn be entitled to a lump-sum indemnity, the terms of which are contractually defined.
For example, the agreement may stipulate that such compensation is payable where the property manager cannot invoke a breach by the principal or cannot justify the cessation of its activities.
Termination in the Event of Sale or Expropriation
In the event of a sale of the managed property, the agreement may provide that it will terminate on the date of transfer of the principal’s rights. Depending on the provisions of the contract, a lump-sum indemnity may be payable by the principal to the property manager.
Calculation and Determination of the Indemnity
The amount of the fees remaining due on which the indemnity is calculated may be determined:
- by mutual agreement of the parties,
- by an expert jointly appointed, or
- by an expert appointed by the Justice of the Peace, the latter option involving additional costs and delays.
Our advice:
- Landlords: Carefully review termination clauses before signing and favour amicable negotiation in the event of a dispute.
- Property management companies: Draft clear clauses, explain them at the time of signature, and document the services performed.
- Investors: Anticipate exit clauses, particularly in the event of resale, as lump-sum indemnities may represent a significant financial amount.
In the event of a dispute, please contact us for an analysis of your situation and tailored legal support.
