Property management

What it means

Property management means looking after a property on the owner's behalf. It covers finding and dealing with tenants, collecting rent, maintenance and repairs, arranging utilities and services, insurance and the regular settlement of advance payments for service charges.

Management can be done by the owner, an employee or an outside management company. Apartment buildings follow a special regime under the Act on Ownership of Flats, where a manager or a homeowners' association runs the building and owners must contribute to a fund for operation, maintenance and repairs.

With commercial property such as offices, warehouses or non-residential premises, management is often split into technical management of the building and commercial management of tenants, contracts and income. Larger portfolios add strategic asset management on top.

How it works in practice

The foundation is a sound lease agreement that sets the rent, service charge advances, how they are settled, maintenance duties and termination terms. For long-term leases it is worth agreeing rent indexation so that inflation does not erode the income.

For tax, it matters whether the owner lets the property as an individual outside a business or as a company. Companies also have to consider VAT on property rental, which is usually exempt, though under certain conditions the owner can opt to tax it and deduct input VAT.

The manager's fee is usually agreed as a percentage of rent collected or as a fixed monthly amount. For the owner it is a tax-deductible expense, like repairs, insurance and real estate tax, while capital improvements are not expensed at once but depreciated.

What to watch out for

Service charge advances are not the owner's income but the tenant's money, settled at the end of the period. If the owner or manager fails to settle them on time and correctly, the tenant can claim back overpayments and needless disputes arise.

When appointing an outside manager, the contract should define their powers, such as the amount up to which they may order repairs without the owner's approval, how often they report and how they keep the owner's money separate from their own. Vague contracts lead to misunderstandings at settlement.