Operational Real Estate: Getting The Most Out Of Your Management Agreements

In recent years, the real estate sector has faced various challenges (high inflation and interest rates, political uncertainty, legal changes and geopolitical volatility, to name just a few!). That has led to increased interest in the use of management agreements, as investors and owners look to diversify their portfolios and secure revenue in different ways.

From hotels and serviced apartments, Build to Rent (BtR) and student schemes, senior living communities, and new build developments through to commercial office buildings and mixed-use combinations, these agreements are becoming an increasingly popular vehicle for securing professional expertise and support.

This article explores what management agreements are and highlights key issues owners and operators need to consider to ensure that their management agreements meet their objectives and align with their expectations.

Understanding the offer on the table – what do we mean by management agreements?

Management agreements come in various shapes and sizes which, confusingly, means they can be given lots of different labels (PMA, AMA, DMA, HMA and OMA for example).

At their core, they are a type of service agreement – a contract under which one party, the operator, agrees to provide services to another party, the owner of a real estate asset, in return for a fee.

The different labels are a nod to the different types of services that they can cover. Whilst those vary, the common theme is that they are all types of management services such as running the day-to-day operations of a real estate asset (property management) or advising on the overarching operation of a real estate portfolio (asset management).

Why are they becoming more popular?

Traditionally prevalent in the hospitality industry, particularly hotels, and the office sector, they are increasingly being adopted across other asset classes because well drafted management agreements can:

• allow investors and owners to broaden their investments into new asset classes, benefitting from operator expertise (operating offices, for example, requires a different approach to operating an integrated retirement community);
• support market expansion for operators too - operators can grow their footprint and brand presence without the need for substantial capital investment in property acquisition;
• enable owners to achieve revenue in alternative ways (flexible office space arrangements can be attractive when uptake of traditional leases drops and where it might support the overall investment objectives (e.g. to attract tenants into a Build to Rent scheme));
• provide investor reassurance about longer term operations supporting with funding;
• allow owner diversification and growth (turning lessons learnt from operating their own assets into an outward facing operating arm); and/or
• support owners and investors with increased legislative and regulatory requirements (building safety doesn't just mean getting through the gateways, owners will likely need support with occupation regime compliance too and, as commented on below, there are other amendments which will require a change to how assets are managed during 2026 (more on this below).

What do you need to keep in mind to make your management agreements work for you?

While management agreements can offer clear benefits, they also present unique challenges and risks for both owners and operators.

Care needs to be taken to consider what the underlying asset or assets are – residential management is, for example, more heavily regulated than commercial management.

It is also important to keep in mind that certain types of management agreements will require specialist input (care needs to be taken, for example, to consider construction specific requirements when dealing with a development management agreement and financial services requirements when dealing with investment management).

Key factors to consider include:

1. Impact on asset ownership – management agreements are not the same as a lease! The owner will remain the legal owner of the asset or development (and therefore the party with primary responsibility to underlying tenants and/or lessees as well as to superior landlords or freeholders). The owner will also remain primarily responsible for compliance with legal requirements such as building safety requirements as it is very unlikely that the manager will be the principal accountable person or an accountable person under that legislation. Whilst this can be attractive to owners as it means they will benefit from any increase in the value of the asset (as well as some or all of the revenue generated from the operation of the asset), it can mean that owners retain a higher level of risk under a management agreement than they would if they were to lease the asset to the operator. Care should be taken to consider the impact that poor performance by the operator could have (taking into account any liability limitations in the management agreement and any steps that could be taken to monitor and, if necessary, mitigate that impact). In turn, operators will need to give consideration to the level of risk that they are being asked to take on and the support that they may require to provide the relevant services or otherwise comply with their obligations under the management agreement. In addition to access to the asset itself they may need support in the form of provision of information from the owner and they will often need support from wider third parties e.g. specialist fire safety or health and safety advisors.
2. Fees – how are they determined and how could they change? The way in which the operator's fees are structured will depend heavily on the type of asset that is being managed. Whilst in traditional office management agreements you might have a single management fee, you are more likely to see a combination of a base fee and an incentive fee for hotels, Build to Rent and student apartments and you are likely to see deferred management charges in the context of senior living. Understanding how much is due to the operator, how that is calculated and when it is due is key. Likewise understanding how those fees can change over time and considering whether it is appropriate to include benchmarking provisions is also important. Owners should look for agreements that tie operator compensation to the asset's performance (so as to incentive strong revenue returns), while operators will want to ensure targets are realistic and achievable.
3. Authority – striking the balance between too much control and not enough freedom A unique feature of management agreements (compared to more traditional service agreements) is that the operator will need authority to do things on behalf of the owner, as the owner's agent (for example collecting rent from tenants, entering into wider service agreements such as cleaning contracts and so on). Thought will therefore need to be given to the scope of the operator's authority in managing the asset, including areas such as staff hiring, procurement, capital expenditure, and marketing. Operators will want to ensure they have enough freedom to run the services as they intend to (particularly if their business model relies on being able to operate assets for various owners in the same way, at scale) whereas owners will want to retain approval rights over major decisions, particularly those that could impact asset value or long-term strategy and they will want to ensure that there are controls around expenditure that sits with them. While requiring operator consent for every decision may seem appealing, it is rarely practical. Instead, agreements typically include detailed provisions on budgets and business plans to strike the right balance. Consideration should also be given to the contracting model adopted by the operator. Sub-contracting can be attractive due to commission arrangements but brings increased risk for operators. Operators will be wary of being responsible for third party specialists (especially those that are arms length and not part of their wider organisation). For most asset classes (student housing being a common exception), operators will look to engage such third parties as agents rather than as subcontractors (so that the direct contractual risk sits between the third party and the owner). Owners are often comfortable with this arrangement if the operator monitors third parties and ensures their terms of appointment are appropriate. However, owners may also wish to impose their own contracting standards or require the use of an agreed list of approved third parties.
4. Term and termination – how long are you "locked in"? Management agreements are typically long-term arrangements. That is because the operator will need time to mobilise and whilst owners will need the flexibility to change operators if performance is unsatisfactory, operators will usually push for a term of at least 5 or 10 years. As with all commercial contracts, termination rights will often be heavily negotiated. Depending on the wider deal structure, you may see termination rights linked to change of control, sale of the underlying asset, changes of key personnel, regulatory breaches and cross default provisions. Both the owner and operator will need to give thought to the exit rights they might need as well as the impact of the other party seeking to exit the arrangement.
5. Employees – keep your eyes open to all the potential costs On the theme of exit, whilst there are different ways to approach personnel, it is common with a management agreement for the operator to employ staff that are allocated to the specific asset and who may therefore transfer upon termination. Owners and operators should therefore be alert to the risk of TUPE (Transfer of Undertakings (Protection of Employment) Regulations) costs on exit and agree upfront who will absorb the cost of employees unexpectedly transferring if a new provider is unwilling to take them.
6. Specialist provisions - don't forget the data! Often management of a real estate asset involves dealing with personal data such as tenant names and addresses. Care should be taken to consider the scope of the services and the impact that has on data flows – whilst traditionally the operator was seen as taking on a processor role, it is now more common to see the operator taking on a controller or joint controller role. Both the owner and operator will need to ensure that appropriate provisions are included to comply with applicable law.
7. Legislative Change On the note of applicable law and as touched on above, there has been a lot of legislative change during the last two years. We have, for example, seen the introduction of:
   • The Terrorism (Protection of Premises) Act 2025
   • The Hazards in Social Housing (Prescribed Requirements) (England) Regulations 2025 (commonly known as Awaab's Law); and
   • The Renters Rights Act 2025, with many of the main provisions coming into force in 2026 (as highlighted in our recent article - Renters' Rights Act 2025: the countdown to 1 May 2026 begins).

   Owners and operators need to think about the steps needed to comply with the above, paying attention to the service scope agreed for existing management agreements as well as new ones and considering what should happen if there are further changes.

   Operators will of course be alert to the impact of change on their underlying costs and may seek the opportunity to renegotiate fees if there are further changes. Owners will want confidence that their assets are being run in a compliant way, but they will also want to ensure that any cost increases are controlled and justified.

Looking ahead to 2026

It is likely that the interest in management agreements will continue to grow.

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The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.