Service Contracts in Real Estate: Definition, Coverage, and How to Use Them

What Is a Service Contract in Real Estate?

In real estate, a service contract is a written agreement where a service provider agrees to deliver specific services related to the maintenance, operation, purchase, or sale of a property, typically for a stated fee and time period. These agreements commonly cover tasks like landscaping, HVAC maintenance, plumbing response, cleaning, and utilities, ensuring clear scope, timing, and payment obligations for both parties [1] [2] [3] .

Core Elements Typically Covered

A well-drafted service contract spells out the job description, schedule, pricing and payment terms, start and end dates, performance standards, remedies for non-performance, and responsibilities of each party. For example, it may state a weekly landscaping schedule, a monthly fee, emergency response times, and how disputes or cancellations are handled [3] . In many jurisdictions, the concept of a service contract is broadly recognized as a contract for a specific duration and consideration to perform repair, replacement, or maintenance of property or to indemnify for such services due to wear and tear or defects, which helps frame expectations for coverage and limitations [5] .

How Service Contracts Fit Into Real Estate Deals

Service contracts are integral to both operations and transactions. Operationally, property managers rely on them for recurring maintenance (e.g., janitorial services, elevator servicing, pest control) and for utilities or supply arrangements. Transactionally, buyers and sellers often review existing service contracts during due diligence to assess ongoing costs, assignability, termination rights, and whether any agreements are recorded or encumber the property. Statutes and model policies define “real estate service agreements” as contracts for services connected to maintenance or the purchase/sale of residential real estate-clarifying their role and potential restrictions when they affect title or future owners [2] [4] .

Service Contracts vs. Warranties and Home Warranties

While many practitioners use these terms loosely, a service contract is generally a paid agreement for defined services over a set period, often including maintenance or repair obligations. Regulatory definitions emphasize that a service contract is for separately stated consideration and specific duration to perform or indemnify for repair, replacement, or maintenance arising from defects or normal wear and tear, which distinguishes it from manufacturer warranties that come bundled with a product at no separate charge [5] . In residential real estate, a “home warranty” sold at or after closing is typically structured as a service contract with a provider obligated to dispatch trades and cover certain systems or appliances subject to terms, limits, and exclusions; coverage and regulation vary by state and should be confirmed before purchase [5] .

Regulatory Landscape and Unfair Agreement Risks

States have begun addressing
unfair real estate service agreements
, especially those recorded against title or binding future owners for long terms. For example, Virginia’s Unfair Real Estate Service Agreement Act defines real estate service agreements and targets practices such as recording memoranda that cloud title or create long-term, transfer-fee-like obligations on future owners, providing consumer protections and remedies [2] . Nationally, industry groups have promoted model legislation to prohibit unfair service agreements that encumber residential property or impose excessive long-term obligations, particularly when recorded in public records, to protect current and future owners and maintain clear title [4] .

Key Clauses to Include (and Why)

To ensure clarity and reduce disputes, consider these clauses:

1) Scope of Services and Performance Standards: Define tasks, products, and outcomes (e.g., seasonal HVAC tune-ups, filter changes, response times). Clear scope aligns expectations and supports enforcement [3] .

2) Term, Renewal, and Termination: State start/end dates, renewal mechanics (auto-renewal or not), and termination for convenience or cause with notice periods; avoid long auto-renewals that may be restricted by local laws [2] [4] .

3) Payment Terms and Caps: Specify rates (flat or hourly), billing cycles, late fees compliant with state law, and any not-to-exceed amounts for emergency work to control costs [3] .

4) Insurance and Compliance: Require appropriate insurance and licenses; this aligns with best practices for contracts involving property maintenance and repair services [5] .

5) Indemnity and Limitation of Liability: Allocate risk for property damage or bodily injury arising from the services; consider caps consistent with fee levels and insurance limits [5] .

6) Assignment and Recordation: State whether the contract can be assigned to a buyer at closing and prohibit recording memoranda that could cloud title, aligning with emerging state protections [2] [4] .

Real-World Examples

Multifamily HVAC Service: A 12-month contract for quarterly tune-ups, filter replacement, and 24-hour emergency response with a two-hour dispatch window. The agreement sets a monthly fee, a discounted parts schedule, and a not-to-exceed amount for after-hours work. Clear termination-for-cause language allows exit if response times are missed repeatedly [3] .

Single-Family Landscaping: A seasonal contract covers weekly mowing, edging, and leaf removal, with a defined schedule and photos for completion verification. A simple indemnity and proof of insurance clause protect the owner if a worker damages irrigation lines during service [3] .

Transaction Assignment: During due diligence, a buyer reviews building cleaning and elevator service contracts to confirm assignability, termination rights, and rates. The parties include specific closing deliverables: estoppel letters from vendors, insurance certificates, and written confirmation that no agreements are recorded against title, consistent with consumer-protection trends [2] [4] .

Step-by-Step: How to Draft and Implement

1) Define Needs and Budget: List property systems and services required (HVAC, plumbing, pest control, common-area cleaning). Estimate frequency and set budget ranges per service, allowing contingency for emergencies [3] .

2) Vet Providers: Request licenses, insurance certificates, trade references, and sample reports. Confirm experience with similar property types and clarify emergency response capabilities [5] .

3) Draft Clear Scope and KPIs: Use measurable standards: response times, completion windows, checklists, photo documentation, and preventive maintenance calendars [3] .

4) Align Terms with Law: Avoid recording service-agreement memoranda; include fair termination, non-assignment without consent, and consumer-protection-friendly disclosures consistent with state rules and model guidance [2] [4] .

5) Negotiate Pricing and Limits: Set base rates, volume discounts, trip fees, and parts markups. Add not-to-exceed caps for unscheduled work to mitigate cost overruns [3] .

6) Execution and Onboarding: Collect W-9, certificates of insurance, contact trees, and escalation paths. Schedule kickoff walkthroughs and align on reporting cadence and invoice format [5] .

7) Monitor and Review: Track KPIs monthly, conduct quarterly reviews, and exercise termination or renewal options based on performance. Keep all agreements in a central repository and note assignment requirements for future sales [3] [2] .

Common Pitfalls and How to Avoid Them

Overbroad Auto-Renewals: Long automatic renewals can create friction during sale or refinancing. Use defined terms with clear end dates and mutual renewal rights [2] .

Recorded Memoranda: Recording service agreements or notices can cloud title and may be prohibited or restricted. Prohibit recordation within the contract and require removal of any prior filings as a condition to payment or renewal [4] [2] .

Vague Scope and No KPIs: Ambiguity leads to disputes and unexpected costs. Use detailed scopes, frequency, standards, and photo or checklist verification to keep both sides aligned [3] .

Missing Compliance Documents: Always confirm licenses, insurance, and legal capacity. Some states regulate service contracts and require specific disclosures or provider registration; verify requirements before offering or purchasing coverage [5] .

How to Find and Evaluate Providers

You can evaluate local vendors by seeking referrals from brokerage and property management networks, checking trade association directories, and requesting written proposals with scope, schedule, and pricing. Ask for at least three references for similar properties, confirm response times in writing, and conduct a short pilot period when possible. Where regulations apply to service contract providers (for example, provider definitions and consumer protections under state insurance or consumer statutes), request written confirmation of compliance and any required registrations [5] .

Assignment at Closing: Step-by-Step

1) During due diligence, request a schedule of all service contracts, including start/end dates, fees, termination rights, and copies of agreements.

2) Confirm assignability and whether any memoranda or notices have been recorded; require the seller to terminate or obtain vendor consent if needed, consistent with state restrictions on unfair service agreements [2] [4] .

3) Obtain vendor estoppels confirming balances, term, performance status, and no defaults.

4) At closing, include assignment agreements and updated certificates of insurance. Post-closing, conduct a joint onboarding meeting with each vendor.

Takeaways

A service contract in real estate is a practical tool to manage property operations and transaction risk. By defining scope, performance standards, pricing, and legal compliance-and by avoiding recordation and unfair long-term encumbrances-you can secure reliable services, control costs, and keep title clear [2] [4] [3] .

References

[1] Law Insider (2025). Real Estate Service Contracts – definition.

[2] Commonwealth of Virginia (2024). Unfair Real Estate Service Agreement Act.

[3] Bay Property Management Group (2025). What Is a Service Contract in Real Estate?

[4] American Land Title Association (n.d.). Model Act: Prohibition of Unfair Service Agreements.

[5] South Carolina Department of Insurance (2019). What is a service contract?