Certified Apartment Portfolio Supervisor (CAPS) Practice Exam - Module 1

In terms of operating expenses, what does the management agreement typically outline?

1. Owner's complete financial responsibility

2. Limits on typical versus extraordinary expenses

3. Guaranteed returns on investments

4. Conditions for tenant evictions

The correct answer is: Limits on typical versus extraordinary expenses

The management agreement typically outlines limits on typical versus extraordinary expenses to ensure clarity in financial responsibilities. This provision helps define what constitutes normal operating expenses that are considered standard for property management, such as maintenance, utilities, and routine repairs, versus extraordinary expenses that may require special consideration or approval, like major renovations or significant repairs. By delineating these limits, both owners and property managers can align their expectations and avoid disputes over unexpected costs. This structure helps maintain the financial health of the property while ensuring that there is accountability in how funds are utilized. The other options do not accurately capture the primary purpose of the management agreement in this context.