Property manager charging tenants a lease renewal fee

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Property manager charging tenants a lease renewal fee

Jay Y.
Real Estate Agent · Atlanta, GA · Member since 2012 · 134 posts · 22 votes

Hello all,

So I found out my property manager is charging my tenants a $200 lease renewal fee for renewing a year long lease.  They are charging me $150 which I'm fine with but it did kind of catch me off guard that they would charged the tenant that!  I'm just curious, did I miss this becoming industry standard or is my property manager basically gouging tenants???

Thanks so much!

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John UnderwoodPro Member
Investor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
4y

This seems ridiculous. They take a percentage of the rent everymonth for just collecting then rent, then if they have to do some work they want more money.

I would fire them and get someone else.

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  • John UnderwoodPro Member
    Investor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
    4y

    This seems ridiculous. They take a percentage of the rent everymonth for just collecting then rent, then if they have to do some work they want more money.

    I would fire them and get someone else.

    6Reply
  • Nathan GesnerBusiness Member
    Moderator
    Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
    4y
    Quote from @Jay Y.:

    Hello all,

    So I found out my property manager is charging my tenants a $200 lease renewal fee for renewing a year long lease.  They are charging me $150 which I'm fine with but it did kind of catch me off guard that they would charged the tenant that!  I'm just curious, did I miss this becoming industry standard or is my property manager basically gouging tenants???

    Thanks so much!


    It's a free country and a free market. If the tenants are willing to pay it, why not? I know some property managers in larger cities that charge crazy fees and Tenants are willing to pay. My market wouldn't support that.

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  • Theresa HarrisPro Member
    Member since 2019 · 15k+ posts · 11k+ votes
    4y

    It is gouging the tenants.  I know some that charge the owner a renewal fee, but to also charge the tenants is not right.

    1Reply
  • Kim Meredith HamptonBusiness Member
    Real Estate Broker · St Petersburg · Member since 2014 · 2k+ posts · 2k+ votes
    4y

    We charge a renewal fee, but it pays for another professional inspection of the property, so that the owner is protected and they (the owner) doesn’t come out of pocket for this great value add for their protection. We make absolutely no money on this, it is a pass through. 

    I will say this in defense of other management companies that charge for other things, no company can live, breathe and prosper on nominal 8-10% a month for a mngt fee, that’s typically like $4 to $6 a day they make. There is absolutely they can pay all of the increased costs they absorb on increased salaries, increased taxes, increased expenses, double increase in insurance, the list goes on and on, but that mngt fee has never increased in the 25 years I’ve been in this business. So please don’t beat them up for trying just to survive and pay their team and their own expenses 

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  • Lori Williams
    Developer · Youngstown, OH · Member since 2019 · 129 posts · 121 votes
    4y

    I think if a landlord (and that's who it looks like is charging them that renewal fee) wanted to charge me 200.00 to renew my lease, I'd not be cool with it. Especially if that 200.00 renewal was on top of an increase in the rent. What's the purpose of that fee? It would have to make some sense before I would be OK with it, as a tenant or a landlord.

    1Reply
  • Jay Y.
    OP
    Real Estate Agent · Atlanta, GA · Member since 2012 · 134 posts · 22 votes
    4y
    Quote from @Kim Meredith Hampton:

    I will say this in defense of other management companies that charge for other things, no company can live, breathe and prosper on nominal 8-10% a month for a mngt fee, that’s typically like $4 to $6 a day they make. There is absolutely they can pay all of the increased costs they absorb on increased salaries, increased taxes, increased expenses, double increase in insurance, the list goes on and on, but that mngt fee has never increased in the 25 years I’ve been in this business. So please don’t beat them up for trying just to survive and pay their team and their own expenses 

    I understand what you're saying but in my area to play devil's advocate, rents have been increasing yearly for the past 10 years...  If rents were decreasing that I would understand the need to charge the landlord and in addition to the tenant a fee just to keep the lights on.  And that's why many brokerages have a property management side to their sales side, money was never intended to be made from the management but rather when a landlord decides they want to sell their properties.  


    But the consensus here seems to think it's odd that the tenant would be charged a lease renewal fee in addition to the rent bump...  :/ 


    2Reply
  • Drew SygitBusiness Member
    Property Manager · Royal Oak, MI · Member since 2012 · 12k+ posts · 9k+ votes
    4y

    It would have been professional for the PMC to disclose the charge to the tenants. 

    Other than that, everyone's just giving their opinions.

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  • Kenny Dahill
    Investor · Tempe, AZ · Member since 2018 · 1k+ posts · 731 votes
    4y
    Quote from @Kim Meredith Hampton:

    We charge a renewal fee, but it pays for another professional inspection of the property, so that the owner is protected and they (the owner) doesn’t come out of pocket for this great value add for their protection. We make absolutely no money on this, it is a pass through. 

    I will say this in defense of other management companies that charge for other things, no company can live, breathe and prosper on nominal 8-10% a month for a mngt fee, that’s typically like $4 to $6 a day they make. There is absolutely they can pay all of the increased costs they absorb on increased salaries, increased taxes, increased expenses, double increase in insurance, the list goes on and on, but that mngt fee has never increased in the 25 years I’ve been in this business. So please don’t beat them up for trying just to survive and pay their team and their own expenses 


     Management fees haven't increased in 25 years?  It's a variable rate, therefore as rents have gone up so has their fees collected. While true that it's been 8-10% for a long time, that's not an accurate depiction of their fees not going up.  Unless they're a flat fee structure and have been for 25 years.

    And since rent has inflated more than income since 2000, that benefits the property management business.  Granted, since the pandemic we've seen wages have a higher inflation than rent.  But that's 2 of the last 22 years.

    2Reply
  • Kenny Dahill
    Investor · Tempe, AZ · Member since 2018 · 1k+ posts · 731 votes
    4y

    @Jay Y., definitely not the norm and I hope it doesn't become that!

    Are lease renewal fees common?  Yes.  However, usually it's paid by one side and not both.

    Essentially this is the PM adding $15-20 of rent but paid upfront and without you benefitting from it.  Actually, it's the opposite of benefitting since you too had to pay!  I'd have a strong issue with that, especially if it wasn't disclosed in their management agreement.

    That $200 puts you at risk.  What if the tenants want to stay but not pay the $200?  They move out, you lose rent during vacancy and probably pay $1000 or full-month rent for the next tenant placement.  Sheesh.  A lot of risk for their 1hr of work...

    2Reply
  • Drew SygitBusiness Member
    Property Manager · Royal Oak, MI · Member since 2012 · 12k+ posts · 9k+ votes
    4y

    @Kenny Dahill

    You're making a very broad assumption with your statement, "a lot of risk for their 1hr of work...".

    How do you know what every PMC does for a lease renewal?

    Here's our process:

    90-Days Prior to Lease End
    -We proactively contact tenants to see if they plan to stay or move
    -We do market analysis, let tenant & owner know current rent and market rent. Start negotiations if market rent is higher than our standard 5% annual increase.
    -Back and forth negotiations with owner & tenant over renewal amount
    We also try to arrange an Annual Inspection to determine:
    1) If they are taking care of the property well enough, so that we want them to renew
    2) Determine if the property is showable if they decide to move
    3) Determine needed maintenance to make the property showable, that also may be charged against tenant security deposit. We give tenants this list, so they can decide if they want to do the repairs.

    70-Days Prior to Lease End
    -If we haven't heard from them or got an answer, we again proactively contact tenants to see if they plan to stay or move. 
    -Again, let tenant & owner know current rent and market rent. Start/continue negotiations if market rent is higher than our standard 5% annual increase.
    -Back and forth negotiations with owner & tenant over renewal amount continue...

    60-Days Prior to Lease End
    -Tenants must given us written notice they are moving or sign new lease at negotiated amount.

    So, how does all this take only an hour?

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  • Kenny Dahill
    Investor · Tempe, AZ · Member since 2018 · 1k+ posts · 731 votes
    4y

    @Drew Sygit, yes, it is a broad assumption.

    Most PM's include an annual inspection with their monthly service fees.  Therefore, some PM's already assumed that inspection expense elsewhere.  Unless they're *gasp* double dipping?!

    I wonder if some of those items are automated.  If not, perhaps that's an opportunity to optimize so this can be a 1hr task.  Proactively contact tenant at -90, -70, -60 marks, solved with a good CRM.  Negotiate rent with tenant; don't most PM's set the rent amount and inform the tenant?  How much negotiation is there truly between PM and tenant?  I've literally never met a tenant who even had the option of negotiating their renewal lease, except for a 2-year discount which is typically pre-determined.

    Determine the needed maintenance items.  How is this related to the fee for renewing the lease?  It's not.  If the tenant says 'I'll accept the rent increase', this is useless.  If they reject, you know there's a larger leasing fee which covers the additional work required.

    General assumption that it takes 1 hour to renew a lease?  Sure.  I also know it doesn't take me more than 30 mins for my renewals: inform, put together esignature, update rent in our management software.  By the end of their initial lease, I should already know the caliber of tenant they are and how they treat the property if I'm inspecting throughout the year.

    0Reply
  • Charlie Massey
    Real Estate Broker · Athens, GA · Member since 2020 · 42 posts · 17 votes
    4y
    Quote from @Jay Y.:

    Hello all,

    So I found out my property manager is charging my tenants a $200 lease renewal fee for renewing a year long lease.  They are charging me $150 which I'm fine with but it did kind of catch me off guard that they would charged the tenant that!  I'm just curious, did I miss this becoming industry standard or is my property manager basically gouging tenants???

    Thanks so much!

    I've seen a lot of larger national companies doing this and other ridiculous fees also. I personally charge a little higher/normal monthly fee, but don't gouge the tenants like this. It makes tenants not want to rent from managers that have fees like this in place, and they do remember what companys have these fees!
    0Reply
  • Drew SygitBusiness Member
    Property Manager · Royal Oak, MI · Member since 2012 · 12k+ posts · 9k+ votes
    4y

    @Kenny Dahill

    Again, you are making broad assumptions. 

    How much actual experience do you have?
    -How many units have you managed?
    -How many Class A, B & C tenants have you managed?
    -What written Standard Operating Procedures (SOP) do you have to run your business?

    Why are you solely comparing DIY Property Management with 3rd Party Property Management?
    -How much experience do you have managing staff involved in 3rd party management?

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  • Bill B.
    Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes
    4y

    So you’d be losing money charging $350 for a renewal Drew? Or are you saying it takes you 10 hours at $35/hr?  Non-disclosure of fees PROBABLY didn’t happen, but I assume you would say that’s a major no-no. 

    I personally hate paying $150 renewal fee myself but if my tenants were charged $200 also I’d probably switch PM’s. This is $30/mo, on a $1.000/mo rental that’s an extra 3%. If you thought you were paying 8-10% you’re really paying 11-13% or 30-40% more than you thought. 

    If you want to charge an annual $50 inspection fee I’d hate it. But I’d understand it. Otherwise it looks to the landlord like you’d trying to push current tennants out so you can charge for finding new tenants. This may not be what you’re doing, but it is what it looks like you’re doing. 

    I assume anyone charging a $200 renewal fee is charging at least a $400 new tenant fee since we all agree a new tenant is AT LEAST twice as much work, probably 5x. 

    2Reply
  • Steve K.
    Realtor · Boulder, CO · Member since 2016 · 3k+ posts · 5k+ votes
    4y

    @Jay Y. My PM charges a $50 lease renewal fee to me, which I’m not crazy about but understand. I would not want them to charge tenants a renewal fee however because I’d be concerned this would lead to increased turnover, which could have a major negative impact on profitability. I’d push back and if they insisted on charging this fee I’d find a new PM. I like to incentivize good tenants to stay, not piss them off unnecessarily with oddball fees that most other PMs aren’t charging. Also like to avoid costly turnovers and vacancy loss, plus the risk of replacing a good tenant with an unknown tenant (that could be bad). Not worth it especially when the fee only benefits the PM.

    0Reply
  • Lynn McGeein
    Real Estate Agent · Virginia Beach, VA · Member since 2012 · 2k+ posts · 1k+ votes
    4y

    It took much research reading through many strange management contracts but good PMs without ridiculous fees do exist - you just have to find them.  My PM charges me $150/yr annual admin fee inclusive of up to 10 properties, no renewal fees, no charge for placing tenants when vacant, and they fill vacancies as quickly as possible.  Their goals are aligned with mine -- finding and keeping long-term, well-qualified tenants with few problems so they collect their 8% of rents received.  I've read some insane management contracts that have tucked into their management agreement requirements that you use their affiliated blind-cleaning company, lawn service, pressure washer, etc., and none would agree to eliminate those clauses.  Take the time to research and find a good management company, and read every line of the management agreement.  I've been with mine for over a decade now so well worth the initial time and effort to find them.  

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