when the property manager keeps the late fees
as frustrating as this is. it really brings up an interesting question when the owner doesn't get a share of the late fee.
say the rent is $100 and the late fee is $10. in january the tenant is late but pays $100 rent. who gets how much?
does the owner get the whole $100? or does the owner get $90 and the pm get $10?
if the owner gets the whole amount.. then what happens in february when the tenant again pays $100 and ignores the late fee?
can the property manager evict for unpaid fees? I don't think so. what is there to keep the tenant from just ignoring the late fee?
Finally. say the tenant ignores the late fee and only ever pays the rent but not the late fee.. (say he's regularly late). then can the owner demand that he is paid his full rent?
mike
#2 Commercial Real Estate Investing Contributor
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#2 Commercial Real Estate Investing Contributor
- Rental Property Investor
- SE Michigan
Generally, in single family, the property management company keeps the late fees. Of course, this is negotiable.
Most judges will not evict over late fees (or other fees). Any property manger worth their salt knows that when a resident pays, the late fees get paid first. So if they owed you $100 in rent plus $10 in late fees and paid $100, they actually paid $10 in late fees and then $90 in rent and still owe $10 in rent. I've seen Mom & Pop owners lose in eviction court because they apply moneys to late fees AFTER rent.
right, but this is a bit different, no? the fee is solely a agreement between the property manager and the tenant. whereas, the property manager is a fiduciary and the owner's interest should be put before themselves.
If the owner doesn't care the rent is late or is disappointed the has not yet submitted a 3day notice. why should the landlord be out his money.
Quote from @C Michael Sundius:
as frustrating as this is. it really brings up an interesting question when the owner doesn't get a share of the late fee.
say the rent is $100 and the late fee is $10. in january the tenant is late but pays $100 rent. who gets how much?
does the owner get the whole $100? or does the owner get $90 and the pm get $10?
if the owner gets the whole amount.. then what happens in february when the tenant again pays $100 and ignores the late fee?
can the property manager evict for unpaid fees? I don't think so. what is there to keep the tenant from just ignoring the late fee?Finally. say the tenant ignores the late fee and only ever pays the rent but not the late fee.. (say he's regularly late). then can the owner demand that he is paid his full rent?
mike
PMs I work with don't take partial payments. So they can't just pay the rent and ignore the late fee. It's along the lines of what another poster said, if they take some of the money, a judge may not evict because partial payments were taken.
Most PMs I've dealt with keep all the late fees, arguing they're doing the extra work to collect the rent. I can appreciate that because as the owner youre not the one drafting letters, sending certified mail, burning gas driving to the property to put notices on the door, making calls etc. You just wait and that does suck. I do have one that gives me some of it.
They have to make their money somewhere so even if they gave you some or all of the fees, they'd have to offset it by charging higher rates to the owner.
Quote from @C Michael Sundius:
I agree with the others that there is a valid reason for the PM to keep late fees.
All payment are applied to non-rent charges first, oldest to newest. If the Tenant pays less than what is owed, we apply it to late fees, utilities, or whatever else is owed, then we apply it to rent. This leaves the Tenant short on rent and subject to eviction.
It's a mistake to see late fees as an opportunity to increase earnings. You may make money off late fees for a while, but eventually that tenant will do something that costs you much more than what you've made.
#2 Starting Out Contributor
- Investor
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Typically the property manager gets 10% of late fees. You need to read your contract and see what it says.
Quote from @C Michael Sundius:
right, but this is a bit different, no? the fee is solely a agreement between the property manager and the tenant. whereas, the property manager is a fiduciary and the owner's interest should be put before themselves.
If the owner doesn't care the rent is late or is disappointed the has not yet submitted a 3day notice. why should the landlord be out his money.
thats not correct. There should be no seperate agreement between the management company and the tenant. The late fee is payable to the landlord and outlined in the lease. Your agreement with the PM then states that they get the late fee as payment for the extra work done to collect late rent.
#1 Classifieds Contributor
@Andrew B. the LEASE is between the PMC, acting as legal agent for the owner, and the tenant.
So, there is, in fact, a separate agreement between the PMC and tenant.
@C Michael Sundius A lot of your original post veers into "it depends" territory.
Here's what I mean.
-In Colorado (and increasingly in other states), if a tenant has a balance of $2200 and $100 of that is late fees, the PMC is legally required to accept a $2100 payment and apply it towards rent in full if it covers the rent owed.
-States are increasingly moving to a view of "you can't evict based on late fees," and you are also required to apply funds received to rent. This leaves little recourse for PMCs and Landlords. The only material recourse in a situation where a tenant is chronically late but ignores late fees is to non-renew their lease when it expires and take the late fees out of the security deposit (but this also can get sticky if there is damage to the property, and the cost of repairs exceeds the deposit.)
-Ultimately, the "who gets late fees" question is answered by your PMA (Property Management Agreement). The lease is the lease. It should be between the landlord and the tenant, even if a PMC is involved. There are some anomalies to the lease parties, but in general, the lease is between the landlord and the tenant. The PMC can be listed as the point of contact. All fees collected pursuant to the lease terms are handled based on that PMA.
-Last, I agree with most posts here that PMCs should keep late fees. The PMC puts in the work to collect the late fee and often still comes up empty-handed. The "but I have a late fee on my mortgage" argument doesn't really hold water with me. If you're a landlord, you have a duty to be prepared to withstand late rent payments, repairs, and vacancies. I say that as a landlord and a PMC.
Quote from @Michael Smythe:
@Andrew B. the LEASE is between the PMC, acting as legal agent for the owner, and the tenant.
So, there is, in fact, a separate agreement between the PMC and tenant.
That's still incorrect. The agreement is between the tenant and the landlord. The PM company is acting as your agent.
The management company getting the fee is my vote.
Quote from @Andrew B.:
Quote from @Michael Smythe:
@Andrew B. the LEASE is between the PMC, acting as legal agent for the owner, and the tenant.
So, there is, in fact, a separate agreement between the PMC and tenant.
That's still incorrect. The agreement is between the tenant and the landlord. The PM company is acting as your agent.
It really depends on who the lease says the two parties are. For example, our management agreement states we assume the role of "Landlord". So our leases are in fact between tenant and the PM. This is not an uncommon practice.
#1 Classifieds Contributor
@Ian Walsh thanks for chiming in!
@Andrew B. it's no different than AirBnb contracts. A host signs a contract with AriBnb and so does a Guest, but there is no direct contract between the Host & the Guest.
Most states require a lease to identify the owner of a leased property, whether a person, trust, LLC, IRA, etc.
Landlord = Lord of the Land = Owner per deed
Agent = someone legally representing the owner
Property Manager = Agent
The Landlord does NOT sign the lease with a tenant, so how are they part of that contract?
Quote from @Michael Smythe:If you fire your PM, does your lease become invalid? No. The PM signs the lease as your agent. His signature is acting as though it was your signature. The agreement is still with you.
@Ian Walsh thanks for chiming in!
@Andrew B. it's no different than AirBnb contracts. A host signs a contract with AriBnb and so does a Guest, but there is no direct contract between the Host & the Guest.
Most states require a lease to identify the owner of a leased property, whether a person, trust, LLC, IRA, etc.
Landlord = Lord of the Land = Owner per deed
Agent = someone legally representing the owner
Property Manager = Agent
The Landlord does NOT sign the lease with a tenant, so how are they part of that contract?
If what you said was true, then you could fire the PM and lose your ability to collect that late fee. That does not happen.
#1 Classifieds Contributor
@Andrew B. the lease would need to contain language that specifically allows it to transfer, otherwise it would be invalid.
Quote from @Michael Smythe:
@Andrew B. the lease would need to contain language that specifically allows it to transfer, otherwise it would be invalid.
go in front of a judge and tell him your lease is invalid because it was signed by your PM and see what he says
#1 Classifieds Contributor
@Andrew B. actually we took over a property with a terrible lease that didn't have the auto-transfer clause in it and the judge refused to recognize it.
We had to chase the previous PMC to get them to sign a Transfer of Rights document.