Suspicious PM Actions?

23 Replies

Hi Everyone,

So we recently rented out one of our rentals and the tenant moved in on 8/1. Before they moved in they handed the August rent and non refundable pet deposit to the management company on 7/31. When I went to check my online portal on Monday, I noticed the PM charged their management fee for July based on the total amount of money received, meaning the rent and pet deposit combined. 

So 2 questions here:

1. Even though the pet deposit is non refundable, and can be counted as income the minute it was received, why do I have to pay the PM a percentage just to receive that deposit and to the tenant I still have to say I have the full pet deposit set aside when they are ready to move out?

2. Even though the rent was received on 7/31, the rent the tenants paid really isn't due until 8/1, is it right for the PM to charge that fee in July, when for the entire July month the house was basically vacant?

This is a new PM that I inherited from purchasing the home, and I have had a lot of issues with them. We have another rental with another PM and they don't charge a percentage for the pet deposit we received from the tenant. Maybe the above points are all normal and I am just being suspicious about their operation, but any input would be greatly appreciated.

If they are changing things on you without letting you know in advance, and you're having issues with them in other areas, move that rental to the other PM.  Having a quality PM is worth every penny.  Their job is to run the day to day operations for you.  If you aren't happy with them, get rid of them.

We are definitely going to move the home to another PM after the contract is up, but when we bought the home (new construction) the builder wouldn't sell to us unless the first year is managed by this PM company, so we had no choice but to sign a contract with them.

We spoke with them about their process and during the interview they seemed to know what they are doing really well. In practice they are basically coming off as cheap crooks who nick and dime on things I didn't even know was possible. Funny they came highly recommended by a well known REI network ...

So I guess it is common to charge a percentage on the pet deposit?

Account Closed

If you feel you are being taken advantage of or the possibility that the contract they made you sign is illegal then run it by your attorney.  The attorney may well find the contract to be invalid.  The cost may well pay for itself.

Originally posted by Account Closed:

when we bought the home (new construction) the builder wouldn't sell to us unless the first year is managed by this PM company, so we had no choice but to sign a contract with them.

This is a huge red flag to me.  If they also have clauses in their PM agreement regarding PM compensation for early termination, these clauses typically do not bode well for the owner.

Originally posted by @Frank Jiang :

This is a huge red flag to me.  If they also have clauses in their PM agreement regarding PM compensation for early termination, these clauses typically do not bode well for the owner.

That's what I thought when I first read the contract. Their contract was probably the most PM protected contract I've seen, and I've worked with 3 other PM companies before reading theirs. The problem we were facing was the fact that even after reading the contract, if they are actually a good PM company, I don't really have any issues with them taking a bunch of liabilities off of their shoulders, other PM companies usually have similar clause in their contract, not to mention they are highly promoted and recommended by a well known REI network, who claims to have vetted all their providers.

We also interviewed them, as mentioned above, and they seem to know what needs to be done in order to make sure the tenants and the home are taken care of. A lot of the things we've experienced in the past few months have been extremely shocking to us, and caused us a lot of stressed and anxiety.

Originally posted by @David W.:

@Doris W.

If you feel you are being taken advantage of or the possibility that the contract they made you sign is illegal then run it by your attorney.  The attorney may well find the contract to be invalid.  The cost may well pay for itself.

 I don't think anything they put in the contract are illegal, but I think it's highly arguable how ethical some of the things they put in there actually are. For example, there was a line that said they will attempt to contact the tenant before they go do their quarterly walk through and will enter the premise based on the assumption that the tenant have received the notice at a reasonable time. In reality, based on some of the reviews I've found and read later, they try to enter the premise later at night (after 7 PM), most people complain they've not received a notice and they charge a trip fee if they couldn't gain access. Of course I can't really verify these things so I don't know for sure if these things are true, but it's alarming that multiple people left the same reviews.

I don't think the line they put in the contract was illegal or unreasonable, but they used that to protect their unethical action and dubbed it "doing their job".

Account Closed

A good contract lawyer will get you out of this.

Always remember that just because it is in a contract doesn't mean they can do it.  That's the first thing I learned when I had an attorney review a contract I was to sign.  He would just mark through it and tell them what they were proposing was illegal and that just because it was in the contract didn't suddenly make it legal.

If you have a lease with the tenant that says proper notice needs to be given to enter the premises and the PM is saying "whatever" when it comes to this then does your contract with the PM void the one you have with the tenant?  I highly doubt it.

Account Closed

If I had to name it I would say that your PM is churning your account.  The term originates from when a brokerage firm will make trades whose only purpose is to generate commissions.

Originally posted by @David W.:

@Doris W.

If I had to name it I would say that your PM is churning your account.  The term originates from when a brokerage firm will make trades whose only purpose is to generate commissions.

 Currently, that's what it feels like to me ...

I will find a contract lawyer to review the 2 contracts we have, we don't really feel comfortable leaving the tenants with people like this, and I don't believe they will take care of the property the say they said they would.

Since we don't know exactly how your lease with the tenant or your contract with the PM company are worded, it isn't likely that anyone will be able to answer your questions directly.  However, I'll offer some general observations from my reading of your post.

First, your use of the term "non refundable pet deposit" is confusing and contradictory.  By referring to it as a "deposit" it is implied that it is potentially refundable to the tenant.  You even state that "to the tenant I still have to say I have the full pet deposit set aside when they are ready to move out", which further implies that it is a deposit that is refundable when they move out if their pet hasn't done any damage.  However, on the other hand, you also say that it is non-refundable.  Which is it?

If it's truly non-refundable (meaning you're not going to refund it no matter what, even if their pet does no damage), then you should call it a fee instead of a deposit.  And if it's a fee that isn't going to be refunded, then it's income and yours to keep so you don't need to "set it aside for when they are ready to move out".  And if it's income, then maybe your PM was right to keep a percentage of it (though I don't know for sure because I haven't read your contract).

On the other hand, if it were a refundable pet deposit, then I would say that the PM shouldn't keep a percentage of it because it's really not your money or the PM's.  It's merely being held on behalf of the tenant for any damages owed as a result of their pet upon the tenant vacating the property.

Ultimately, you might want to consider clarifying exactly what this charge is and how it's worded because different terms can have different legal meaning.  You didn't mention where the property is located, but I see you're in California.  And in California, a "pet deposit" would be treated under the law (California Civil Code section 1950.5) like a security deposit, and you cannot have a non-refundable security deposit.

@Kyle J

It's confusing to me too!

So when I e mailed them to ask why they charged a fee on it, they said it's because of the pet "fee". But in the online owner's portal, they said the total "deposit" withheld is in the amount of pet deposit + security deposit. On the lease, the addendum for pets said 1. the pet "deposit" is an increase to the security deposit withheld by landlord and then 2. it is a one time non refundable charge.

The property is located in Dallas, TX

Account Closed If this goes to a judge I would be shocked if they would rule that this is a fee. It equates it to the security deposit and then states that it is a fee. They need to reclassify it as a deposit and treat it as such and clarify that in writing to all parties. If I was renting I would be expecting it back, assuming that the home was left clean.

The PM doesn't seem all that competent.

How much does it cost to terminate your contract with the PM early? Seems like it would be pretty easy to inform tenants, change locks, and change passwords to all online accounts.

I don't know your level of comfort, but I established a relationship with my tenant. I like my management company, but the problem is that when something happens (flooding this summer) that needs immediate attention, the management company tends to be hit with all the houses flooding and no longer have time to manage mine effectively.

In your case, a direct line with the tenant can shortcut a lack of communication from the PM, as well as be able to provide verification of PM claims. "So we fixed the leaky sink... again. It was $1 million (with the pinky)" Now your tenant can help verify/disprove that.

My biggest fear right now is a distant property / PM that I can't trust. Good luck to you and I hope it all works great.

Thanks everyone for the replies, I really appreciate the support and the advice I've been given. Thank you so much for spending the time to reply to my message.

I did some digging on the origin of the contracts the PM is using since it looks exactly the same as the contract used by the other PMs I've used/am currently using and found that the form they are using are standardized, fill-in-blank forms used by the state of Texas. The PMs themselves never altered the language in the form, they just filled in where the blanks were. So basically the chance of them having illegal language in there is really slim because that would mean most PMs in the state of Texas using this form would be violating the law in some form. 

I also looked up the "non refundable pet deposit" language and not only is it commonly used in standardized forms in Texas (most of the mid southern states as far as I know), the chance of a tenant bringing the case to court and win is really small because the tenant laws in Texas is, basically, not very protective of tenants ... And once again, the PMs didn't alter the language, the "non refundable pet deposit" is the exact language used in the forms themselves.

@Bryan O.

I thought about having a relationship with my tenants, but I am actually prohibited from doing that based on the standardized PM contract in Texas. There is a provision in the contract that states I do not:
"deal with or negotiate with any tenant in the property concerning any matter related to the management or leasing of the property but refer all such dealings to broker" 
I took that as I can't talk to my tenants about anything constructive that I would like to know about my property ...

Originally posted by @Kyle J. :

First, your use of the term "non refundable pet deposit" is confusing and contradictory.  By referring to it as a "deposit" it is implied that it is potentially refundable to the tenant.  

So it's not just me.  I reread her statement twice and just assumed the 2nd coffee hadn't kicked in yet.  

@ K. marie P.  

How I wish that is the case ... Unless there is a way to challenge the approved NARPM form from the Texas branch (maybe not even just Texas?), I think I am pretty screwed either way ...

Here's a quote from the Austin Tenant's Council Texas, based on Property Code, §92.101 – §92.109

Pet Deposit
The Texas Property Code does not address pet deposits but it is assumed the same rules apply. One difference between a security deposit and a pet deposit is that the landlord can legally withhold all or part of the pet deposit if agreed in the lease contract that the pet deposit is non-refundable.

Account Closed I'm looking at the Texas RESIDENTIAL LEASING AND PROPERTY MANAGEMENT AGREEMENT, under the fee section, I'm not seeing where the Property Manager can take a % of a Pet Deposit. I see where they keep Administrative Fees, are they claiming this is an Administrative Fee? or are they claiming this is collected rent? 

Texas is funny as far as the pet deposit situation is concerned. Many places have a "non-refundable pet deposit" and a refundable pet deposit (which is permissible language). It's usually split 50/50 (ex $200/$200) but can vary. However, I don't understand why they are keeping any portion of it. It is, in my opinion, not a collected rent or admin cost. A Pet fee or "non-refundable pet deposit" is usually withheld because extra cleaning is generally required after the tenant moves out. 

Just my $.02 from renting my share of places with a 90lb American Bulldog... 


Account Closed

Almost all of my tenants have pets and I and charge a non-refundable fee using the standard Texas Association of Realtors (TAR) form.  It is indeed non-refundable regardless of whether it is a "deposit" or "fee" and should stand up in any litigation if it comes to it, that is why the form uses that specific wording.  Since it is non-refundable it is considered income and is basically a pre-payment for future anticipated damages such as extra cleaning.  The real dilemma is how much do you charge the tenant for carpet cleaning etc. when they move out if they already paid a pet fee?  I generally do not charge them anything unless the carpet needs to be replaced or something other than pet damage.

Whatever your PM says in their contract is what they will charge and unless it specifically states something about non-refundable deposits/fees then they will try to skim their percentage off of it.   I actually had a PM try to keep all pet deposits saying that they took care of the cleaning when the tenant moved out but I pressed them on it and they ended up giving it to me without anything withheld.  I didn't keep the PM very long and that is one of the many reasons I started managing my own properties.

I won't buy an investment property where I am forced to use a certain manager (ie, condos, vacation rentals, builder HOA's, etc.) as I feel that they are just setup to skim profits for a certain amount of time before the owners wise up and move services.

@Corey Jahn

Yeah, what you are explaining is basically my understanding of how things should work, and out of the 2 PMs I  currently have one of them is doing it that way. The PM in question for this thread didn't have part of the pet "deposit" held as actual deposit, they are treating the whole amount as a fee and charging management fees on it.

In the PM contract it states that they can take a predetermined percentage from the monthly collection, which didn't specifically say just rent, so I guess I am kind of losing ground trying to argue with them. But to me the amount is so minimal it doesn't even really matter, it's their thought process and actions that make me really wary of their practice.

In general I disagree with the pet fee being counted as part of the monthly collection, even if it's nonrefundable. It's just a designation difference and what the fee will be used for. I don't see why I should owe the PM a percentage just for collecting it for me.

@Christopher Gilbert

Well said. We have sworn left and right to never do this again as well. 

We were really happy when we found this company because it was really hard to source properties from out of state, but this is proven to be more trouble and headache than it's worth.