Disagreement w/ Property Manager

Investor · Raleigh, NC · Member since 2013 · 1k+ posts · 708 votes

9y

For clarification: I assume you are on a year to year lease? if you stayed with the PM company, would they get a full month's rent simply for renewing the lease? That is very unusual!

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Eliot M.

OP

Investor · Norcross, GA · Member since 2016 · 87 posts · 20 votes

9y

Year to year lease. I'm the owner and the tenant also signed a 1 year lease. No, if I stayed with the PM, they would receive 10% of gross rents, as currently is the case right now. But they are saying that if I let our 1 year contract run out without renewing, they will either remove the tenant, or renew the tenant and charge me a full year of commission ( equal to 1 month's rent).

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Eliot M.

OP

Investor · Norcross, GA · Member since 2016 · 87 posts · 20 votes

9y

One other data point, this is all a moot point if the tenant decides to leave, because then I could severe ties without "punishment".

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Andrew S.

Investor · Raleigh, NC · Member since 2013 · 1k+ posts · 708 votes

9y

Better to wait for someone more legally versed, but my take would be: let them "kick out" the tenant (whatever that means...) and offer the tenant a new lease (your own) moving forward.

What we don't know, of course, is whether the tenant even WANTS to stay, but assuming he does, he'll likely be happy to sign a new lease with you. If the PM presents him/her with a better deal in a different property, then he/she can move.

Is the PM really claiming that they should get a 10% cut on this tenant for as long as the tenant stays? So, potentially for 50 years in the future, they plan on collecting their cut from you? That sounds ridiculous to me.

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Eliot M.

OP

Investor · Norcross, GA · Member since 2016 · 87 posts · 20 votes

9y

@Andrew S. Yes! That's exactly what they are claiming! They are pulling the "I talked to my supervisor" routine and saying they'll "cut me a break" on commissions and instead accept a finders fee of 1 months rent instead. Which is also ridiculous for a finders fee.

I have considered approaching the tenant directly although it's also in the lease that I can't do that. This is an old RE company that apparently has done their homework on trapping the owner in pretty well.

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Jeff B.

Buy & Hold Owner · Redlands, CA · Member since 2015 · 5k+ posts · 2k+ votes

9y

your issue highlights to me the need to read the fine print. I would never have signed such a contract.

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Adrian Mata

Lacey, WA · Member since 2011 · 48 posts · 8 votes

9y

It takes work to find a paying tenant. They feel that if they find the money maker that they should get a piece...They also want to know how much money they're going to get in the future. This is a sticky situation especially since you signed that you wouldn't talk to tenants....

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John Kesner

Investor · Reno, NV · Member since 2015 · 167 posts · 90 votes

9y

Eliot M. Whats your rental market like right now? If its good, let them kick out the tenant and find another. No big deal, contract over, no commission. The current tenant should be willing to let you show the property. If your rental market is not good, you have a much tougher decision.

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Andrew S.

Investor · Raleigh, NC · Member since 2013 · 1k+ posts · 708 votes

9y

Originally posted by @Adrian Mata:

It takes work to find a paying tenant. They feel that if they find the money maker that they should get a piece...They also want to know how much money they're going to get in the future. This is a sticky situation especially since you signed that you wouldn't talk to tenants....

Agree that it takes work to find a tenant but it seem that they already got compensated for that (presumably a lease-up fee when the tenant moved in, as well as the past year's cut for PM).

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Tyler Ansell

Investor · Tampa, FL · Member since 2015 · 293 posts · 175 votes

9y

If anything you probably paid them the finder's fee on the front end when the tenant was placed. If you give them whatever notice is required (30 days or whatever) in writing then they shouldn't be able to touch your tenant. Also note that it would be pretty difficult to just out of nowhere kick the tenant out, especially if they wanted to stay for another year!

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John Thedford

Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes

9y

With that attitude I believe you have the wrong PM. My new PM company where I am an absentee owner agreed to 1/2 monthly rent if I choose to cancel before the 1 year PM contract expires. No advice as to your current situation.

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Jon Behlke

Accountant · Hopwood, PA · Member since 2015 · 125 posts · 92 votes

9y

I would review the lease agreement that was signed by the tenant. I know you've been with the PM company for a year, but how long has this PM placed tenant been in your unit? By what grounds within the lease agreement with the tenant does the PM think they are going to evict? I'm no legal expert, but I don't see a contract between A (you) and B (the PM) being able to evict C (tenant) without breach of lease agreement as something that would hold up in court. I'd consult an attorney, but I don't see how they can evict the tenant without grounds.

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Jon Q.

Investor · Berkeley, CA · Member since 2015 · 1k+ posts · 713 votes

9y

Originally posted by @Eliot M.:

Was wondering if I could get some help on dealing with my Property Manager. I have been under contract with my property manager for almost 1 year and have decided that it's not worth the money to continue doing business with them. I have notified them that I will not be renewing the contract with them for 2017 and they proceeded to tell me that THEY WILL REMOVE THE TENANT from the house if I do not renew with them. We've gone back and forth and I've told them that the tenant is not the problem, and I'm not asking the manager to renew or to terminate, I'm just asking them to basically do nothing until the end of my term with them. I was planning on contacting the tenant directly and letting them know I was the new landlord and they would be dealing with me directly.

Essentially, what it comes down to is the contract language. The manager sent me this language that supposedly states that if I do not continue with them, they will either 1) kick the tenant out, or 2) charge me a finder's fee equal to 1 month's rent. Here is the contract language:

"It is agreed that if Owner exercises the right to cancel this agreement, then Owner shall be responsible for any and all commissions earned or unearned on any existing lease or extension thereof. Owner shall owe Agent commission so long as tenant remains in possession."

The way that I interpreted this section is that if I were to cancel with them, I'd owe commission until the end of the 1-yr term. They are saying that's not the case - that I would owe them for another year, if the tenant stayed. Are there any attorneys out there, or even landlords that have experienced this before who can give me their OPINION (not legal advice) on this? I've told them all this seems really icky, that they would actually kick the tenant out just because I (the owner) don't renew with the management company. Seems like punishment to me. Please let me know!

Thanks to all!

They cant remove your tenant. You have a direct lease agreement with the tenant.

FIRE THEM! If you own the PM a leasing fee based on the property management agreement you sign then just pay them to get them out of the picture. Just read the PM contract you signed and abide by it.

Once you fire the PM, call your tenant directly and notify them to send all rent payments directly to you and in your name.

2 Reply

Kim Younkin

Real Estate Marketing Professional · Columbus, OH · Member since 2015 · 299 posts · 125 votes

9y

@Eliot M., how does the management contract define the word "commission?" I'm confused about what this even means...you're paying them a finder's fee for each tenant they place??

And do you have a copy of the lease that tenant signed? The management company can't just REMOVE them; they have to be in breach of their lease for any eviction proceedings to be commenced.

Our management agreement allows for early termination (which you're not even doing, you're just giving notice of non-renewal) and here's the language: If Owner terminates this Agreement prior to the expiration of the initial Term, then Manager shall be entitled to a lump sum payment equal to 6% of the gross projected income for each month of the unexpired portion of the initial Term of this Agreement." But we have no penalty for non-renewal. That seems like an unconscionable contract provision to me.

1 Reply

Kim Younkin

Real Estate Marketing Professional · Columbus, OH · Member since 2015 · 299 posts · 125 votes

9y

Sorry, I drafted that earlier today and sent it without seeing the other responses. I totally agree with @Jon Q. and his approach. I would fire them right now for this business tactic whether you have 1 property or 10 with them and pay what you need to and move on, keeping the tenant and telling them to send you the rent checks.

2 Reply

Cindy Meyer

Investor · Bastrop, TX · Member since 2015 · 53 posts · 28 votes

9y

The portion of the contract you posted addresses what will happen if you cancel. I assume that it also shows an end date as you say it is a 1 year contract. Are there any portions that address why contract would not end after 1 year (i.e., "contract continues until Tenant leaves premises" like our Leases that become month to month if no notice is given)?

If the above is not in the contract I would read that section as applying only if the contract is cancelled prior to the end date and ask them to give me the specific section of the contract that supports what they are claiming.

1 Reply

Jon Q.

Investor · Berkeley, CA · Member since 2015 · 1k+ posts · 713 votes

9y

Thanks @Kim Younkin

I've fired many a PMs starting out... most will threaten you, but won't actually take you to court. Just abide by the PM agreement you signed and pay fees you're obligated to.

PMs don't like their stream of income being eliminated (8% of your rents, but mostly padding of repairs costs).

Better to develop a more efficient model where you can self-manage (high-quality properties, strict tenant requirements, etc.). For several reasons, PM in SFR is problematic and doesn't work.

I wish you the best.

1 Reply

Eliot M.

OP

Investor · Norcross, GA · Member since 2016 · 87 posts · 20 votes

9y

Thanks everybody, for your comments! I'll try to address most of them here.

@Adrian Mata Yes, I agree it takes work to find a tenant. But to @Andrew S.'s point, I feel that I have already compensated them for this, for paying them their share of the gross rents for almost a full year now. I don't think it's fair to pay them twice for 1 tenant. Make sense?

@Jon Behlke The tenant has signed a 1-year. They signed with the PM shortly after I contracted with the PM to manage the property. I agree with your thinking that a contract between me and the PM should not dictate what the PM does to the tenant . But, they are interpreting my non-renewal with the PM to be also a non-renewal with the tenant (which is not my wish at all), thus trapping me in, essentially.

@Jon Q. and @Kim Younkin thanks for your replies. Unfortunately, "Firing" them - at least according to their interpretation of our contract - would involve either 1) losing my tenant, or 2) paying the PM $730 to keep the tenant for another year. Either of those choices are less than ideal, that's why I'm posting here on the boards to see if I might have any legal recourse if I choose to sue. Basically, it's their contract interpretation against mine, right? And if an attorney doesn't agree with my interpretation of that language, then I guess I'm either stuck with them, or screwed, it seems?

@Cindy Meyer I think you may have touched on the relevant point. Unfortunately there is no "term" in the contract, as I thought there was... just assumed I guess. Shame on me. The language says this: "This authority remains in full force until either party gives 60 days written notice to revoke it". (the 'authority' is defined as general PM duties: finding tenants, managing property). So, I think this may be the language that screws me. Thoughts?

So basically my options are

1) fire PM, lose tenant,

2) fire PM, keep tenant for a fee of $730

3) attempt to sue

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Eliot M.

OP

Investor · Norcross, GA · Member since 2016 · 87 posts · 20 votes

9y

4) keep PM and stay in business relationship with company that I hate

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Jon Q.

Investor · Berkeley, CA · Member since 2015 · 1k+ posts · 713 votes

9y

Originally posted by @Eliot M.:

Thanks everybody, for your comments! I'll try to address most of them here.

@Adrian Mata Yes, I agree it takes work to find a tenant. But to @Andrew S.'s point, I feel that I have already compensated them for this, for paying them their share of the gross rents for almost a full year now. I don't think it's fair to pay them twice for 1 tenant. Make sense?

@Jon Behlke The tenant has signed a 1-year. They signed with the PM shortly after I contracted with the PM to manage the property. I agree with your thinking that a contract between me and the PM should not dictate what the PM does to the tenant . But, they are interpreting my non-renewal with the PM to be also a non-renewal with the tenant (which is not my wish at all), thus trapping me in, essentially.

@Jon Q. and @Kim Younkin thanks for your replies. Unfortunately, "Firing" them - at least according to their interpretation of our contract - would involve either 1) losing my tenant, or 2) paying the PM $730 to keep the tenant for another year. Either of those choices are less than ideal, that's why I'm posting here on the boards to see if I might have any legal recourse if I choose to sue. Basically, it's their contract interpretation against mine, right? And if an attorney doesn't agree with my interpretation of that language, then I guess I'm either stuck with them, or screwed, it seems?

@Cindy Meyer I think you may have touched on the relevant point. Unfortunately there is no "term" in the contract, as I thought there was... just assumed I guess. Shame on me. The language says this: "This authority remains in full force until either party gives 60 days written notice to revoke it". (the 'authority' is defined as general PM duties: finding tenants, managing property). So, I think this may be the language that screws me. Thoughts?

So basically my options are

1) fire PM, lose tenant,

2) fire PM, keep tenant for a fee of $730

3) attempt to sue

That is included in your lease agreement with the tenant? A PM agreement cannot force an eviction of a tenant who has a signed contract/lease agreement. If so, that's likely a non-enforceable contract (but consult a local attorney).

Get rid of the PM however possible, then hire a leasing agent to help you re-lease it if necessary.

Next time, never sign a PM agreement like this. Cross out any clauses you don't agree with. If PM doesn't like it, tell them to hit the road!

Does the contract state you must pay the "finders fee" just once or every year? If every year, you're getting really screwed. If once, pay the PM the fee and tell him/her to get lost.

1 Reply

Gautam Venkatesan

Investor · Dallas, TX · Member since 2013 · 619 posts · 128 votes

9y

@Eliot M. I agree with the others this PM company does not seem to have your interests in mind but keep in mind if you decide to let go the PM and they do somehow evict the tenants you are heading into the holidays (Nov/Dec/Jan) when its traditionally harder to find a good tenant move in.

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Eliot M.

OP

Investor · Norcross, GA · Member since 2016 · 87 posts · 20 votes

9y

@Jon Q. The lease agreement was signed between the tenant and the PM. The mgmt agreement was signed between me (owner) and the PM. Does that answer your question? And they're not technically calling it an "eviction", rather they are interpreting my discontinuance with the PM to also include discontinuance with the tenants. That was never and still is not, my intent. But they won't have any of it. They say if I leave PM, PM will interpret that move as a non-renewal with the tenant, too, and will move the tenant out. I guess b/c the tenant is "theirs" and not "mine".

I have never paid (and never will pay!) a "finder's fee" to the PM, only a 10% fee per month. The "finder's fee" is their "concession" to me by "letting me out of the contract and keeping the tenant". Funny, I don't consider it a concession at all...

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Greg H.Pro Member

Moderator

Broker/Flipper · Austin, TX · Member since 2013 · 4k+ posts · 4k+ votes

9y

The lease agreement is between you the owner and the tenant. While a typical lease agreement may grant the property manager the ability to sign in your behalf, it does not make them a party to the contract. Therefore, they do not have unilaterally decide to terminate the lease agreement .

I would notify them in writing by email and follow up with certified mail of your desire not to terminate the existing lease. Additionally, notify them of your intent to terminate the agreement along with all records and accounting to be delivered to you with 10 days. Also state the any deviation from your directive will result in a complaint to the state real estate commission

I see no way that a management agreement allowing the management company to terminate a tenant unilaterally would hold up in court

4 Reply

Jon Q.

Investor · Berkeley, CA · Member since 2015 · 1k+ posts · 713 votes

9y

Originally posted by @Eliot M.:

@Jon Q. The lease agreement was signed between the tenant and the PM. The mgmt agreement was signed between me (owner) and the PM. Does that answer your question? And they're not technically calling it an "eviction", rather they are interpreting my discontinuance with the PM to also include discontinuance with the tenants. That was never and still is not, my intent. But they won't have any of it. They say if I leave PM, PM will interpret that move as a non-renewal with the tenant, too, and will move the tenant out. I guess b/c the tenant is "theirs" and not "mine".

I have never paid (and never will pay!) a "finder's fee" to the PM, only a 10% fee per month. The "finder's fee" is their "concession" to me by "letting me out of the contract and keeping the tenant". Funny, I don't consider it a concession at all...

That was another mistake. You should be signing all lease agreements.

If you're property is in a good location where you can attract a high-quality tenant, I would:

(1) Fire the PM!

(2) If the PM removes tenant, fine. You've got the tenants info?

If so, re-lease to the tenant if you can. Otherwise, pay a leasing agent (real estate agent to help you just lease property) one months fee to get a new tenant in place. Be extremely strict on the tenant criteria. 90%+ of property management is attracting and retaining a high-quality tenant.

(3) Locate a good local handyman that does good work at fair prices

(4) Start learning how to self-manage.

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Eliot M.

OP

Investor · Norcross, GA · Member since 2016 · 87 posts · 20 votes

9y

@Greg H. Thanks for your reply! After researching this for several hours now, it seems like the one line in the contract that will cause me to lose in court is this one:

"Owner shall owe Agent commission so long as tenant remains in possession."

So, unless any attorney friends here can post a reply and say that this one line is not enforceable, or otherwise won't stand up in court, it looks like I'm screwed. I thought about cancelling, giving them the 60 day notice, paying them for 2 months in advance (~$150) and then managing it starting now, but it still looks like that one line above will haunt me, and cause me to owe them the 10%/month.

@Jon Q. thanks... not sure I agree with you calling it a "mistake", though. "Oversight", maybe. Not being careful, yeah. After all, the whole idea around PM is so you can be hands off... if I had to drive 2.5 hours to go personally sign every lease that my PM generated, it would completely offset the (alleged) "benefits" of a PM.

To your points #3, and #4: I already have. And I already do. On multiple props... ;)

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Disagreement w/ Property Manager

Disagreement w/ Property Manager

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