Disagreement w/ Property Manager

Eliot M. · 2016-10-19T08:19:28-07:00

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!

Mike Dymski

Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes

9y

Originally posted by @Eliot M.:

@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... ;)

It's customary in my market for the PM to sign the lease agreement as agent of the owner. That also provides the PM with the authority to administer evictions.

I feel that Greg and Cindy's feedback above is very good.

I would also not be concerned about the never-ending payment clause. I'd feel differently if they just placed the tenant or had not received adequate compensation but that is not what is described here. The likelihood of a potential lawsuit combined with the likelihood of success on their part seems slim IMO.

Sorry you have to deal with this. Many investors talk about finding deals and capital being the hard part in REI when, in reality, the hard part is management and maintenance.

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Jon Q.

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

9y

Originally posted by @Eliot M.:

@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... ;)

You don't. Use DocuSign. It takes two seconds and you can sign on your smartphone.

And build a team of indicusls/contractors you can trust and develop an incentive structure do they do the right thing.

Yes, it's a good thought, but that's not the way PM works with SFR. If you're not actively monitoring your PM, I'll bet you're getting taken to the cleaners. There is no "hands off" if your goal is to generate high returns.

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Jon Q.

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

9y

Originally posted by @Eliot M.:

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

@Greg H is right (above). Your PM cannot terminate or remove your tenant prior to termination of lease agreement.

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Eliot M.

OP

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

9y

@Mike Dymski thanks Mike. I'd feel good about Gregs feedback if it weren't for that one pesky line about getting commissions for as long as tenant is in possession. Are you saying that in your opinion if I were to challenge them with a legal battle that I might have the upper hand?

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Greg H.Pro Member

Moderator

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

9y

@Eliot M.

You have verified that they are licensed in Ga correct? Are they Realtors? Not a major difference but held to a slightly higher standard

While I understand your concern about that particular line in your agreement my stance would be:

You as an agent/Realtor have demonstrated by threatening to remove MY tenant that you are not acting in my best interest above your own which is required by your Code of Ethics. We will terminate this agreement upon the expiration of the agreement. If you choose to litigate, I further request all documents for repairs and accounting of all charges during the length of our agreement for an audit to be performed by my accountant.

Most of the time as a Broker I am pro-agent but I think the clauses in that agreement are ridiculous as well as unethical in my opinion.

The worst that could happen is they could take you to small claims court. I am not a Lawyer but I would be confident that I would win in your situation. I also don't know your personality. Some people would just pay instead of having a confrontation so only act on what you are prepared to defend

1 Reply

Mark H.

Investor · Grapevine, TX · Member since 2014 · 88 posts · 75 votes

9y

When I was unhappy with a former PM, I cancelled the management agreement in the middle of the contract period. The cancellation clause said I would owe the PM the monthly fee for the remaining months of each lease. In my opinion that clause was not fair, the PM already got a 50% commission on the first month. Shame on me that I originally signed that agreement as is. Anyway, I made a personal decision to cancel no matter what, and if the PM had come after me for extra fees (on multiple leases) I would hire a great lawyer and put up a tough fight. I wrote a long list of specific examples to show to a judge how the PM failed to live up to the contract. By the way,the PM signed all my leases in my behalf. Low and behold, the PM confirmed that I don't owe him the extra fees. I believe I gave him such a hard time stubbornly disagreeing with him on multiple issues that he also preferred we part ways :) LOL . Since then I've found a PM who thinks like me and we have built a very positive relationship, and I made sure the cancellation clause now says I owe no more fees if I leave. Learned my lesson. Sorry, no legal advice, but I wish you good luck.

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Mike Dymski

Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes

9y

Originally posted by @Eliot M.:

@Mike Dymski thanks Mike. I'd feel good about Gregs feedback if it weren't for that one pesky line about getting commissions for as long as tenant is in possession. Are you saying that in your opinion if I were to challenge them with a legal battle that I might have the upper hand?

I don't think it's necessary to challenge them with a legal battle. The ball would be in their court, after you cancel the contract, to challenge you with a legal battle and I don't think that would be cost beneficial for them to chase commissions on one property and, if they did, I don't think they would be successful.

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Bob CollettPro Member

Property Manager · Brecksville, OH · Member since 2014 · 486 posts · 464 votes

9y

Eliot

I have a hard time believing that a legitimate property manager would behave as you have rxperienced.

1.) Check to see if your pm agent has a real estate license as required by Georgia law... not just the company, but the individual as well.

2.) The lease signed by the tenant can not be cancelled at the whim of the pm. This threat by them is probably a violation of licence law.

I have some other ideas for you. Please contact me privately.

Good luck

1 Reply

KK A.

Property Manager · Richmond, VA · Member since 2016 · 32 posts · 15 votes

9y

I'm sure there is a reason you want to leave them (and judging by this interaction, I could see why). Is there any way you can find a way that they've breached the agreement you signed with them, thus giving you a right to terminate it?

1 Reply

Victor N.

Investor · Wellington, KS · Member since 2016 · 256 posts · 188 votes

9y

Isn't the ongoing "commission" simply a payment for ongoing management services for so long as the unit is occupied? If so, the agreement apparently provides a right to cancel without cause with 69 days notice. Exercising that right would terminate the obligation of the PM to provide management AND terminate their right to receive payment of 8% of the rent. This is nit legal advice. You should seek advice from local counsel who can read and review the entire contract.

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Ian WalshBusiness Member

Lender · Philadelphia, PA · Member since 2016 · 2k+ posts · 1k+ votes

9y

That is a bad move by the property manager. That is bad business to make a threat like that. I have never even heard of a management company doing that because you are not renewing a management agreement. I have a ton of experience in that business and this has never crossed my desk until now. That sounds like a backyard management company that doesn't really have a good grasp on this business. The lease stands and I would document everything if it comes to make for a real problem.

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Thomas B.

Investor · Memphis, TN · Member since 2013 · 59 posts · 30 votes

9y

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Rosston Smith

Investor · Warner Robins, GA · Member since 2015 · 1k+ posts · 490 votes

9y

Pay whatever you have to and get a new PM.

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Karen Sanders

Lincoln City, OR · Member since 2015 · 59 posts · 54 votes

9y

I don't think they have a leg to stand on. The contract was for a limited time and all agreements end at the end of the contract. I believe you do not owe them anything if you choose not to renew. Not legal advise but look at it like you would look at a rental agreement. As a renter I would never expect to pay my landlord anything after the end of my year contract but if I wanted to leave early I would owe money until the end of the contract unless it has a 60 day notice to quit with no penalty.

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Kim Younkin

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

9y

@Eliot M., you might want to post this thread in the local forum for your area in Georgia and see if you can get some attorney responses from those who are licensed in GA and can go over GA landlord-tenant and contract law with you. Or research your local bar association to find attorneys who specialize in landlord-tenant law.

I wonder if any other people have filed complaints against this company with the state real estate commission, as was suggested you do above. Those filings are public. You could search the GA real estate commission filings by the PM's name to see if you can pull up any cases in this regard--especially if GA requires property managers to be licensed agents. http://www.grec.state.ga.us/ I can't imagine that this is a practice they can get away with, and I can't imagine that a tenant would sign a lease that allowed them to be removed from their unit because the unit owner discontinues PM!! That is not a legal reason for a breach leading to an "eviction", which is what this would be, no matter what the PM is calling it.

1 Reply

Phil Earley

Property Manager · Cumming, GA · Member since 2015 · 261 posts · 199 votes

9y

I would pay the $730 and move on if the relationship is so bad assuming the tenant wants to renew.

Anytime any of us early terminate any agreement whether its a residential lease, a car lease, a home security contract, our cable company, our gas provider, our marriage, etc....there is most likely a penalty.

We have all ended up in a situation for whatever reason that isn't ideal even though there are 1000 other people that love it.

Not all of us are meant to work together and that is ok.

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Robert GilstrapPro Member

Residential Real Estate Broker · Cartersville, GA · Member since 2015 · 575 posts · 581 votes

9y

It's good that contributors are saying "not legal advice" because they don't seem to know much about contract law.

After reading all the responses I'm also amazed that everyone keeps harping on the inability of the manager to get rid of the tenant. Eliot said multiple times that "getting rid of the tenant" was effectively non-renewing the tenant and yes the PM can do that if the mgmt. agreement allows for that.

I'm also struck at how everyone somehow sees this PM as screwing over the owner.

Eliot, you said that you never paid a procurement fee for this tenant and only paid a 10% management fee for the months the tenant has been in place. You said you "don't think it's fair to pay them twice for 1 tenant."

So how would you be paying them twice for the tenant? Managers get paid to procure good tenants and then they get paid to "manage" that relationship, payments, accounting, repairs, etc.

You signed an agreement that called for no procurement fee and only a 10% management fee with termination language that says they get "X" if you terminate. They found the tenant, they brought the value (a paying tenant) to the table for you. Now they have agreed to just settle for a simple $730 procurement fee and call it quits. How is this screwing you?

You clearly signed up with an idiot manager because no manager in their right mind would place a tenant for free. In my opinion they are just trying to get paid for what they provided and the thought process of going to court over $730 is ridiculous.

[email protected]770-480-7301

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Jack B.

Rental Property Investor · Seattle, WA · Member since 2014 · 1k+ posts · 1k+ votes

9y

Originally posted by @Jeff B.:

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

This. I'm truly amazed at the kinds of things people sign without really reading or understanding.

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Greg H.Pro Member

Moderator

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

9y

Originally posted by @Robert Gilstrap:

It's good that contributors are saying "not legal advice" because they don't seem to know much about contract law.

After reading all the responses I'm also amazed that everyone keeps harping on the inability of the manager to get rid of the tenant. Eliot said multiple times that "getting rid of the tenant" was effectively non-renewing the tenant and yes the PM can do that if the mgmt. agreement allows for that.

I'm also struck at how everyone somehow sees this PM as screwing over the owner.

Eliot, you said that you never paid a procurement fee for this tenant and only paid a 10% management fee for the months the tenant has been in place. You said you "don't think it's fair to pay them twice for 1 tenant."

So how would you be paying them twice for the tenant? Managers get paid to procure good tenants and then they get paid to "manage" that relationship, payments, accounting, repairs, etc.

You signed an agreement that called for no procurement fee and only a 10% management fee with termination language that says they get "X" if you terminate. They found the tenant, they brought the value (a paying tenant) to the table for you. Now they have agreed to just settle for a simple $730 procurement fee and call it quits. How is this screwing you?

You clearly signed up with an idiot manager because no manager in their right mind would place a tenant for free. In my opinion they are just trying to get paid for what they provided and the thought process of going to court over $730 is ridiculous.

A property management agreement allows a PM to act of behalf of the owner but NOT to act unilaterally to terminate a tenant in retaliation for terminating an agreement. The PM is not a party to the lease agreement with the tenant. Please tell us how the PM has the authority to act ? Additionally, if the agent is a Realtor, his/her pledge it to put their clients best interest above their own

My understanding is that the OP is not terminating the agreement midstream but is choosing not to renew and the PM is looking for another year of management fees post agreement. Once he conveyed his intentions, he was threatened with removal of the tenant. At that point, I would determine that the PM was not acting in my best interests. Would you not ?

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Jeff B.

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

9y

@Greg H. it is entirely possible that the PM is acting as an AGENT of the owner and thus can perform as described. HOWEVER, retaliation in the form of eviction is illegal in every state. Retaliation using tenant non-renewal is not.

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Greg H.Pro Member

Moderator

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

9y

Originally posted by @Jeff B.:

@Greg H. it is entirely possible that the PM is acting as an AGENT of the owner and thus can perform as described. HOWEVER, retaliation in the form of eviction is illegal in every state. Retaliation using tenant non-renewal is not.

Of course he is acting as an agent on behalf of the owner but that does not give the PM the ability to go against the owners wishes. This is not a criminal matter so legal or illegal do not apply. However, if the PM gave notice to the tenant against the expressed wishes of the owner they could and should in my opinion be disciplined by their state's real estate commission.

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Jeff B.

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

9y

Originally posted by @Greg H.:

Originally posted by @Jeff B.:

@Greg H. it is entirely possible that the PM is acting as an AGENT of the owner and thus can perform as described. HOWEVER, retaliation in the form of eviction is illegal in every state. Retaliation using tenant non-renewal is not.

Of course he is acting as an agent on behalf of the owner but that does not give the PM the ability to go against the owners wishes. This is not a criminal matter so legal or illegal do not apply. However, if the PM gave notice to the tenant against the expressed wishes of the owner they could and should in my opinion be disciplined by their state's real estate commission.

Again, communications is the key and as AGENT, does not need to ask "Mother May I"; it's implicit in the agency relationship and limited only be existing written limitations OR current communications. Root cause of the issue is a totally unacceptable contract.

Illegal comes in three flavors: Criminal, Misdemeanor and State/Local Regulations. Fair Housing was created by HUD, a Federal agency.

Reporting the termination to the State Board of Real Estate is a great step to take - - give pre-notice and copy PM directly if electing to do so.

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Mike Dymski

Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes

9y

Originally posted by @Robert Gilstrap:

It's good that contributors are saying "not legal advice" because they don't seem to know much about contract law.

After reading all the responses I'm also amazed that everyone keeps harping on the inability of the manager to get rid of the tenant. Eliot said multiple times that "getting rid of the tenant" was effectively non-renewing the tenant and yes the PM can do that if the mgmt. agreement allows for that.

I'm also struck at how everyone somehow sees this PM as screwing over the owner.

Eliot, you said that you never paid a procurement fee for this tenant and only paid a 10% management fee for the months the tenant has been in place. You said you "don't think it's fair to pay them twice for 1 tenant."

So how would you be paying them twice for the tenant? Managers get paid to procure good tenants and then they get paid to "manage" that relationship, payments, accounting, repairs, etc.

You signed an agreement that called for no procurement fee and only a 10% management fee with termination language that says they get "X" if you terminate. They found the tenant, they brought the value (a paying tenant) to the table for you. Now they have agreed to just settle for a simple $730 procurement fee and call it quits. How is this screwing you?

You clearly signed up with an idiot manager because no manager in their right mind would place a tenant for free. In my opinion they are just trying to get paid for what they provided and the thought process of going to court over $730 is ridiculous.

There is no procurement fee in the contract. Procurement and management services are included in the monthly fee and the owner has paid that fee for the full lease term.

The owner has to pay the manager in this arrangement indefinitely, whether the manager performs services or not. Managers work hard and deserve to get paid well but a never-ending commission after termination of the contract is unusual and not acceptable. This is not a delayed procurement fee, this is in indefinite commission.

It's not customary to charge lease up fees in many markets and the managers that do not charge them in many market are not idiots. They are just aligning their interests with that of the owner.