Disagreement w/ Property Manager

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Disagreement w/ Property Manager

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

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! 

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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 

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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:
    Originally posted by @Greg H.:
    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 ?  

     Greg,

    The PM is not acting unilaterally they are acting under the terms of both the management agreement (which calls for termination fees) and the lease (which they are a party to). If the owner has granted management rights to the PM then the PM can choose to non-renew that lease. Also how is the PM acting in bad faith? All they want is what the contract calls for; the owner is the one who wants to do something different. When confronted with that choice the PM even gave an alternative resolution. The best interests of the parties are first and foremost those duties and responsibilities laid out in the management agreement.

     First off, a PM is not a party to a lease. The lease is between the owner and the tenant.  The PM may or may not have the authority to bind the owner by signing but that does not make them a party. A PM does not have the authority to go against the wishes of the landlord.  If the OP sends an email to the PM with instructions not to terminate the tenant, you believe that the PM has a right to terminate? 

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  • Robert GilstrapPro Member
    Residential Real Estate Broker · Cartersville, GA · Member since 2015 · 575 posts · 581 votes
    9y

    Greg,

    Respectfully I disagree with you. The management agreement spells out the scope and authority of the relationship. Without seeing his exact management agreement it's impossible to know with certainty what language exists in it but I can assure you with 100% certainty that a PM can absolutely be a party to a lease.

    It sounds like you are confusing how sales brokerage agency works vs. how property management agency works.  The owner sending instructions to do or not to do something are meaningless depending on the terms of the management agreement and the authority granted to the manager in that agreement. If the owner has relinquished control and authority to a manager over particular aspects regarding the property (ie. tenant selection, setting rental rates, lease renewals, etc.) then they no longer have any say in those particular areas.

    Now that being said if the owner wants to terminate his agency agreement all he has to do is contact the broker he has agency with and terminate. Immediately upon termination of agency all those relinquished powers and authorities are regained by the owner.  However, that just terminates agency and has no effect on the contractual terms remaining in the agreement regarding monetary penalties or other non agency related provisions.   So in this particular case he could terminate agency immediately and the existing PM would no longer have any authority to non renew the tenants lease BUT the owner would still be on the hook for the monetary penalties. Whether or not they could be collected on from the owner is another question.

    [email protected]770-480-7301
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  • Mike Dymski
    Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes
    9y
    Originally posted by @Robert Gilstrap:

    Mike,

    when you say "Managers work hard and deserve to get paid well but a never-ending commission after termination of the contract is unusual and not acceptable."

    The commission is not "never ending" it's until the tenant moves out and although that might not be standard in your area it's quite common all over the US. As far as it being "acceptable"; it must have been acceptable because the owner signed that agreement. 

    I agree there are a few markets where lease up fees aren't charged but I wasn't referring to other markets; I was referring to the Atlanta market where it is absolutely unheard of to not pay a lease up fee. 

    Perhaps "idiot" was too strong; instead I should have said "poor business skills". How is not charging a lease up fee equate to  "aligning their interests with that of the owner"?

    You feel that the owner should continue to pay the old manager commissions whether they are managing the property or not.  I feel that the owner should not have to pay the old manager commissions and a new manager commissions and consider that unacceptable.  It sounds like we are not going to agree on that one.

    Lease up fees are an incentive to the manager to turn the unit and turnover and vacancy are an owner's number #1 and 2 costs. This is a common misalignment of business interests in REI that many owners try to fix as they scale. They partner with managers who do not charge lease up fees or they hire employees and provide incentives for low vacancy and turnover that are more aligned with their interests. Apartment owners would never pay lease up fees due to this misalignment and they are, therefore, nonexistent in professional multifamily management.

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  • George P.
    Property Manager · Livonia, MI · Member since 2011 · 4k+ posts · 1k+ votes
    9y

    u signed an unfavorable contract. For u. 

    Do not resign, keep the tenant,  let them take u to court. Then pay them a commission if it goes to court. That will teach you to read the fine print next time 

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  • Robert GilstrapPro Member
    Residential Real Estate Broker · Cartersville, GA · Member since 2015 · 575 posts · 581 votes
    9y
    Originally posted by @Mike Dymski:
    Originally posted by @Robert Gilstrap:

    Mike,

    when you say "Managers work hard and deserve to get paid well but a never-ending commission after termination of the contract is unusual and not acceptable."

    The commission is not "never ending" it's until the tenant moves out and although that might not be standard in your area it's quite common all over the US. As far as it being "acceptable"; it must have been acceptable because the owner signed that agreement. 

    I agree there are a few markets where lease up fees aren't charged but I wasn't referring to other markets; I was referring to the Atlanta market where it is absolutely unheard of to not pay a lease up fee. 

    Perhaps "idiot" was too strong; instead I should have said "poor business skills". How is not charging a lease up fee equate to  "aligning their interests with that of the owner"?

    You feel that the owner should continue to pay the old manager commissions whether they are managing the property or not.  I feel that the owner should not have to pay the old manager commissions and a new manager commissions and consider that unacceptable.  It sounds like we are not going to agree on that one.

    Lease up fees are an incentive to the manager to turn the unit and turnover and vacancy are an owner's number #1 and 2 costs. This is a common misalignment of business interests in REI that many owners try to fix as they scale. They partner with managers who do not charge lease up fees or they hire employees and provide incentives for low vacancy and turnover that are more aligned with their interests. Apartment owners would never pay lease up fees due to this misalignment and they are, therefore, nonexistent in professional multifamily management.

     I feel the owner should abide by the agreement he signed. In this case the PM gave him an out of $730 but he doesn't want to do that either.  I place a high value on what PM's (at least professional ones) bring to the business because I am one.  

    As far as lease up fees being an incentive to churn customers perhaps that's the case for dishonest managers but never so for professional managers. The only way a PM can make money in this business is get tenants into the system and keep them paying forever without causing too much trouble. For some reason everyone has this misconception that PM's are just praying for tenants to vacate so they can make all this money on the turnover. It's just not true. Think about it; when the unit is vacant now the PM and the owner no longer have an income stream, the PM faces losing the door altogether, the PM has to expend considerable resources to find a new tenant, do more work, etc. all of which cost the PM lots of $$.  

    Perhaps in Greenville multi-family owners don't pay lease up fees but I can assure you that they are paid all around the country. In fact the lease up fees are typically even more when you factor in onsite salaries, employee benefit costs, etc.

    I would say not charging a lease up fee is not in the customers best interests because now I see no incentive on your part to provide a well vetted tenant. In fact you now have a reverse incentive to just slam someone in the property as quickly as possible so the income stream can begin.  I guarantee every tenant we place for a full year so my clients know my interests are aligned with theirs. If I place a deadbeat then I lose big time.

    [email protected]770-480-7301
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  • Mike Dymski
    Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes
    9y

    @Robert Gilstrap if "everyone has this misconception that PMs are just praying for tenants to vacate..." and you have a different conception, that's just something for you to think about since you have a different opinion than everyone.  There are investors, such as myself, that will not even call a PM that charges lease up fees, even with a referral.  A good PM can trump any flawed business process but there are good PMs where that misalignment does not exist; so, there is no reason to test it.  I understand that you do not agree that it is flawed and I understand and fully respect your position.

    Incidentally, PM fees for me would likely be less under a lease up fee arrangement because the lease up fee PMs in my market charge a lower ongoing amount for the management fee but me and other investors do not care to operate under that model for the reasons mentioned.  Aside from my friends and family, my PM is the most important person in my family's financial present and future; so, it is imperative for me to have the proper structure.

    Professional apartment complex managers do not charge lease up fees in SC or elsewhere in the country.  And "salaries, employee benefits, etc" have nothing to do with lease up fees.

    I'm not replying to be difficult or to prove a point.  I don't feel that it is possible to convince someone else when they feel strongly about a topic and I don't consider my opinion to be better than yours or anyone else's....just spirited debate and food for thought.

    Regarding the OP, I agree that my opinion there is not supported by the contract (although I don't fully understand the proper interpretation of the clause in question).  Regardless, I feel that the OP should unemotionally and respectfully cancel the contract, not kick the tenant out and not pay continued management fees to two managers for that tenant going forward.  I do not think the PM should remove the tenant from their home and I do not think there is risk for the OP'er.  The relationship is broken, can't be fixed and I believe the PM has been adequately compensated for their work at 10% management frees for a year and that the contract provision for ongoing management fees, when no service is being rendered, is punitive.

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  • Stewart Guthrie
    Roseville, CA · Member since 2014 · 50 posts · 55 votes
    9y

    @Mike Dymski - Leasing fees for apartment complexes, (and single family homes), are very common throughout the country, it typically comes down to what is customary in a given market and the value of the rental units in question.  

    I have seen management agreements where there is a flat leasing fee, ($75-$250 for a new lease in a low/medium end complex), all the way up to 100% of one month's rent, it just depends on what is negotiated between the owner and the manager.

    In markets where the MLS is used to market rental properties, leasing fees are high and typically in place to pay a 3rd party leasing agent that may or may not have anything to do with the ongoing management. If the management company's leasing agent finds the tenant, they are entitled to the leasing fee.

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