Property Manager charges Owner non-collected late fees

20 Replies

Hello BiggerPockets,

I am separating with Property Manager and they now are charging me late fees that they didn't collect from the tenants. Is it common for property managers?

Property management agreement says:

"Fees Paid By Tenant – Manager may charge and collect fees to Tenant(s) in addition to the base rent in the lease agreement. These fees will be paid to the manager and not shared with the owner."

@Dmitry Semenov It reads like they made up their own contract w/o an attorney. I would think they intended it to read, "Manager may charge and collect fees from Tenant(s)"

For my PM business, we retain any late fees received as the cost of collection of past-due rent. If that is the only line referencing late/collection fees, I'd say your PM isn't right to try to collect the late fees from you. Rather they should list that fee as some sort of collection fee payable by you, which isn't common. No rent collected = no fee paid.

Originally posted by @Dmitry Semenov :

Hello BiggerPockets,

I am separating with Property Manager and they now are charging me late fees that they didn't collect from the tenants. Is it common for property managers?

Property management agreement says:

"Fees Paid By Tenant – Manager may charge and collect fees to Tenant(s) in addition to the base rent in the lease agreement. These fees will be paid to the manager and not shared with the owner."

 It's common for property managers to retain all late fees collected from the tenants. I haven't ever seen a property management company charge late fees to the owner though. That's definitely odd and in my opinion not market competitive.

As others have mentioned, it doesn't appear that you have any responsibility to pay these fees.  I would tell them to pound sand, and I think your rentals will benefit from the new property manager that you select.  This PM doesn't sound very good at their job...

@Dmitry Semenov Late fees are a massive profit center for us.  Good thing we do our own management.  Tell that PM to go pound sand.  If your stuff is local you might want to consider managing it yourself for a while (just have some good vendors lines up to help) while you look for a new PM, you might find out how EASY it really is if you are organized and have good systems.

Thank you all for response!

@Matthew Olszak this company is a franchise (PMI Puget Sound) so I am pretty sure they used a lawyer to prepare the contract. I totally understand the logic that PM keeps late fees to cover expenses for posting notices, etc. My PM, though, doesn't post "pay of vacate" notices, they want me (owner) to pay $100 per notice on top of late fees.

@Patricia Steiner that is why I am separating with them :)

@Richard Sherman my units are local, so I am going to try self-manage. I think about hiring out all maintenance, leasing and working on organizing my systems right now. Funny that I already had to do some of that work, e.g. posting notices to enter or dealing with housing authority.

@Dmitry Semenov   Get the process down and do it for a bit so you know what doing it right feels like and how much time it takes.  You might find that using process servers and mailing notices is a cheaper way to do it.  When you scale it out, we collect thousands a month in Late fees...not to mention I have yet to meet a PM that was anything more than OK...most are awful....awful...including some really big ones.

@Dmitry Semenov I don’t think this is in the agreement. My property manager does the same thing (charges the late fees and then keeps them) and I am fine with it as it is extra payment for their time collecting - however, this does not mean you are responsible for paying the fees. The agreement appears to say they may collect them from the tenants and keep them, but it doesn’t mean that it is a defined cost that they can charge you above the management fee.

Not all PM do this. We keep 50% of late fees. 100% seems a little much. I know it’s a lot of work because getting that extra $50 or $100 bucks per contract is hard, but also the investor had to wait on their money potentially. Also, $100 to post a notice? That’s insane. That’s part of property management. I’d shop around and ask for all the fees upfront.

Good luck

@Dmitry Semenov

I spent 6 years managing assets and property and never got to keep late fees. We charged 3-6% of the gross annual revenue. We did however get bonuses for exceeding leasing expectations or completing projects that added value to the property.

I’d shop around if I was you, sounds like they have sleazy business practices.

@Dmitry Semenov

It sounds like they're trying to take late fees out of the deposit, before sending you the remainder? If this is what they're doing, that doesn't fly. If though they're applying rent to the late fee first, then rent, well that's normal. However, they need to make an attempt to collect the remaining rent due. So if they didn't and just stuck you with less rent during their last month of service, again not kosher.

Did they actually charge you for a late fee they didn't collect or are they keeping the late fee collected from the tenants?  One is common the other I would run from, your paying them to collect rent if they can't collect late fees from the tenants they aren't to good at collecting rent.

@Dmitry Semenov , so they're going to charge you extra for failing at their job?  Mmmkay...

Unfortunately none of this really matters because they control your money.  That's the downside of hiring a PM: total lack of capital control.  Since money flows through them and they write you a check for the remainder I doubt you'll have any luck getting that money back.  And is it worth the $50-100 to take them to small claims court?  Probably not.  Not the answer you want to hear but it's sadly the truth.

I agree with the others who suggested you self-manage.  At least in the short term while the unit is still occupied.  Leasing a tenant is often the most time consuming task, so avoid paying PM fees until you need a new tenant.  Plus there are a lot of technology solutions now to help you self-manage.

@Mike Giallanza @TIm Harstead Let me clarify. PM keeps late fees, that is expected because we agreed to.

Now I decided to terminate the management agreement due to various reasons (e.g. starting eviction and then accidentally accepting payment from tenant or doing maintenance for 3 months and lead unit into abatement and potential lost rent).

Now they demand that I have to pay the remaining late fees tenant owe to them.

As for applying rents to late fees first - WA state recently made a law that tenant monies should be applied to rents (and utilities) first, then to late and other non regular fees. But that is another topic.

@Kenny Dahill Thank you for advice, that is what I am considering right now.

@Dmitry Semenov , so you're seeing their true colors.  It's scary when landlords want to terminate their management because PM's control your money!  Which is too bad because they can take advantage of landlords, exactly like your situation.

Ask them to deduct it from the rent you are charging them tgat they didnt collect from the tenant..

Are they tied to a broker of is the broker part of tge company?  Report this to their broker or report the broker to the state..

Updated about 1 year ago

Sorry for the typos, I was posting from my phone last night.