I've found myself in a pickle that I hoping for some guidance on. The long-and-short of it is that we own a property that was recently leased, using a property manager. At this point, we would like to change property managers one month into a 12 month lease, but I'm not sure if I can do so, or how difficult it might be.
As some context, we 6 months ago we purchased a rental property in Portland and decided to try a new (low cost!!!) PM. Getting the place rented was nothing but problems, including many issues that the PM could have managed (poor pictures, incomplete sourcing, very very very few showings, etc.).
When we agreed to try the PM, our contract specified that we would stay with them for 6 months or pay a fee. So, while we seriously considered leaving them 2 months ago, we decided to go another route and aggressively cut the price in exchange for a short-term lease. This would get us out from all contracts/leases in the summer, at a time that we are not 8 months pregnant.
To do this, we cut the price to ~25% below market and explicitly (by email, verified by PM) asked for a 6 month lease. All parties seemed to agree. However, the lease that was presented to the tenant and is now signed is for 12 months.
This is a big deal to us - both for the cost issues (~$250/month in lost rent for 6 months, coming vacant at a bad time, etc.) and trust issues (I don't want a PM that can't create a contract at my instruction, they did a poor job getting it rented, etc.).
We plan to cut ties with the PM. If needed, I feel that we can show a material breech of the contract, though I think that I have annoyed them as well, so I hope that we could find a mutual agreement without demonstrating a formal "breech."
With that said, I've reviewed the lease and that document does not have any statements about changing PM. In fact, the document clearly states that the agreement is between the tenant and the PM, and that tenant owes the PM directly the rents due. Frankly, the tenant has not acknowledged that the PM has the authority to change the administrator of the lease...
Our contract with the PM is also fairly silent on the topic. It does specify that the PM must notify the tenant of the term within 30 days.
My hunch is that the lease is set-in-stone, and barring agreement from the tenant can not be modified to a 6 month lease. But I'm wondering how changing PMs mid-lease works. Will another PM be able to administer the lease? How high is the risk of rents being sent to the wrong person? How disruptive is this for the tenant? Do I have legal recourse to rectify lost rents?
As an aside, the wife and I are 8+ months pregnant, so we do not plan to learn new skills, and hope t avoid getting into a sticky/involved legal battle right now.
What do you think? I welcome any thoughts or advise that you might have.
If the agreement between you and the PM is silent on the termination of the agreement by either party in the middle of a lease, then the PM should not have any recourse against you.
If you cannot trust your PM that they take good care of your property, you should fire them as soon as possible.
I have done it before and can answer your questions.
Will another PM be able to administer the lease? Yes. They should.
How high is the risk of rents being sent to the wrong person?
Even if the rents sent risk to the former PM, they have obligations to re-distribute them to you.
How disruptive is this for the tenant? The tenant should not care who the PM is.
Do I have legal recourse to rectify lost rents? I do not think so, and even if you have legal recourse against PM, it should be very expensive to pursue it. I think you should find a new PM and move on.
Check into whether you can have an addendum to the lease, that basically does an "assignment of lease" from one party to another. Properties get bought and sold, and leases transfer in such a manner often. Tenant doesn't even have to be involved, just notified that payments are to be sent elsewhere ...
Does your contract with the property manager specify the duration of the term for which he will manage the property?
I am a very good low cost and high quality property manager if you need one. I work in the Portland area and if you decide to terminate the property management agreement with the other PM let me know and we can proceed with the steps to get the tenants informed on where the rent needs to go moving forward.
If the property manager is licensed with the state they must follow the regulations the state has for terminating a PM agreement and acting in the best interest of the owner.
If you have any problems with them you can call and talk to the Oregon state real estate agency for guidance. They are very helpful. Best of luck!
@Naga A. That's good to hear on all accounts. And I was figuring the same thing about me having legal recourse. Thx for the insight!
@Steve Babiak That makes sense. I hadn't considered an addendum. Would the tenant need to sign it?
@Account Closed Kind of. The contract between us and the PM specified that they would be our PM for 6 months. This was independent of the property being leased.
@MIKE PURCELL Good stuff. I will send you a PM as Id' like to get a little more information.
All my contracts with owners are month-to-month with one month's written notice for both sides. That way if they don't like the way I am handling their contracts they can get out whenever with one month's notice and if they aren't holding up their end of the bargain or taking care of repairs and letting their home become a "slum" I can wash my hands of it as well. May want to look into that when signing a new agreement with a PM
@Jeremiah B. "Good/low cost" is an oxymoron in the management business. You truly get what you pay for. I have a 300 unit property management office in my company. We have a very professional management agreement with our property owners. It spells out what all parties are agreeing to.
The biggest source of our new landlord business are people that are able to escape the $50 a month property managers in town.
Review your agreement with the property manager to see if it spells out your cancellation options. Follow those terms or ask for an amicable split. Maybe they'll cancel their agreement for 3 month's of their fee up front/etc.
I recommend you hire a PM company that's a member of NARPM. Avoid the "cheap" managers, for they will cost your bottom line at least double what a professional/experienced management company would charge. IMO. Good luck.
Originally posted by Jeremiah B.:
... I hadn't considered an addendum. Would the tenant need to sign it?
You would want to get them to sign something, at least an acknowledgment that they received this change. So that they know what's going on, and have no excuses when it comes to making payments.
The contract between you and the property management company should come with a 30-day cancellation clause and if it does not, I would think nothing more than a form letter stating your intent to take over the lease would be required.
Of course, I haven't read on here if you were planning on taking over the lease yourself or moving it to another PM - it does appear you were planning on moving it to another PM(?). In that scenario, if your new PM company is a good one, they will have a process already in place to transfer a lease and all of the legalities that go along with it such as notifying the tenant, collecting due and back-due rents as well as transferring the deposit to a separate account.
If you are planning on managing yourself, even short-term then let us know and I will respond back with some other steps you are going to want to take to protect yourself. @Steve Babiak is exactly right on the transfer for the tenant. Unfortunately, this wold present a good opportunity for some tenants to not make payments or hold payments in lieu of repairs. Confusion in management just lends itself to lost rental income.
I agree with everyone else on the part of the 12-month lease itself. Unfortunately, the property management company is the legal signer on that lease and they entered into a 12-month lease with the tenant -even against your wishes. I don't think there is much you can do there except honor the lease unless the tenant breaks it on their end.
This is why you never hire a PM based on cheap cost alone. If any investor can take away from this wanting to rent it is that you factor in retail rates for property management when you buy a property.
You may or may not land a great PM at a discount from market rates but the odds are NOT in your favor. I am talking one or two properties that are houses and not big apartment buildings or giving a PM a large portfolio of houses to manage. In those cases the scaling is easier and you can find some quality PM's that give a better contract price for volume.
I would run from PM companies that say they just do it for the money. There really isn't that much money in PM work so you have to enjoy that type of thing. Someone just doing it to pay their bills and get by is also bad answer.
Many part time PM's where there level of interest and commitment dealing with tenants and processes ebbs and flows from quality to crap. I have heard countless stories such as yours from investors across the country. I hope you are able to get your property on back soon with minimal problems.
100% whole-heartedly agree with @Joel Owens . Someone who is competing on price alone isn't going to give you or the resident the best service positive. The old adage you get what you pay for I think definitely rings true in PM. I give discounts to my clients who have been with me for several years or those that I manage larger portfolio's for, but am not going to work for next to nothing because at the end of the day when it's all said and done between marketing, gas(to & from showings), screening, leasing, collecting rents, 10% isn't a fortune, but I enjoy what I do and I wouldn't want to be in any other business.
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