Broker charging lease renewal fee for rental property

General Landlording & Rental Properties
6yFollow

Broker charging lease renewal fee for rental property

Lindsey Clark
Real Estate Agent · Miami, FL · Member since 2019 · 64 posts · 31 votes

Hi BP community! I need some advice on dealing with a broker fee in the state of Florida. Perhaps a realtor or someone who has been through this can offer some insight. So I used a realtor to rent out my condo for the first time. I usually do my own advertising but I have been very busy lately and decided to use help filling my condos vacancy. I made the mistake of signing a contract with a realtor that states that I will owe 5% to the broker each year the lease is renewed. I am ok paying the 10% commission but do not want to pay someone an annual fee for doing nothing. Now that I have a tenant in place I am wondering if there is anything I can do about this annual fee or am I stuck with it at this point? The balance of the commission has not been payed yet. So far they have only collected 1 months worth of rent so I feel like I could possibly have some leverage to get rid of this annual fee before I send them the balance. Any feedback on how I can or should handle this would be greatly appreciated. 

2Reply
304 views

Most Popular Reply

Wendell Fong
Investor · Vancouver BC · Member since 2020 · 88 posts · 60 votes
6y

I am going to take the other side on this argument.  The reason is that I have had poor experiences with companies that did't charge a lease renewal fee, but they charged 100% of the first month of a new lease.    This in effect was an incentive for the PM company to rotate tenants in and out of my properties.   When I negotiate with a new PM company, I try to work down the new lease fee and increase their renewal fee. 

Just my 2c.

7Reply
See this reply in the discussion

35 Replies

Jump to latestLatest
  • Aaron K.
    Specialist · Riverside, CA · Member since 2015 · 6k+ posts · 3k+ votes
    6y

    You should switch property managers, I don't know if there is anything you can do now because you did sign the contract agreeing to this.  You should always read property manager contracts and know what fees they charge before signing.  I agree that lease renewal fees are unnecessary and I avoid companies that charge them.

    2Reply
  • Account Closed
    Real Estate Agent · Las Vegas, NV · Member since 2020 · 41 posts · 41 votes
    6y

    Unfortunately, since you signed a contract you are stuck, at least until the contract ends.  There are a lot of brokers/property management companies that charge a list of fees, one being a lease renewal fee.  Here is a list of commonly charged fees by some management companies, even here in Las Vegas.  

    Admin and/or Setup Fees - Personally, I don't believe in charging a fee just to hire a management company.

    Lease Renewal Fees - It is both your and the management company's advantage to keep tenants long term. I consider this a junk fee. There is no laborious work involved to support this fee.

    Maintenance Surcharges - Check with your state laws on this one as here in Nevada it is illegal, yet some still get away with it.  I find it immoral to add a charge on top of the actual repair costs. Scheduling maintenance is a part of the property management job.

    Vacancy Fees - By charging this fee there is no urgency to find a tenant. It's the management company's job to keep the property rented. Who else would you be willing to pay for not doing their job?

    Marketing Fees - Typically agents use the MLS to list properties for sell or rent. Granted, they pay a fee to utilize the MLS but that is a business expense. It doesn't cost anymore to list 1 or 100 properties. Yet, another junk fee.

    Annual Fees - This one really ruffles my feathers. Continuing services should be based on performance, not how much you pay.  The word "Greed" comes to mind.

    I am a successful professional property manager and I don't charge my clients any of these greedy fees, yet there are a lot of property management companies, brokerages, that do.  The reason they charge them is because people keep paying them.  I am sure any of them reading this will be very upset with me. They'll get over it.

    A property management company can easily keep your property from profiting by charging you unnecessary fees to line their greedy pockets. I suggest you shop your local market and find a management company that isn't going to nickel and dime you in fees. 

    6Reply
  • Wendell Fong
    Investor · Vancouver BC · Member since 2020 · 88 posts · 60 votes
    6y

    I am going to take the other side on this argument.  The reason is that I have had poor experiences with companies that did't charge a lease renewal fee, but they charged 100% of the first month of a new lease.    This in effect was an incentive for the PM company to rotate tenants in and out of my properties.   When I negotiate with a new PM company, I try to work down the new lease fee and increase their renewal fee. 

    Just my 2c.

    7Reply
  • Lindsey Clark
    OP
    Real Estate Agent · Miami, FL · Member since 2019 · 64 posts · 31 votes
    6y

    The problem is that the broker is not managing my property. I manage my own property. The realtor under this broker helped me find a tenant, and that is the extent of my relationship with the realtor and broker. I am paying the commision for their service which is fine. However, next year if I decide to renew the lease with this tenant, all while managing my own property, I will be required to pay the broker 5% of the lease amount which is more than $900. I most likely wouldn't renew with these tenants if this agreement is in place. The tenants seem like they will be quality tenants and they have already expressed that they would like to live in my condo for at least a couple of years. I would feel bad having to end their lease after 1 year because of this so I am trying to figure out if there is a way to avoid it. Maybe I can transfer the property into an LLC and renew the lease under the LLC? or some other loophole. I have definitely learned that I need to slow down and read the contract carefully.

    1Reply
  • Wendell Fong
    Investor · Vancouver BC · Member since 2020 · 88 posts · 60 votes
    6y

    Now that you added the company actually does not manage your property... What is the 10% commission you mention then?  The companies I deal with usually charge 50-100% of the first month rent to place a residential tenant.  For my commercial properties it is two months.  

    0Reply
  • Darius Ogloza
    Investor · Marin County California · Member since 2018 · 1k+ posts · 2k+ votes
    6y

    What is the term of the contract you signed?  

    0Reply
  • Theresa HarrisPro Member
    Member since 2019 · 15k+ posts · 11k+ votes
    6y

    You paid them to find a tenant, it seems scammy that they want money every year for doing nothing.  They are NOT managing your property.  It was a one time job.  While you signed the document, I'd check if it is legal for them to do that.  At 5% you are effectively giving them half a month's rent every year. 

    0Reply
  • Henry Lazerow
    Real Estate Agent · Chicago, IL · Member since 2017 · 2k+ posts · 2k+ votes
    6y

    I have never seen a non management company residential realtor put something like that in a contract. It seems shady and I would just not pay it tell him good luck suing you and to kick rocks. His managing broker would have to be the one to sue you and no reputable brokerage firm is going to sue a client over this.

    4Reply
  • Adam Martin
    Rental Property Investor · Member since 2020 · 1k+ posts · 1k+ votes
    6y

    While I think this is a bad deal it is a deal you signed and agreed to so you are either going to be a person of your word or you aren't.  One question I do have was is the lease yours or the realtors.  Most have an provision that at the end they just default to month to month, this technically isn't a new lease and may be something you can use.  Otherwise you are going to have to decide is this tenant one you want to keep when it is time to renew or not but I'd rather pay 900 for a good tenant than take a risk with a new one.  Another slightly less honest approach is to just forget but pay it if they ask but if not just don't bring it up.   

    4Reply
  • Lindsey Clark
    OP
    Real Estate Agent · Miami, FL · Member since 2019 · 64 posts · 31 votes
    6y

    @Wendell Fong thanks for your reply. It is the commission I agreed to pay. So 10% of the value of the lease. It comes out to more than 1 months rent. I am happy with the tenant but am unhappy with the fees and the whole process of using a realtor. I definitely will not be using one again. 

    @Darius Ogloza For up to 5 years

    @Theresa Harris yes when I realized what I signed over to them I realized I made a mistake. I looked up these types of terms online and apparently they do exist. If I wasn't in such a rush to get things started I would have caught that fee and asked for it to be removed. Not sure if it makes any difference but it is through Coldwell banker. They are a big company so I would imagine if it is in their lease it is legal. 

    @Henry Lazerow thanks for the tip. 

    @Adam Martin the realtor used a standard lease they use through Coldwell banker with a few clauses I asked her to add in. Hmmm, that is a good point about the month to month. I would have to make sure the tenant is ok with it of course. I will keep that in mind. Thank you. 

    0Reply
  • Kyle J.
    Rental Property Investor · Northern, CA · Member since 2012 · 5k+ posts · 5k+ votes
    6y
    Originally posted by @Lindsey Clark:

    The problem is that the broker is not managing my property. I manage my own property. The realtor under this broker helped me find a tenant, and that is the extent of my relationship with the realtor and broker. I am paying the commision for their service which is fine. However, next year if I decide to renew the lease with this tenant, all while managing my own property, I will be required to pay the broker 5% of the lease amount which is more than $900. I most likely wouldn't renew with these tenants if this agreement is in place. The tenants seem like they will be quality tenants and they have already expressed that they would like to live in my condo for at least a couple of years. I would feel bad having to end their lease after 1 year because of this so I am trying to figure out if there is a way to avoid it. Maybe I can transfer the property into an LLC and renew the lease under the LLC? or some other loophole. I have definitely learned that I need to slow down and read the contract carefully.

    To me the solution to this problem is simple. Based on what you wrote, you only have to pay this fee that you don’t want to pay if/when you renew the existing lease for another term. So just don’t renew it. 

    You can even keep the same ”quality” tenants in place, but just keep them on a month-to-month agreement after the initial term of the lease expires.

    Then there’s no issue with having to renew their lease or pay the fee to this broker.

    That’s my preference (and exactly what I do with my own tenants) anyway. I do a one year lease initially, and then it’s month-to-month. It’s more advantageous for the landlord that way, and most of my tenants have been with me for 5 to 7+ years. 

    Something to consider. 

    4Reply
  • Theresa HarrisPro Member
    Member since 2019 · 15k+ posts · 11k+ votes
    6y

    I like the idea  Adam suggested of not renewing the lease, but letting the tenant going month to month which technically isn't renewing the lease.

    0Reply
  • Max T.
    Investor · Philadelphia, PA · Member since 2015 · 3k+ posts · 3k+ votes
    6y

    @Lindsey Clark

    Let the lease terminate and then write up a new one?

    1Reply
  • Marco G.
    Investor · Dallas, TX · Member since 2015 · 446 posts · 197 votes
    6y

    @Lindsey Clark

    The broker has no ready means to collect absent your voluntary payment. Let them sue you. Your tenant would have to be a witness against you to substantiate the lease was renewed. I doubt the broker will go through the trouble for $900, and your happy tenant will certainty cooperate with you over the broker.

    Also go ahead and let it go month to month as others have suggested.

    God luck. I don’t think you have much to worry about here. But read the contract next time. And 10% (which is 125% of one month’s rent) is an exorbitant fee.

    1Reply
  • Marco G.
    Investor · Dallas, TX · Member since 2015 · 446 posts · 197 votes
    6y

    120% of one month’s rent. Still exorbitant.

    0Reply
  • Lindsey Clark
    OP
    Real Estate Agent · Miami, FL · Member since 2019 · 64 posts · 31 votes
    6y

    Thank you everyone for your replies! They were very helpful. I will go the month to month route once the lease expires. Seems like the best bet. 

    1Reply
  • Dan DiFilippoBusiness Member
    Real Estate Broker · Fayetteville, NC · Member since 2020 · 251 posts · 244 votes
    6y

    I think there are a few things to consider here.  @Account Closed

    [email protected]910-745-6972
    Brookdale Property Management
    WebsiteView Page
    0Reply
  • Patrick Britton
    Ann Arbor, MI · Member since 2014 · 1k+ posts · 997 votes
    6y

    @Lindsey Clark don't forget to write a review of this agent on redfin, zillow, realtor.com, facebook, BBB, yelp, angie's list, etc., and then send the realtor a copy of these reviews.  and dont forget to include this post some of the better replies  like @Kyle J.

    And don't forget to tell everyone on Facebook, Twitter and Instagram what this person is trying to get away with.  

    Unethical agents need to be weeded out.

    1Reply
  • Lindsey Clark
    OP
    Real Estate Agent · Miami, FL · Member since 2019 · 64 posts · 31 votes
    6y
    Thanks Dan for your reply. Again the agent I used is not my PM. She only helped me place a tenant. My business with her is done at this point. Patrick I hear ya'
    0Reply
  • Darius Ogloza
    Investor · Marin County California · Member since 2018 · 1k+ posts · 2k+ votes
    6y


    @Lindsey Clark Per above, it appears that the contract you signed has a 5 year term, meaning (if I understand the facts correctly) that the realtor has an expectancy of receiving 5% of the total annual rent for 5 years assuming the tenant renews during this period.  That's a lot of money, but it's in the contract that you signed and given that this right to collect is time-limited to 5 years it does not seem entirely unconscionable.  In most jurisdictions, the court will imply a promise by you not to interfere with the realtor's reasonable expectations for recovering what he/she has earned by placing the tenant.  Going month to month with the same tenant in order to defeat the agent's rights under the contract could be viewed as a breach of contract.  If you follow this path, you should expect to received a very strongly worded letter from the agent or his/her lawyer.      

    1Reply
  • Marco G.
    Investor · Dallas, TX · Member since 2015 · 446 posts · 197 votes
    6y

    @Darius Ogloza

    Really? Over $900? How much will the lawyer charge just for the letter? And what lawyer is going to bring this small claims suit (most states bar lawyers from small claims court)? That is very unrealistic in my opinion.

    0Reply
  • Bradley Sriro
    Licensed Realtor & Investor · Miami, FL · Member since 2015 · 164 posts · 124 votes
    6y

    @Patrick Britton I am an agent in south Florida and I personally never charge a lease renewal fee; however, they are not uncommon. As others have stated, the standard commission for placing a tenant is 1 months rent. With that being said, your recommendation to put the agent on blast with bad reviews online is not fair. Lindsey did not mention the agent doing a bad job in placing the tenant or lying about anything... she simply stated that she missed the 5% renewal fee when she signed the contract to list. I don’t think it is fair to attack the reputation of the agent based on something missed by the client. When a lease is signed, I always explain the cost and fees for services to my clients so they are fully aware of what they are paying for. If the agent failed to do this or did this intentionally then yes, there is a problem... But Lindsey did not make any mention of this.

    Lindsey, If the agent failed to explain this to you I would simply contact them and explain that they did not point this out to you when you executed the agreement to list with them. If they are an ethical agent, I don’t think they will try to hold it over your head if you are unhappy about it and they didn’t disclose/ explain it to you. It is likely that you will be able to get out of it by simply having this conversation. I am pretty sure that they will realize that a happy customer will generate repeat business and future referrals which is way more important than trying to make $900 on a fee the client isn’t happy with.

    0Reply
  • Darius Ogloza
    Investor · Marin County California · Member since 2018 · 1k+ posts · 2k+ votes
    6y

    Not sure where $900 is coming from but 5% of 5 years rent is likely to be in the ballpark of $3,000 (assuming $1,000 monthly rent).  I could get a back off letter done for $300.

    1Reply
  • Mak J.
    Member since 2018 · 234 posts · 44 votes
    5y

    Do not renew the lease. Make the lease expire on for example jan 15,2020 and sign a new lease starting Jan 17,2020. Technically now this is a new lease and not a renewal. You are out of the BS contract. You can say the tenant decided to leave but came back a day later 

    *above is a thought so verify if that is doable.

    1Reply
  • Peter TverdovBusiness Member
    Developer · New Brunswick, NJ · Member since 2015 · 1k+ posts · 2k+ votes
    5y

    As an FYI, lease renewal fees are very common in the property management industry. That fee is ridiculous to me though.

    [email protected]732-289-3823
    0Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free