Am I bound by a previous owner's property management agreement?

Question

I'm not asking about what property managers write into their contracts. I've seen entire wish lists embedded into them. I realize that it is fairly common for property managers write in their contracts that the agreement survives sale. Assume that in this situation the property manager has included such a "survives sale" clause. Considering the fact that I never signed or agreed to anything and was never made aware of any obligations, does a clause claiming that the manager's rights "survive sale" have any legal grounds, or is this an unenforceable wish-list item that they throw in and hope it isn't challenged?

Brandon Sturgill · Answer

@Alexander V. unless there is a one-off last-line sentence in your state law written by a former property manager...or if they convinced the property owner to add them as a decision maker on the deed to the property, I'd say throw it in the trash and move on.

Tracy Streich · Answer

I agree with @Brandon Sturgill.  Tenant survives the sale but not the PM.   Make sure you collect the deposit at closing so you are not chasing it after the close.  Get all tenant docs such as lease, contact info and ledger.  They will not give you a copy of the application or the credit check.

Steve Maginnis · Answer

I'm no attorney, and certainly do not know the laws in states other than North Carolina, but I imagine your management agreement is between the owner of the property and the management company. The lease is between the owner (represented by the management company) and the tenant.  The owner decides to sell the property, so the lease would remain in force.  However, once the owner sells the property, the management agreement is nullified for the new owner.  I suppose I could see some "creative" agreement terms that binds the management agreement to the owner, entitling them to pay early termination fees, but it should not bind to the property or subsequent owners.  Sounds like BS to me, but I suggest you reach out to a local RE attorney and have them read the agreement and send the PM a letter.  Best of luck.

Alexander V. · Answer

In my situation, the PM did not attempt to fight me letting them go.

Tenants have special rights that are typically addressed explicitly in the law. Property managers have no such special protections. However, if your PM is hiring lawyers to harass you, they're clearly litigious and I would question whether it is worth fighting them. If I were in your situation, I'd hiring my own lawyer to call their bluff, but if they don't back down and still seem willing to take legal action on it, it may be in your best interest to just let it go and keep them until their agreement with the previous owner expires.

People in real estate who constantly threaten legal action rarely would actually win a lawsuit if it came to that, but even if they have no chance, the amount of effort you'd have to put in to fight them likely outweighs any gain from actually winning the fight. I know that's tough to accept, but it's reality.

Will Fraser · Answer

Gritty and deep thinking here, everyone!

I want to chime in with a question:

If the lease is between the PM company and the tenant and then the property is sold then does the ENTIRE lease become null and the tenant defaults to have an at-will tenancy with the new owner?

Otherwise wouldn't we say that the ownership interest in the PM agreement that substantiates the lease (which exists between the PM co and the tenant) is indeed binding on the new owner?

Matt Devincenzo · Answer

Umm, I'm really not sure where you guys get that interpretation from. The same underlying legal principals that allow a lease to survive the sale apply for why the PM agreement survives the sale. By proceeding with the purchase knowing of the agreement and it's effect on the property you've agreed to the terms and to be bound by them. If you were completely unaware and find out after the fact, then your recourse is to break the contract under whatever provision is available and pursue the seller for the cost.

Dick Rosen · Answer

I think there may have been some misinterpretation of the clause? The PM signed that agreement with the former owner and he did not make said agreement with you. The PM may be entitled to be paid his management fees from the Seller after the sale but that contract means nothing to you the

Jera Brandenburg · Answer

I am very interested as to what the outcome of your situation was, @Alexander V. I have found myself in the same position with the old PM’s lawyers even sending my new PM a letter claiming their legal right to manage my two properties.

Eliott Elias · Answer

If you purchase a property during the life of the lease then you inherit the property manager. You could work out an agreement with the PM to cancel contract if they're cooperative

Andrew B. · Answer

This is a separate legal principle. The tenant's lease does not need to have any special clause to survive the sale. Don't make broad assumptions when it comes to law. It can be a very nuanced system.

Am I bound by a previous owner's property management agreement?

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