Property Management - Is a sale considered a termination?

Question

Hey BP-

I just sold a quadplex and my PM is considering the sale as a termination of the agreement for that property. I have 25+ units with them so this is a master agreement with lots of properties on it. I have added a picture of two section of the MA. They didn't have any selections checked for section H Fees in the Event of a Sale. They do however state that if I was to terminate the agreement (part or whole) that I owe the greater of $500 or their management fee for the remainder month's of in place tenants' leases.

I'm interested how other REI view or have experienced this dilemma of words. Does the sale constitute a termination? Seems like there is a whole section of the MA that deals with sales and they opted out of any of them. Thanks and happy investing!

Samuel Proctor · Answer

I worked directly with owners for a year under a property manager and we considered the sale of the property a mutual agreement to end the relationship - no fees were charged. We obviously would take a commission if the buyer was another owner of ours or if the tenant purchased the home as your agreement says. Apart from my opinion, it seems like you don't owe anything considering they did not select a fee for sale of the property. Sale of the property and termination are different; as defined by them since they separated them in the contract (not an attorney, just my two cents).

Gordon Way · Answer

I have had the same property managers for four years. We are truly partners in this industry. I informed them several month's in advance that I was going to sell. I'm using this as a 1031; it was planned out and discussed with all impacted parties well in advance. The PM renewed two of the four leases at higher rates. They knew I wanted them to do this to help pro forma NOI/rent roll numbers. They got their lease renewal fee for doing so + the monthly management fee.

I did read the contract and we actually just negotiated a new MA with different terms. I have always interpreted the two sections above as being pertaining to two different situations. You sell and they can get an event of sale fee or you terminate and they can get a termination fee, or both if both are selected. They are reading it as if I sell, I then terminate their management on those units so they get the termination fee. They get no event of sale fee since no selections were made in that section. I have only ever acquired rental real estate (have done some flips but those never involved a PM at sale). Hence, my post to see if people read the sections like me, have had it enforced on them, or any knowledge of the matter.

They did not, nor did I, terminate the whole MA. They have charged me the fee pertaining to the four units I mention in my first post.

Drew Sygit · Answer

First, if an owner decides to sell a property right after we place or renew a tenant, it's kind of rude.

Second, you signe the contract, why are you now unhappy with it? Didn't you read it before signing?

The bigger issue is why would they terminate the entire master agreement? Are you sure that is their intention?