Property Manager Lease Renewal Fees

14 Replies | Allentown, Pennsylvania

Wondering what the going rate is for Property Management (PM) lease renewal fees (same tenant, just renewing lease for another 12 months) I’m in Philadelphia and have seen anywhere from $0 renewal fee to a flat $200 per renewal to the entire first month’s rent again! I expected to pay the first month rent to get a new tenant but when it’s just admin work of sending the existing tenant basically the same lease and getting them to sign it, I can’t justify anything more than a nominal amount, especially when I’m paying them 8-10% each month to manage the property.

Hi Erin! My favorite phrase applies here - everything in real estate is negotiable. The best terms I have seen my clients get is a $50 / unit / month flat rate fee for management, and the worst was one property management company that quoted 10% per month of collected income, plus a 1 month rent "lease renewal fee", plus 10% of any repair costs. (No, they did not go with that company!) You can negotiate this with the property manager directly, and if they don't like the terms you are offering, you can take your business elsewhere. As you build a bigger portfolio you will have more leverage to negotiate for better rates and terms on your management agreements.

Hey Erin! Personally I charge 20% of the monthly rent as a renewal fee, this is due to a few factors.

1. I reach out to the tenants ninety days before their lease is up, asking if they'd like to renew. If yes, I work with them on the new rental rate, any changed terms, etc...

2. I need to create another lease for them, and either send it to them or schedule a time for them to come to the office and sign

3. If I renew with the current tenants, I'm saving the property owner the cost of turn over and placing a new tenant

There are many different fee structures that PM companies use, definitely look at all the areas you're being charged to determine if they are a good long term fit for you.

I have a term in my (Washington State) group lease which says somewhat unnecessarily that if all parties agree then a one-page Extension Addendum will be acceptable and will modify the current lease no more than by changing the end date by one year and the rental amount by the change in the Zillow rental index for the area, and that such an extension should be signed a month before the end of the term of the current lease.  This is unnecessary because whatever all parties agree to can be agreed to, duh.  But it's nice anyway because it gives them notice that they don't need to freak out and plan to move out every year because the lease might change and need a complete re-evaluation.  Lowering their temperature certainly leads to longer term tenancies.  This does that.

Then it's no effort at all to put one page onto DocuSign or RightSignature.com etc. and email everyone to sign it, annually.  That's not worth a nickel to the property manager, do it your own self, silly. 

Details of that lease can be found at tomveatch.com/re and you might also be interested in the Substitution Addendum which is similar but allows groups of tenants to replace themselves gradually, so that no new lease agreement (other than a one-page Substitution Addendum) needs to be worked out if someone wants to move out and the group has a good replacement person ready to go and the switchover can be done in good order.  This is the other main aspect of having a low-stress group living situation in your rental properties.  If one goes, they can go any time.  Then we get an equally good replacement person, and the group doesn't terminate or explode at random times, nor do they want until the 12 month lease is up and then terminate or explode which seems like the usual American profit-generating situation for property managers.  In this approach, instead, there is a nice balance of flow and re-establishment of another solid group.  And your group of tenants can remain under one lease, extended indefinitely, with participants cleanly substituting for one another. In 27 months I have 18 tenants through my six-bedroom house, and no vacancies or lease interruptions.  Which is money in my pocket.

Just think about it.

Issues: Of course this isn't legal advice; your mileage may vary; I'm just a plumber. But you can grab it from tomveatch.com/re and share the relevant paragraph or two with your lawyer and ask them if they can do something like it that actually works in your state. 

@Erin Kilrain

I have been a landlord in Philadelphia off and on since the late 80's.  I have only had 3 management companies, but not one of them charge a lease renewal fee.  I wonder if this is something new.  I pay 7% management fee with the company I am currently with.  I negotiated this fee based on the fact they were the listing agency for the property I purchased.

Maybe consider having your tenants roll over to a month-month or get a new management company.

Hi Paulette, thanks so much for your response. Yes, I thought that renewal fee seemed weird, especially in that a lease renewal is probably the easiest part of the job for the property manager. Thanks again!

Originally posted by @Erin Kilrain :
Wondering what the going rate is for Property Management (PM) lease renewal fees (same tenant, just renewing lease for another 12 months)

I’m in Philadelphia and have seen anywhere from $0 renewal fee to a flat $200 per renewal to the entire first month’s rent again!

I expected to pay the first month rent to get a new tenant but when it’s just admin work of sending the existing tenant basically the same lease and getting them to sign it, I can’t justify anything more than a nominal amount, especially when I’m paying them 8-10% each month to manage the property.

 I now have a blank lease and fill it out myself by just copying the old one or adding something new if negotiated with tenant. It is a 10 min. task. 

@Erin Kilrain

Not sure what is normal in Philly nowadays. But I would say that if you are happy with your property manager and have a good working relationship, you can negotiate out where both sides are happy. I've had commercial properties where the PM basically took around 6% to 7% of the gross revenue. I have other properties where the PM takes 30% (!) of the gross revenue (because that PM can do something that no other PMs can do). I'm happy with both because they work with my underwriting.   

Disclaimer: While I’m an attorney licensed to practice in PA, I’m not your attorney. What I wrote above does not create an attorney/client relationship between us. I wrote the above for informational purposes. Do not rely on it for legal advice. Always consult with your attorney before you rely on the above information.

My company doesn't charge one; but I will say that a lease renewal fee is common with property managers. Most often, renewing tenants are the ones paying the fee. If you are a landlord that is being charged, I would check if the company is also billing the tenant. If so, your tenants might be getting slammed with a great many fees that are going to the property management company and not to you as rent. Good luck!

If your property sat vacant for 6 weeks and just needed a quick and light cleaning prior to the move in would you expect the cleaner to back out and do the work for free? Doubtful. Property Management is the same. You cannot expect the Property Manager to do a bunch of things for free just because you think it should be quick and easy. Tenants are not always responsive. It takes a little time to contact them, find out if they want to stay, provide written notice of the rent increase, produce the document and then actually stay on them to get it signed. I agree a full months rent is steep and so is 50% if the rent is $2000 per month. But what if it is only $500 per month. I think a flat fee is fair. $200 is not unreasonable. If your plan is to save money and do all the PM yourself that is fine. If you plan is to hire out management then negotiate a fair price and go with it. Just like you don't want your property manager to nickel and dime you, they don't want you to do it to them. Incentive to renew for the PM is powerful. You don't want them to run the tenant off just to get a re-leasing fee. We manage a lot of single family homes. I ran the numbers over a 5 month range to get an idea of what turn over really cost. This included repairs, cleaning, lock replacement,re-leasing, vacancy and any other cost that we found to cost the owner in the process. The average cost was around $3.00 per sq ft. This was close to 65 homes that turned over and we applied the tenant deposit when applicable to before this average. Vacancy kills your ROI. Is it worth spending even $1.00 PSF if your PM can avoid this by working hard for you to get a renewal? Weigh the cost and work out a fair deal for you and the PM. I find flat fees are best because you always know what it be, no surprises.

@Tracy Streich Wow, your $3.00 cost per sq ft for turnover is very good. I've never though about it in terms of cost per sq ft but I generally spend around $3K to turnover my SFHs which are all in the zip code of 1,200 sq ft. You are spot on - turnover kills ROI.

I don't charge a fee for a lease extension. There is some work involved, like running comps and negotiating with the tenant. But it's pretty insignificant. And our TAR lease has a one-page lease extension so I don't have to redo an entire lease.

I suppose I could justify charging some fee as most other companies do it. I just consider it part of the service.