Property Management Agreement/Utah County
My company owns a duplex in Utah County, Utah. We are looking to transition to a new property manager for the duplex and recently received a proposed property management agreement from a well known property management company I am concerned by a few of the provisions in the property management agreement. I explained the provisions below. Please let me know if you have any experience with or thoughts about the provisions.
1) Property Manager’ s right to select tenant. There is a provision in the agreement that allows the property manager to unilaterally enter into leases with tenants without first receiving owner approval or even consulting with owner.
I told the property manager representative that we do not intent to be actively involved with the ongoing management of the property, however, we want final approval of new leases because we are concerned that the property manager may just fill the space with a convenient tenant, or a tenant that is otherwise “low hanging fruit” rather than going the extra mile to obtain a tenant that has a higher probability of staying for a longer lease term, or otherwise has a better economic profile.
Is this a customary provision? Does anyone think this would not be problematic for an owner?
2) Property Manager’s right to receive a 1% commission upon sale of the property.
Under the agreement, the property manager has the right to receive a commission upon the sale of the property to a tenant it placed at the property. This seems a bit “piggish” to me. The property manager is not acting as our real estate broker. If, by some unlikely turn of events, we sell the property to a tenant down the road, then it is by happenstance and would be an unmerited windfall to the property manager. Also, if we hire a third party broker to assist in the sales process (which we would likely do) asking the broker to share the commission could be problematic.
Is this commission fee customary, or otherwise reasonable?
3) Pet Fees. Property manager indicated it would charge a tenant $300 simply to process the pet-related documentation. When I asked the property manager representative how long he expects it would take property manager to prepare and process the documentation he indicated it would take about an hour. This seems unreasonable to the tenant and could have a “chilling effect” on a tenant with pets and deter it from leasing the space in the event we decide to rent to tenants with pets.
Is this type of pet fee, simply to process documents, customary?
4) Termination fee. If owner terminates the agreement for a reason other than property manager’s negligence the owner is required to pay the lesser of (i) 4% of the remaining value of an active lease, or (ii) 4% of the value of 12 months of an active lease.
For example, if we are receiving $2,700 per month for both duplex leases combined and decide to terminate the lease with 6 months left in a 12 month term then we would have to pay about $650 just to terminate the property management agreement!
I told the property management representative that this seems designed to make it prohibitively expensive for an owner to terminate the agreement of a property manager it is not happy with. He indicated that it is designed to reimburse the property manager for its time to obtain a quality tenant for the space.
I understand that concern so I proposed that this provision would be applicable during the first year of a lease term but would burn off or would otherwise not be applicable after the first year of a lease term. The representative said the management company would not agree to any changes.
That doesn’t seem reasonable to me. Does anyone have thoughts about this type of termination fee?
I am trying to be reasonable and recognize the property manager's side, however, these provisions (and quite a few others) seem potentially problematic and unreasonable to the owner.
I appreciate any feedback. Thank you.