Why would a property management company charge cancellation fees?

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Why would a property management company charge cancellation fees?

Xin Peng
Investor · San Francisco Bay Area, CA · Member since 2022 · 17 posts · 0 votes

The theory I heard is, if the PM does a good job, normally the landlord wouldn't bother to switch the PM company, so they shouldn't worry about the early termination. So, any good reasons to justify such charges?

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Drew SygitBusiness Member
Property Manager · Royal Oak, MI · Member since 2012 · 12k+ posts · 9k+ votes
4y

@Xin Peng Everyone wants to break contracts with no penatlies - including tenants!

Let's use your logic and apply it to lease contracts with tenants:)

According to the logic of your own words, with roles switched for this analogy, "if the LANDLORD does a good job, normally the TENANT wouldn't bother to switch the PROPERTY, so they shouldn't worry about the early termination <charge>."

So, why hold tenants to lease contracts?

If you want tenants to honor their leases, or pay a penalty, then why shouldn't Property Management Companies expect owners to honor their property management contracts or pay a penalty?

Going to guess that you, and many other owners, won't like this analogy because it rebuts what you want - the ability to enforce an illogical double-standard. 

YOU want to be able to get out of a contract without penalty, but don't want to be held to the same requirement.

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  • Drew SygitBusiness Member
    Property Manager · Royal Oak, MI · Member since 2012 · 12k+ posts · 9k+ votes
    4y

    @Xin Peng Everyone wants to break contracts with no penatlies - including tenants!

    Let's use your logic and apply it to lease contracts with tenants:)

    According to the logic of your own words, with roles switched for this analogy, "if the LANDLORD does a good job, normally the TENANT wouldn't bother to switch the PROPERTY, so they shouldn't worry about the early termination <charge>."

    So, why hold tenants to lease contracts?

    If you want tenants to honor their leases, or pay a penalty, then why shouldn't Property Management Companies expect owners to honor their property management contracts or pay a penalty?

    Going to guess that you, and many other owners, won't like this analogy because it rebuts what you want - the ability to enforce an illogical double-standard. 

    YOU want to be able to get out of a contract without penalty, but don't want to be held to the same requirement.

    [email protected]248-209-6824
    Logical Property Management4.9458 Reviews
    WebsiteView Page
    3Reply
  • Carlos Ptriawan
    Member since 2019 · 7k+ posts · 4k+ votes
    4y

    Drew your company has the good name "Logical PM". As well as all your answer is very logical and no hype. As landlord, I would like to deal with fair PM and the cancellation fee is the norm everywhere. I don't make cancellation fees a very big deal.

    1Reply
  • Xin Peng
    OP
    Investor · San Francisco Bay Area, CA · Member since 2022 · 17 posts · 0 votes
    4y
    Quote from @Drew Sygit:

    @Xin Peng Everyone wants to break contracts with no penatlies - including tenants!

    Let's use your logic and apply it to lease contracts with tenants:)

    According to the logic of your own words, with roles switched for this analogy, "if the LANDLORD does a good job, normally the TENANT wouldn't bother to switch the PROPERTY, so they shouldn't worry about the early termination <charge>."

    So, why hold tenants to lease contracts?

    If you want tenants to honor their leases, or pay a penalty, then why shouldn't Property Management Companies expect owners to honor their property management contracts or pay a penalty?

    Going to guess that you, and many other owners, won't like this analogy because it rebuts what you want - the ability to enforce an illogical double-standard. 

    YOU want to be able to get out of a contract without penalty, but don't want to be held to the same requirement.

    Sorry for not made it clear, what I meant is the charges besides the xx days notice ahead. Do you think such charge is reasonable?
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  • Xin Peng
    OP
    Investor · San Francisco Bay Area, CA · Member since 2022 · 17 posts · 0 votes
    4y
    Just to clarify, this is a theory I heard of, not my opinion, and I'm curious how other people think about it.
    0Reply
  • Diane Higgins
    Northwest Arkansas · Member since 2022 · 7 posts · 3 votes
    4y

    There are some companies that do not charge a cancellation fee beyond the 30 days.  Our company, Keyrenter Arkansas, asks for a 90 day commitment then it goes month to month.  30 days notice and no penalty, with the same privilege on our end.  Our belief is that the owner-pm relationship is one of high trust and accountability.   If it turns out not to be a good fit, we should all move on. 

    1Reply
  • Nathan GesnerBusiness Member
    Moderator
    Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
    4y
    Quote from @Xin Peng:

    The theory I heard is, if the PM does a good job, normally the landlord wouldn't bother to switch the PM company, so they shouldn't worry about the early termination. So, any good reasons to justify such charges?


    I had this happen once, early in my career. I found an excellent tenant: single, elderly and retired, no pets, kept an immaculate home. Three months later the Landlord called me and said, "She's going to stay there forever, so I don't think I need property management anymore." I implemented a termination fee shortly after that.

    The majority of the work is done up front with marketing, application screening, putting them under contract, etc. But the income is spread out over the life of the lease. I really don't turn a profit until after six months. If the owner left early, I would lose money.

    The DIY Landlord Book4.7248 Reviews
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  • Carlos Ptriawan
    Member since 2019 · 7k+ posts · 4k+ votes
    4y
    Quote from @Xin Peng:
    Just to clarify, this is a theory I heard of, not my opinion, and I'm curious how other people think about it.

     As an landlord of rental, the typical 10% commission that they charged to us, is very  very low, compared to what they're doing to us. Rental owner is very stinky sometimes lol  , I'm PM also for my own property, so I know the pain

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  • Xin Peng
    OP
    Investor · San Francisco Bay Area, CA · Member since 2022 · 17 posts · 0 votes
    4y
    Quote from @Nathan Gesner:
    Quote from @Xin Peng:

    The theory I heard is, if the PM does a good job, normally the landlord wouldn't bother to switch the PM company, so they shouldn't worry about the early termination. So, any good reasons to justify such charges?


    I had this happen once, early in my career. I found an excellent tenant: single, elderly and retired, no pets, kept an immaculate home. Three months later the Landlord called me and said, "She's going to stay there forever, so I don't think I need property management anymore." I implemented a termination fee shortly after that.

    The majority of the work is done up front with marketing, application screening, putting them under contract, etc. But the income is spread out over the life of the lease. I really don't turn a profit until after six months. If the owner left early, I would lose money.

    Got it, this is the answer I'm looking for, thanks for sharing!
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  • Sergey A. Petrov
    Real Estate Consultant · Seattle, WA · Member since 2022 · 1k+ posts · 784 votes
    4y

    And the flip side is you charge a setup fee to cover what could be an enormous amount of effort depending on the state of the property, its condition, quality of the tenants, etc. these are less common though…

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