Does Multiple LLC Client = Multiple Management Contracts?

Question

Hi!

Maybe one of you can help....I run a property management company.

I have a new prospect that wants to go through with a contract. They have an LLC for each building. Do I really have to do a separate management contract for each individual building? That would be A LOT of separate contracts. I was going to draft up one contract with each LLC as a separate "Owner" with the authorized representative for all, the actual owner, to sign the one contract for all legal entities, but they didn't like this and want to keep all documents separate.

I gave them a VERY competitive price quote based on the total portfolio as 1 account with the total number of units. Should I be charging the management fee based on the total portfolio or based on the number of units each entity has on their separate contract? Completely Separate entities with completely separate management accounts means more administrative work and other costs. Most of the buildings only have 6 units max, the rest having less. That's a lot of work!

Is there a better way? I intend on asking the attorney, but I figured I'd try here first.

Any input from someone with experience with this type of situation would be super appreciated!

Thanks in advance for your time and input!

Drew Sygit · Answer

@Jeremi Ramos do an addendum to your PMA that has all the Portfolios and Buildings on it.

Be sure to include language though, that allows you to auto-transfer funds between the Portfolios/LLCs to cover your management expenses.

Otherwise an owner could screw you on fees by letting portfolios go negative on their balances.

Chris Seveney · Answer

I agree with stuart. We had several funds and what we did is create an attachment for the agreement that it follows each company but each company is responsible for their own costs and cannot cross polinate the companies. it just saves signing 5x and just do it once sits it is the same agreement

Stuart Udis · Answer

The most efficient method  is to create one contract and then add/subtract properties that are either acquired or sold by this particular client through a contract addendum. This is fairly common within the industry and a way to reduce administrative costs considerably since you’re not repeatedly negotiating the base terms and conditions of the contract. Along with property management this approach is widely used in industries including accounting, legal etc. where it’s common for the professional service providers to work with clients who are consistently adding new entities/properties to their portfolios.

When I was at Hersha we used this approach for 3rd party hotel management engagements and for service providers who performed services on behalf of the hotels my employer owned/managed. If you go this route it’s important the base contract is carefully reviewed and negotiated as the implications of the terms grow considerably as more properties are added to the engagement.

Timothy Harstead · Answer

You may be able to do one contract, however, we have run into issues with having to show a proper management contract for utilities or subsidies that we needed one that just had the one LLC on it.  With that being said if you're using an esig software we are talking about a few clicks why not just do it the long way to be safe.

Michael McVety · Answer

Hi Jeremi.

As mentioned, you might want to have an addendum to your first/ original property management agreement.  Often, this addendum would indicate such things as the date the original agreement was signed and include the new entity (and address) in the addendum.

For some managers, they prefer having an agreement for each entity and if done electronically, the owner still has only 1 place to sign (normally).

To be honest, I am not sure if an attorney filing an eviction in your state, has a preference one way or the other.

Jeremi Ramos · Answer

THANK YOU!

This is exactly as I thought it should be, and exactly the contract structure I had in mind and was drafting up! I SINCERELY appreciate you taking your time to reply. Now I have to have a sitdown with this potential and try to iron it out in order to seal this deal!

Does Multiple LLC Client = Multiple Management Contracts?

Most Popular Reply