Legal question re. management contract - Posted by Andrew Smith (Phila)


Posted by Dave T on October 18, 1998 at 19:33:32:

I have all my rental property under management agreements. The agreement is between myself and the propery management company to manage a property. As such, the management company is my employee for one year with annual options to renew for one year at a time.

I also give the management company a percentage of the first month’s rent as a finder’s fee for placing a tenant in my property. In the instance where I pay a fee, the property is advertised and listed in the local MLS. The finder’s fee reimburses any realtor who finds me a tneant. On some of my properties, I pay 50% of the first month rent, on others 60%, and on one priced at the top of the market, I pay 100%. Of course, this is the prevailing practice in that area of the country where these properties are located. In another area of the country, the prevailing practice does not include a finder’s fee, but I do pay a slightly higher monthly management fee instead.

You say that the management agreement stays in force as long as the tenant lease is in effect. If you are buying a property subject to a tenant lease, there are surely provisions in the tenant lease that allow you to provide notice that you will not renew the lease upon expiration of its current term. In this case, when the tenant lease expires, give notice to the management company that their services will no longer be required. No finder’s fee when you find the next tenant because you do not have the property under a management contract.

Suggest that you check with you lawyer to ensure that you will not also be subject to cancellation fees in the event you refuse to renew your lease and management agreement should you purchase the property…


Legal question re. management contract - Posted by Andrew Smith (Phila)

Posted by Andrew Smith (Phila) on October 18, 1998 at 17:58:31:

I have just heard of a particularly bad management contract. That is bad for the property owner - but great for the management company. The odd thing is that I heard of it through an agent whom I like who uses the contract. Here are the particulars. In addition to specifying that the management company retains an amount equal to a full months rent for finding a new tenant the contract specifys that the landlord will retain the management company’s services for that tenant for as long as the tenant remains in the property. The management company references this in their leases with the tenants and the arrangement supposedly will survive the sale of the property. I have no idea if this is legal but it sure stinks. I manage my own properties and such a contract would reduce the value of any prospective property I might consider buying. Has anyone ever heard of this before. Even if it is not legal and would not hold up in court - the presence of such a clause definetly would give the management company legal grounds to make a royal pain in the neck of themselves.