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…