Property Management Agreements

[Jeremy Hart]

Hi all - for those of you currently using (or doing) property management, I have a question.

I'm closing next week on a duplex about 40 miles from me. I will be putting PM on this, and since it's an area that's new to me, I'm interviewing PM firms. In reviewing their management agreements, I'm finding a clause that gives me some heartache. It's not one I've had with my local PM firm, and while I've heard of this clause, I've never actually seen it in person. However, I'm wondering if you've come across it, and what adjustments you might suggest. It reads:

In addition to any leasing, management or other fee payable hereunder, a sales fee equal to 6 percent if the Property is sold during the lease term or up to 180 days following the expiration of the lease term, to a purchaser procured by Agent, or to any entity affiliated with, controlled by or under joint ownership or control with such Owner or any of its owners or principals.

How many of you have come across this clause before? Seems to me that they're suggesting, should I sell anytime during the lease term - or six months after - I'm entitled to pay them a 6% fee. I assume that's 6% of the sales price, but would need to get clarification on that. Any suggestions on how to handle this? Seems to me that, should my circumstances change so drastically that I need my equity during the term+6 mos of this Agreement, I'm eating into margin. Comments?