Property Manager Not raising rents as requested

[Scott Houin]

About 6 months ago I reached out to my property manager in writing and ask them to raise rents on all my properties by $25. I reminded them to do this about a month before each lease renewed. When I got my lease renewals I was told by the PM rates were not raised due to market conditions. Three out of four of my tenants renewed there leases and I was never notified that they weren't going to renew if we raised rents. I feel they didn't attempt to raise rents and just simply asked them to renew. I also have done a market analysis on the rents in the area via MLS, craigs list and zillow and found that the rents we requested were well within the market.

Should i fire this management team and find a new one? 

[Kenny Dahill]

@Scott Houin, this can be a tricky situation, especially not knowing the condition and details of your property and tenants.

I am curious, are management fees based on rent collected or expected?  

• If collected, then they would have an invested interest to raise rents which makes their decision more validated.  
• If expected, there is no invested interested and your frustrations are definitely more validated.

Make sure you understand your management agreement.  Here are some considerations:

• Termination Clause:  Is there a fee for termination?  They just signed a 12-month lease and some terms state you owe the management firm all their fees even if terminated.  So you're forking up that 8-10% of AGI to end the relationship.  Plus the additional 8-10% you will pay another firm for the rest of this year
• Lease Renewals:  Confirm if there is language stating the owner's request for rental increases and the responsibilities the management company must take.  If it specifically calls out this situation, they could be in breach of contract.
• Breach of Contract:  What notifications must you give the management firm if they breach or are in breach of their contract?  This might be your exit without paying fees.  However, you'll need to follow contractual terms which might require written notifications and an opportunity to recuperate.

I think the most important suggestion and considers are :

• Besides this, how happy have you been?:  Finding a property manager can be difficult, especially if your property is not highly desirable class.  If everything has been great up until this, can you get over this mishaps?
• Can you negotiate?:  Consider a conversation with the broker and state that you have been happy with their service, if true, but this really bothers you.  If you've been happy, give them the chance to correct it.  While not ideal it ever occurred, perhaps they waive their renewal fees so you recuperate some of the lost revenue.
• What will it cost to get a new management firm?:  This is not just monetarily, but time and stress.  If this is the first hiccup, be reasonable and realistic that you might strike out on another 2-3 PM's before you find another great firm.  Plus the time it takes to find a new property manager.  Trust me, we work with landlords and finding the perfect property manager can take time!  Interviews, comparing rates, reviewing their agreements, etc.  That time adds up.
• How much it'll cost for new management?:  I indicated earlier in this post that you might be on the hook for termination fees.  Plus potential legal fees if that gets messy!  Or legal fees for reviewing the new PM management agreements.

If their service has not been bad and this is their first mishaps, be reasonable and give them the opportunity to correct it.  Plus it might show their true colors; good or bad.  Even if you do decide to get a new property management company, it might make more financial sense to wait for the current management agreement to end so you avoid the termination fees.

If the frustration is so severe that you don't mind paying all the extra fees and costs associated with it, then find a new one and move on.  Make sure this 'situation' is addressed in your interviews and, more importantly, called out clearly in the new management agreement to better protect yourself.