Early PM contract termination

[Simon Stahl]

I have a triplex in San Antonio, TX that is managed by a PM. There are still a few month left until the PM agreement ends, but I am pretty unhappy with their services and would like to get a new PM before that time. There is a clause saying that I have to pay them for each rented unit at the time that I switch, but that is after it has expired. Anyone has an idea about the implications of me terminating earlier? Nothing is mentioned about that in the agreement.

[Nathan Gesner]

Originally posted by @Simon Stahl:

I have a triplex in San Antonio, TX that is managed by a PM. There are still a few month left until the PM agreement ends, but I am pretty unhappy with their services and would like to get a new PM before that time. There is a clause saying that I have to pay them for each rented unit at the time that I switch, but that is after it has expired. Anyone has an idea about the implications of me terminating earlier? Nothing is mentioned about that in the agreement.

I would have to read the actual agreement to answer your question fully.

They can't charge you a termination fee after the management agreement has already terminated. My guess you've read it wrong. What they most likely said is that if you terminate three months early, then you will still have to pay three months of management fees.

NOTE: if they have somehow violated the agreement or failed to perform, you should be able to terminate without penalty. If you're just unhappy with them because they don't communicate as well as you would like or don't do things the way you would, then you may be subject to the termination fees.

Here's what I recommend:

1. Talk to your current PM. Tell them you are unhappy and that you intend to leave when the contract is up. Don't say a lot. just tell them you are unhappy with their service and would like to terminate without penalty. See if they'll accept that or negotiate a lesser penalty.

2. If they refuse to let you go without penalty, confirm that the agreement terminates in three months and that there will be no penalty for failing to renew. If they tell you there will still be a penalty, go to step 3.

3. Contact the Texas Real Estate Commission and explain your situation. They can probably advise you on whether a termination fee is legal and, if not, may be able to put pressure on the PM to let you go.

In the meantime, you need to start looking for a new property manager. I can personally recommend RentWerx or Liberty Management.

Remember: cheaper doesn't mean you'll make more money.

You can start by going to www.narpm.org to search their directory of managers. These are professionals with additional training and a stricter code of ethics. It's no guarantee but it's a good place to start. Regardless of how you find them, try to interview at least three managers

1. Ask how many units they manage and how much experience they have. If it's a larger organization, feel free to inquire about their different staff qualifications.

2. Review their management agreement. Make sure it explicitly explains the process for termination if you are unhappy with their services, but especially if they violate the terms of your agreement.

3. Understand the fees involved and calculate the total cost for an entire year of management so you can compare the different managers. It may sound nice to pay a 5% management fee but the extra fees can add up to be more than the other company that charges 10% with no add-on fees. Fees should be clearly stated, easy to understand, and justifiable. If you ask the manager to justify a fee and he starts hemming and hawing, move on or require them to remove the fee. Don't be afraid to negotiate!

4. Review their lease agreement and addenda. Think of all the things that could go wrong and see if the lease addresses them: unauthorized pets or tenants, early termination, security deposit, lease violations, late rent, eviction, lawn maintenance, parking, etc.

5. Don't just read the lease! Ask the manager to explain their process for dealing with maintenance, late rent, evictions, turnover, etc. If they are professional, they can explain this quickly and easily. If they are VERY professional, they will have their processes in writing as verification that it is enforced equally and fairly by their entire staff.

6. Ask to speak with some of their current owners and current/former tenants. You can also check their reviews online at Google, Facebook, or Yelp. Just remember: most negative reviews are written by problematic tenants. The fact they are complaining online might be an indication the property manager dealt with them properly so be sure to ask the manager for their side of the story.

7. Look at their marketing strategy. Are they doing everything they can to expose properties to the widest possible market? Are their listings detailed with good quality photos? Can they prove how long it takes to rent a vacant property?

This isn't inclusive but should give you a good start. If you have specific questions about property management, I'll be happy to help!