I mentioned a while back that I discovered the late fees in the lease I inherited with Rental #1 were a bit low - $35 if not paid by the 5th of the month and $3 a day thereafter. Turns out, for me, it's even worse than that.
I received my check from the property management company over the weekend and had some questions about it. Mostly, they were issues still left over from their screw-up last month of only charging partial rent to the tenant in May. But in the process of talking about this with the bookkeeper, I discovered that the management company keeps all late fees! Lee tells me this is their compensation for having to hound the tenants about paying on time.
I checked my management agreement with the company and this is all it says about late fees:
Special Charges. If permitted by applicable law, Broker may collect and retain from tenants any or all of the following: an administrative charge for late payment of rent, a charge for returned or non-negotiable checks, a credit report fee, and administrative charge and Broker’s commission for sub-leasing. Broker need not account to Owner for such charges or Broker's commission for sub-leasing.
To me, this means the management company may charge the tenant an additional fee on top of the late fees the lease imposes. This does not, in my reading, mean the management company may keep all the late fees the lease charges.
I immediately called my property manager and asked her about this. She said yes, they keep the late fees. I told her the agreement didn't seem to say that. She was out of the office and said she would look it up and call me back when she got back to the office.
I think this is crap. First, this presents a clear conflict of interest for the management company. They make more money if they allow the tenant to pay late. If they evict them, they make even more money when they put a new tenant in place. Second, this leaves them open to the whims of the investor for their income. For example, I think I may decide that my properties will attract more potential tenants if I decide to not charge any late fees for late rents. What difference does it make to me, since I don't get any money of the tenant pays late anyway?
I've contacted three other management companies and am gathering information on their services and charges.