Is a property manager's fee contingent on rent collection?
The answer, of course, depends on the contract that you have in place with the property manager.
There are a few different ways you can skin that cat: Some contracts pay a set fee per month or per year flat rate. Some contracts pay a percentage of the lease value, whether or not the rent is collected.
The logic in these circumstances is that you still have an account receivable, which you can potentially sell to a collector or borrow against pending collection.
And other contracts, of course, make the property manager’s fee contingent upon actually collecting the rent. Defining the management fee in terms of percentage of gross rents collected is quite common, and California is no exception. Per the California Division of Real Estate:
Management fees can either be a flat amount per month, a percentage of the gross rents collected, or a combination of the two. Managers usually base their fees on a percentage of the gross rents collected. This may vary from 3 percent on large structures to as high as 20 percent on individual houses or small buildings. In some resort areas with higher turnover rates and short terms of occupancy, as much as 50 percent of the gross rent is charged as a fee for renting a property. In addition to the fees collected on rentals, the property manager frequently receives compensation for the renewal of leases and for supervising major repairs or renovations.
In this case, if your contract states your property management fee is purely a matter of gross rent collected, you are not contractually obligated to pay them anything. If your property management fee is a hybrid of a flat rate and a percentage of rent collected, you will likely have to pay them something, but not the full amount.
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