Project management fee?

Jon asks:
(updated on Friday, April 04th 2014)

My rental property's underground drain/plumbing needs to be re-routed and fixed by a plumber. The property manager is asking a 5% commission fee for overseeing the project onsite, is this legal? The property manager is already getting paid a percentate of the weekly rent.

Our Experts Answer:

The answer to your question lies with the contract you have with your property manager. If the commission on maintenance is allowed for in that contract, or is not specifically excluded, the charge is perfectly legal. Think of the difference between “property management” and “project management”. The normal activities of a property manager include finding and vetting tenants, and overseeing the tenancy. Maintenance is often reserved for a property owner to arrange themselves. In other cases the property manager will arrange and oversee maintenance, for an additional fee. This can be viewed as a project management fee. The reason for this separate charge is the unpredictability of maintenance issues. If all maintenance were predictable then the management fee would be structured to make allowances for that extra work. From time to time maintenance issues will arise. These are related to the property, and not the tenancy. If the property manager were to pass all maintenance matters to you, there would be a time cost to you in arranging and overseeing the work. There is a value to you in having someone else do the work. As an investor, you will recognise the value of an investment in the property manager’s time.

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