Easiest way to change property management

You may be transitioning to a new property manager, because you are unhappy with the current results and/or operations. Or, you may have recently purchased an investment property (congrats!) and want to put it under the property management solution that you trust. Below is a standard process to follow as you transition property managers, which involves administrative and communication steps. As the new owner or property manager, past issues (“he said, she said”) and tenants’ emotions will become your responsibility. It is important to remain professional and responsible during the entire transition process.

Getting out of the existing management contract

If you just purchased a rental property with a tenant in place, you are not obligated to use the property management company that the prior owner had in place. That property management contract is between the prior owner and the property manager, and these contracts should have a clause of termination for sale of the property.

If you are transitioning to a new property manager and have an existing contract in place, then you must check the termination clause in the agreement. Most traditional property management contracts will have a twelve month minimum commitment with a termination fee. If this termination fee is high and your property manager is doing ok (but you just want better), you may consider waiting until the contract expires to do the transition. You don't want a change to negatively impact your cash flow.

Checklist to change management

The first step in the transition is to receive as much as you can about the history of the property and tenants. The prior management may not be as organized as you, and therefore it is your responsibility to request and confirm receipt of the most important documents. Here are the major items you should expect to receive:

Lease documents
Tenants' names, emails, and phone numbers
Original applications submitted by current tenants
Security deposits
Move in and annual inspections for current tenants
Payment history and balance due for tenants
Open maintenance requests, including their current status
Past maintenance request history
Inventory list for appliances owned by the property’s owners
Important communications with residents
State of current vacancies (any applicants in the pipeline, etc.)
Pro-rated rent based on the property close date

Some past managers will provide high level spreadsheets with this information, to make your life easier as well. If you do not receive any of these items listed above, then have a plan on how to update your records on the item. For example, if there is not a move-in inspection for one of the rental units, then you should plan to perform a mid tenancy inspection. Refer to this article on the Rental Inspection Guides, as well as Privacy Concerns and Rights for rental properties.

Notification to tenants on the management change

When residents hear that their management is changing, it is common for them to have a sense of fear or concern. Their first concern is about the future of their home, as they worry about increased rental rates, changes to the lease, or a request for move out. It is important to communicate to the tenant that although management is changing, their current lease will remain intact.

Prior to reaching out to the tenants, it is advised that the prior property manager notifies the tenant on the transition first.

Here is a template that you can share with the tenants after you confirm with the prior property manager that they have communicated the transition to the tenants.

[Owner/Property Manager Name]
[Street Address]
[City, State, Zip Code]

[Tenant(s) Full Name(s)]
[Property Address]
[Property City, State, Zip Code]

Dear [Tenant(s) First Name(s)],

We would like to take the time to introduce [Owner Name/Property Manager Name] as the new [Landlord/Property Manager] of [Property Address]. Your current Lease is attached and you are currently on a [term of lease/month to month] Lease. The Lease amount of $[Rent Amount] USD and payment terms will remain in effect until [the end of your term/further notice].

Rent payments, repair requests, and correspondence going forward should be made through [your online property management system, such as wwww.hemlane.com/for-tenants].

Any correspondence that is not through [your online property management system, such as wwww.hemlane.com/for-tenants] should be sent to the address listed at the top of this letter. The security deposit in the value of $[Security Deposit amount] USD was transferred to the new owner. [Optional: We would like to inspect and address some minor concerns noted in the inspection. Once we’ve received your Tenant Information Form, we will contact you to coordinate an inspection time.]

We look forward to providing you with exceptional management, including prompt repair service, as well as maintaining a safe and enjoyable place to live.

Please contact us if you have any questions.

[Owner/LLC Name]

Some words of wisdom: You don't want to be too aggressive initially, increasing rents or changing terms, until you have a strategic and fair plan for long-term success. For example, raising all of the rents for month-to-month tenancies during the transition could increase vacancy rates and hurt short term cash flow.

Note: It is recommended that you also create a lease amendment that mentions all terms of the original lease are intact but the management and/or ownership is changing (and providing the updated contact information). The notification should be delivered in person or posted on the door and also sent via certified mail.

Frequent mistakes during the transition

One of the most common mistakes is not transferring over the security deposits. Or even worse, the prior management has not collected the security deposits, leaving you at risk when the tenant transitions out of the rental property. As part of the checklist, confirm that you received the security deposit from the prior manager.

If the prior management did not collect on security deposits, then you should plan to require a security deposit during the lease renewal. Without this deposit, there is a high probability that you are chasing tenants in the courtroom to pay for turnover damages. It is better to be proactive than in that position.

The second most common mistake is thinking the tenants need to sign an addendum or amendment to the original lease. Owners are not required to receive tenants' approval for selling a property or changing management. A new property manager is considered an agent of the owner. And therefore, the tenant does not need to agree to a change in ownership or management. Nonetheless, is it important to have a welcome letter explaining the transition.

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