Peter Lohmann's Newsletter - Issue #103

Fee-Generating Programs: Avoiding Legal Trouble & Unethical Behavior

[This article is relevant to 3rd party property managers. If you only manage property you own, feel free to skip it.]

I was reading a post by Rob Hahn a few months ago, and he shared something I haven't been able to stop thinking about.

It's a bullet point expanding on the "Loyalty" part of an agent's fiduciary duty to their principal (ie our clients). Remember OLDCAR?

Here’s the excerpt (highlighted):

Here’s why I couldn’t stop thinking about it.

1. By that definition, (can't take a benefit from a 3rd party in connection with our actions as a PM), all profitable tenant programs are disallowed in our role as a fiduciary. That means tenant benefit programs, utility programs, pet protection programs, etc. The tenant being the 3rd party in this example.

2. By that definition, all vendor "arrangements" such as marketing programs/refunds, marking up invoices without disclosure, and other kickback arrangements are disallowed in our role as a fiduciary. Vendor being the 3rd party in this example.

3. By that definition, earning credits or interest on your trust account and using them to increase the profitability of your company are disallowed in our role as a fiduciary. The bank being the 3rd party in this example.

I was so distressed by this conclusion that I turned to Crane and Facebook(!) and posted about this to find out what I might’ve overlooked. Dozens of thoughtful comments poured in from property managers across the country. Thanks to all who chimed in.

My takeaway? DISCLOSURE is the key.

You MUST clearly and plainly disclose programs and fees like the ones I listed above in your property management agreement. And if your clients signed some old version of your PMA prior to rollout, you must notify them and get their informed consent. That means fully informing the principal (your owner) about the nature and extent of the benefit you are receiving from the third party, in detail.

Assuming full & complete disclosure, I feel comfortable with the programs listed above (we have several of them in place at my management company).

Note: Not all states make the property manager a true fiduciary to their owner (Georgia is one example). But I believe this is the right thing to do in any case. Our industry reputation is bad enough as it is.

I'm starting to worry that our industry is becoming too preoccupied with ourselves and our own profits (I'm as guilty as anyone) at the expense of our principal, to whom we owe a fiduciary duty -- which is a MUCH higher bar than what we owe to just anyone on the other side of a commercial transaction. Are we taking that duty seriously as property managers in 2024? And if yes, how can we demonstrate this to our clients & the general public?

Let me know your thoughts on this one.

This is not legal advice and I am not a lawyer. This article is a layperson’s speculation. Please consult an attorney who is experienced with property management law in your state regarding anything discussed above.

THIS ISSUE IS PRESENTED BY THE PM MAINTENANCE COURSE

My property management company co-founder Adam Rich is a licensed Professional Engineer (P.E.), and he single-handedly built our maintenance division. Last year, that side of the business did almost 40% of our total revenue!

I finally talked him into sharing more about how he built it, so he went and built an entire mini-course on the topic!

Inside you will find:

• The entire Maintenance section of our company Notion buildout

• 80 minutes of video content from Adam (with transcript)

• Setup checklists

• Excel calculators for billing rate so you know how much to charge

• Hiring template & skills survey to help attract the right talent

• Technician interview scorecard to help you qualify candidates

• Maintenance tech training outline to help you onboard correctly

All the content (including videos) are available to download, so you can freely share it with your entire team. No need to worry about sharing logins or buying multiple copies.

Last chance for $299 pre-sale pricing (ends Wednesday).

New Podcast Episode with Jon Matzner

Jon Matzner is an expert at working with global talent. I get him to share all his secrets in this episode!

Here’s the other thing about Jon. He is a first principles guy, and has a way of cutting right to the heart of any topic. By drawing on history, philosophy, business theory, and real-world experience to inform his opinions, every word is dripping with insight. Highly recommend catching this episode in your favorite podcast player (Apple, Spotify) or on YouTube:

New Property Management Companies For Sale This Week

• Here is a condo association management company for sale in Florida (asking $260k, 416 doors)

• Here is a vacation rental management company for sale in Mammoth Lakes, CA (asking 500k)

• Here is an HOA management company for sale in Miami, FL (asking $900k)

• Here is a property management company for sale in Garfield County, CO (85 properties, asking $450k). “The seller is both an attorney and a former CPA, so the business’s financial reporting, processes, and procedures are well-designed and highly organized.”

• Here is an association management company for sale in Southeast Michigan (asking $750k)

• Here’s an association management company for sale in Sacramento, CA (asking 4.4M)

• Here’s a property management company for sale in Collier County, FL (asking 100k).

• Here’s a brokerage & property management company for sale in Pinellas County, FL (250 doors, asking 5M).

Industry News and Events

• Next week I’m hosting a workshop with Wolfgang Croskey to share how we’ve used sales automation to grow our companies. Register here.

• Not content to wait for the DOJ to finish their investigation, yesterday San Francisco moved to ban all rent-recommendation (revenue management) “algorithmic devices.”

• The BizDev Mastermind Seminar has been announced for October 8th in San Antonio, TX.

• Tony Cline & Shawn Johnson have started a new PM podcast called “Pay or Quit”. I respect the hell out of both of them as operators; check it out on YouTube.

• In case you missed it, tickets for LeadSimple’s 2nd annual user summit, LSU, are now available. Use this link for $150 off (expires soon). See ya there.

• Do you want to run a property management company? Interviews start next week, but there’s still time to apply for the VP of Operations role at my PM company. Looking for someone who has run a $8M+ property management (or home services) biz.

Closing Thought

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Stats from last week’s issue:

Valid Recipients: 11,361

Open Rate: 49.2%

Clickthrough Rate: 8.9%

Most Popular Link (237 clicks): PM Maintenance Workshop Recording

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That’s all for this week! Have a great weekend. -Peter

P.S. Have you checked out Crane, the private community for property management business owners? Join 60+ peers as we achieve time freedom together.

The content of this newsletter is for informational purposes only and does not constitute professional advice. I may have consulting agreements with, or financial interests in, companies mentioned in this newsletter. Additionally, some of the links included in this newsletter are affiliate links, meaning I may earn a commission if you make a purchase through these links. Always perform your own due diligence before making any financial or business decisions.