Year 2 Agent Commission – Are Property Owners Obligated to Pay?

The Never-Ending Debate in Rental Property: Agent Commission for Year 2

From the Agent’s Perspective:

1. "The property owner refuses to pay my commission for the second year. Can I sue?"

2. "The owner claims I never informed them in advance, so they don’t feel obligated to pay."

From the Owner’s Perspective:

1. "Am I legally allowed to withhold the agent's commission for the second year?"

2. "I haven’t seen the agent manage anything after the first contract. Why should I pay again?"

This is a recurring dispute in the rental property market regarding agent commission for lease renewals.

Is There a Legal Obligation?

Legally speaking, there is no explicit law mandating the payment of agent commissions for lease renewals. It is a matter of agreement between both parties.

Many agents assume that since other owners pay, all owners should follow suit. Over time, this has become an unwritten norm in the industry.

A Practical Solution to Avoid Disputes

To prevent future misunderstandings, I personally use a separate document distinct from the rental agreement. This serves as an agreement between the owner and the agent, sometimes referred to as:

• "Real Estate Leasing Agency Agreement"

• "Mutual Commission Agreement"

The essence of this document is to define the agent’s responsibilities clearly and to ensure the owner acknowledges the scope of service.

To keep things fair, I offer two options to the owner:

1. Full Management Option: If the owner wishes for continued tenant management, an additional commission fee (e.g., 0.5 months' rent for the following year) is agreed upon.

2. Owner-Takes-Control Option: If the owner prefers to manage the tenant directly, the agent hands over all necessary tenant information, and no further commission is expected.

It is crucial to define what "tenant management" includes. Does it cover full-scale property management, or is it simply a basic tenant support service? This should be written explicitly and signed by both parties.

How Owners Typically Respond

Most property owners, when presented with clear terms, respond positively and agree to let the agent continue managing the tenant. However, some owners choose to handle everything themselves.

Interestingly, some exceptional owners even manage their tenants themselves but still voluntarily pay the agent's commission in the following years.

Final Answer: Can an Owner Refuse to Pay?

If there was no prior agreement regarding commission for the second year, then yes, the owner has the right to refuse payment. If an agent never discussed or included this clause in the initial agreement, demanding payment later may not hold up under scrutiny.

However, in cases where the tenant vacates before the lease term ends, the owner cannot reclaim the commission from the agent, whether in full or on a pro-rata basis—unless this was explicitly agreed upon in writing.

In summary, setting clear expectations from the beginning helps avoid unnecessary disputes. After all, professional agents should work based on agreements, not assumptions.
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