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Management Fees: Make Sure Your Lease Is Clear
Landlord's management fees are an often-negotiated matter between landlords and tenants. From the landlord's perspective, having the flexibility to pass through all amounts incurred in the management of the leased property and common areas, whether such management is performed by the landlord or a third party, is essential. Conversely, the tenant desires certainty and limitations with respect to management fees.
As the cases described below demonstrate, there is no uniform approach relating to management fee provisions in leases, and courts will recognize inequities in the charging and payment of management fees when lease terms are ambiguous or a landlord or tenant fails to comply with the terms of its lease.
Plain and Ordinary Language
In IFS Filing Systems LLC v. 11225 Heather LLC and Brennan Investment Group LLC, No. 2017AP1376, 2018 WL 5920614, 2-3 (Wis. Ct. App. Nov. 13, 2018), the assignee of the original tenant to a lease refused to pay a portion of rent allocable to management fees upon assignment of the lease from the original tenant, asserting that management fee payments were not required under the lease.
The lease required the tenant to pay base rent and additional rent, including “Rent Adjustments.” Id. at 4. Rent adjustments included “all amounts owed by Tenant as Additional Rent on account of 'Expenses'” and “Expenses” were defined as including “all expenses paid or incurred by the Landlord for managing” the property. Id. Relying on the plain and ordinary language of the lease and the definition of “Expenses,” the court concluded that management fees had been properly charged to tenant. The court found the court record also supported this finding since during the negotiation of the lease, the tenant's predecessor-in-interest had “agreed that a 3.5% management fee would be assessed as part of the rent,” was aware of the fee and had paid the fee monthly.
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