Problematic issue with Developer making up the difference in rental!!

In order to secure tenants. The developer agreed to make up the difference in rent for a whole year, that is 52 weeks.

The rental price for the property is $420. However tenant is only willing to pay $390 pwk. The developer has agreed to make up the difference at a cost of $30pwk.

The tenant has moved in and started paying rent. However, the developer did a once off transfer directly into the trust account for 26 weeks, $780. That’s 6 months’ worth of rental.

What’s the best way to process this? Am I allowed to transfer all of it in this month minus my commission to the owner in this month’s reconciliation?

The issue is the tenant’s rent payments are not in sync with the developer’s.

Are we allowed to transfer more than next month’s rent to the owner in advance even though tenant hasn’t technically paid her rent for that period?

Being a PM we are meant to put ourselves in the shoes of the owner. So in that sense, it is beneficial if the owner gets their money in advance. However having said that, are there any legal ramifications to this scenario if I transferred all the money and the tenant moves out?

Also what’s the best way to enter this into trust accounting software? Would you just do it as 2 separate leases? One priced at $390 pwk for the tenant and another lease priced at $30 pwk for the developer? Issue receipts accordingly, despite the fact that they are out of sync?

 

Are you an agent?

On what terms do you hold the money as trustee?

 

I thought he may have been a prime minister or a post man.

 

Nice one @Terry_w

@3k_Alan that is a very messy situation. I hope you find a simple fix. Not my area of expertise so I can't offer any useful advice. Good luck.

 

Yes definitely allowed. Think forward though - if lease ends early, may have to refund part, so how will you get it back? Maybe get permission to withhold some.

Not really relevant i don't think. Tenant's contract will say pay 390 pw for 12 months, and if they're doing that, everyone is in agreement.

Yes - tenant doesn't have to pay more then 390, so trust account software will show them in arrears if you enter it as more than that.

 

If the developer wanted the money to be given to the tenant immediately why would he pass it to the agent under trust?

I would think the agent should get the permission of the developer to cover yourself just in case. The agent is trustee for both.

 

Yes, could have structured lease as 420pw and had developer give tenant 30pw (or $1560). This would have been preferable as looks like better income for the owner if they're applying for any finance.

Issue with this is
- What happens when they renew and developer is no longer contributing. Tenant leaves, or gets reduced back to 390? Or find another tenant and risk vacancy period?
- I'd not keen on involving tenant in the financials - it'd be a lot cleaner for lease to be at agreed amount of 390 and software reflecting that. Then owner can take 1560 directly from developer.

 

You've received twelve months of the shortfall - take the commission, you've collected that portion of the rent (albeit in advance) & pay out the disbursement to the owner. End of story. No longer your problem.

The developer is out of the picture - if the tenant falls over, they don't have any further liability (what was in the developer's agreement? Was it envisaged? If it was, the developer would only be up for a shortfall if it gets released below the current rent, they won't chase the owner for the balance if the next tenant pays more).

The issue has nothing to so with the current tenant, if the tenant wants to continue the lease the a rent review may be required to bring the rent into line with expectations or vacate.

The situation is similar to receiving a year's rent in advance, you have collected the rent and can pass it on to the owner - it can sit in offset, pay down loan or be places on No. 4 in race 2 on Thursday. It's the owner's responsibility.

 

Interesting question and following.
Apart from the others' responses above, perhaps you can ask the Auditor of your Trust Account. All monies you hold are held "in trust" anyway. There is a timeframe as to when you must transfer it to the Owners, unless agreed otherwise.

 

My understanding is that there is no issue with you passing these funds directly to the owner.
You should be fine to take fees, though I've not come across this exact situation before and I don't have time tonight to investigate tonight. There may be a quirk with taking fees on this amount, given that I'm recommending that you DON'T receipt this money as rent (see below)- i.e. this payment is not applied to the tenants ledger, it's applied directly to the owner account. On that note, you'd need to manually apply a fee to the amount because the trust system wont take it if it's not receipted as rent.
Are you a member of the REIQ? Their PM Support helpline is gold for specific little questions like this.

I'm assuming the tenants lease says $390.00 per week. Consider the developers contribution to be a payment that is equivalent to the 'shortfall' in rent, but it does not constitute a portion of the rent paid, it's 'one off'. This means the tenants lease is for $390.00 per week and that's all there is, which means you can accurately keep track of rent payments.

It's unlikely the developer is going to be keeping track of the property and would request a partial refund if, say, the tenant left after three months. To be sure, cover that off as part of the agreement for payment from them- no portion of their contribution is refundable even if the tenant leaves early.
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Accounting for the two amounts separately week to week and potentially across two leases sounds awful, try to avoid that.

 

Thanks all for your recommendations.

Do you think I deserve a commission on the $35/pw for the 6 months and next 6 months? or I should pass on these transactions in full to the owner? I incur a fee for transactions. Given the money is already in the trust account and not passed to the owner directly.

 

@3k_Alan - pay it out, clears the trust account. Take the comms as the developer has paid it to top up the shortfall in rent.

 

Yes