The question of whether management fees can be passed on is a concern for many property owners, especially when it comes to correctly and legally billing tenants for utility costs. This article explains in which cases management costs can be passed on to tenants, the difference between condominium management and rental management, and how you, as an owner, can manage your property efficiently and cost-effectively.
What are management fees?Link to this section
Management fees are the fees a manager receives for carrying out the management tasks of your property. These tasks can vary greatly depending on the type of management. In the case of condominium management, the management of the common property in the foreground, while rental management takes care of rental matters such as rent payments, utility bills or tenant changes.
The Property management bills the owner a monthly flat rate or an agreed fee for these services. These so-called administrative costs apply either to the entire owners' association or – in the case of rented units – to the individual owner of an apartment.
Allocation or not? The legal basisLink to this section
Whether management fees are apportionable depends on the type of costs and the management involved. Case law—particularly the Federal Court of Justice (BGH)—generally distinguishes between apportionable operating costs and non-apportionable administrative costs. The Operating Costs Ordinance (BetrKV) clearly regulates which types of costs may be passed on to tenants.
Management fees are generally not included in the apportionable operating costs. According to Section 1, Paragraph 2 of the Works Regulations (BetrKV), they are considered administrative costs and are therefore generally not apportionable. However, an exception exists in certain situations or contractual arrangements.
Difference between condominium management and rental managementLink to this section
In a homeowners association (WEG), the owners jointly commission a property management company to manage the common property. The resulting management costs are paid through the House fee covered and affect all members of the homeowners' association. These management costs cannot be passed on to tenants, as they serve the maintenance and organization of the shared property.
Rental management, on the other hand, involves services directly assigned to the renting part of the property—for example, tenant support, accounting for individual rent payments, or preparing utility bills. Here, too, administrative costs are non-reimbursable items unless otherwise stipulated in the rental agreement.
Which types of costs are apportionable according to the Operating Costs Ordinance?Link to this section
To ensure that you, as a landlord, know which costs can be passed on to your tenants, it's worth taking a look at the operating costs regulations. Eligible costs include, among others:
Water supplyHeating and hot waterProperty taxBuilding cleaningWaste disposalGarden maintenanceElevator operationLighting of common areas
Property management fees do not appear on this list. They are considered a separate cost item within property management costs and therefore cannot simply be passed on to tenants.
You can find more information on this topic in this blog article: Which apportionable additional costs can I pass on to my tenants?
When can management fees be passed on to tenants?Link to this section
In individual cases, it may be possible to pass on administrative costs to tenants, particularly in commercial areas or if there are individually agreed provisions in the lease. Commercial tenants enjoy more contractual flexibility, so the parties can also agree on the allocation of administrative costs either on a lump sum or pro rata basis.
In residential tenancy agreements, however, the apportionment of administrative costs is subject to strict legal requirements. A flat-rate administrative cost apportionment can only be demanded if this has been explicitly and effectively stipulated in the tenancy agreement and if the tenancy agreement is drafted in accordance with applicable case law. Even then, a clear distinction must be made between operating costs and administrative costs.
The influence of the Federal Court of Justice on the allocation of administrative costsLink to this section
The Federal Court of Justice has made it clear in several decisions that administrative costs – including property manager fees – are not apportionable within the context of residential rent unless there is an explicit legal basis for doing so. The costs for the property manager are considered part of the general management costs of the property and must be borne by the landlord.
This legal ruling protects tenants from being burdened with additional costs that are not related to the ongoing operation of the building, but rather to its management. For you as the owner, this means that apportioning management costs is generally not possible unless there is a specific contractual arrangement, such as in the case of commercial units.
Strategies for indirect cost optimization for ownersLink to this section
Even if management fees cannot be passed on directly to tenants, there are still ways to reduce overall utility costs and improve the return on your property:
Efficiently select a property management company: Obtain multiple quotes and compare not only prices but also services and references. Cost-effective management with a clear allocation of responsibilities saves money in the long run. Performance-based contracts: When drafting contracts, ensure that responsibilities and costs are clearly defined. Avoid undifferentiated flat rates that are difficult to verify. Digitize administrative tasks: Use digital tools for accounting, billing, and communication. Many modern property management companies now offer platform solutions that reduce administrative effort and costs. Claim administrative costs as business expenses: For rented properties, you can deduct management fees from your taxes. This reduces your tax burden and improves your overall return.
How does the apportionability affect the utility bill?Link to this section
The invoice for additional costs may only include those types of costs that are apportionable according to the Operating Costs Ordinance or that have been expressly agreed upon in the rental agreement. Therefore, management fees do not need to be listed there if you only serve residential tenants.
A common mistake in practice is to include administrative costs – accidentally or intentionally – as "other operating costs" in the bill. The Federal Court of Justice has clarified in several rulings that this is inadmissible unless there is a clear basis in the tenancy agreement.
What does this mean for commercial tenancies?Link to this section
Commercial tenants are not subject to the strict regulations of the Operating Costs Ordinance. Freedom of contract applies here. This means that as a landlord, you can pass on management fees – even a flat rate – to tenants in commercial leases, provided this is clearly and transparently regulated.
This creates a differentiation option for owners of mixed-use properties (e.g., residential and commercial). It is important to correctly allocate and bill costs by unit – only the commercially used portion may be charged accordingly.
Practical tips for owners to avoid costsLink to this section
Some measures can help keep overall administrative costs low, even if direct allocation is not possible:
Consolidation of service providers: Combine caretaker, cleaning and administration services to exploit synergies. Consider changing property management: If the services do not match the price, a Change of administration in compliance with the notice periods.Negotiate instead of accepting: Existing management contracts can often be renegotiated or supplemented with flexible modules.Check self-management: For small properties or sufficient experience, the Self-administration worthwhile – especially to reduce the administrative costs.
Frequently asked questions from owners about the apportionability of management feesLink to this section
Is it possible to allocate management costs in new rental agreements?
Only if these are explicitly listed in the rental agreement and clearly separated from operating costs. This is not common in standard residential rental agreements and is also legally challengeable.
What happens if management fees still appear in the utility bill?
Tenants can object to this item and demand repayment. In the event of a dispute, this could lead to legal action.
What are typical management fees?
Management costs vary depending on the location, size, and condition of the property, as well as the scope of services provided by the property manager. In practice, they usually range between €20 and €30 per month per unit.
Conclusion – correctly classify management fees and optimise additional costsLink to this section
As a property owner, it's important to understand the distinction between administrative costs and operating costs. Only the latter are apportionable according to the Operating Cost Ordinance. Management fees are generally non-apportionable administrative costs and must be borne by the tenant – unless the tenant is in a commercial lease with a corresponding contractual arrangement.
To operate economically and increase your return on investment, you should actively participate in the selection, negotiation, and monitoring of your property management company. Transparent, efficient, and digital management can help reduce costs—even if they can't be passed on directly to tenants.
The better informed you are about the legal framework and strategic options, the more effectively you can control administrative costs, optimize the ancillary cost structure, and operate your property successfully in the long term.
Do you already know Ralph?
As a modern property management company, Ralph supports you in correctly distinguishing between management fees and operating costs and billing them in a legally compliant manner. If you choose us as your property management company, we will help you optimize your management costs through transparent cost breakdowns and digital processes while complying with all legal requirements regarding apportionment.
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