How do y’all write up the lot lease agreement for a park manager that is receiving free lot rent?
Mainly trying to figure out how the agreement that says $0 is owed is enforceable. Do we just do it for $1/month? Do we have the normal lot rent in the agreement and then a separate agreement stating that their lot rent will be free?
Also want to ensure if the manager isn’t doing a good job we can convert them to a normal tenant and they start paying lot rent again .
Hannah,
First off in the eyes of the IRS and in the unlikely event an IRS agent sitting across the table from you auditing your taxes- free space rent for a park manager is considered taxable income. Any compensation over $600 per year to an individual or business has to be reported to the IRS via a 1099 form so they can match it to his taxes as income earned.
Your park manager’s lease should look like every other lease in the park with the same rules, stipulations and lot rent. As an outside contractor he provides you a W9 and a monthly bill for services provided which would equal his lot rent. He gets to pay taxes on that free lot rent.
The other kicker is as an outside contractor he has to provide his own tools, vehicle, set his own hours and be given basic objectives for his day- you can’t direct his every movement or activity. You are hiring him to do a job and how he gets it done is up to him. It is the distinction between employee and contractor.
Now in reality you have a greater chance of getting eaten by a land shark while in the drive through at Starbucks than getting audited… but that is how plays out. I am no payroll acountant but my wife is and she has several MHP owners as clients- at least best of my recollection from the fog os war for her lecturing me on this.
It may provide you an alternate way to approach this situation.
The lease is identical to any other tenant. The difference is that you would write an independent contractor agreement and in that agreement you would have a compensation section. You would specify the dollar value of the compensation and mention that the compensation would be paid as a credit towards their rent on their tenant lease.
Similarly, for accounting, you would recognize the revenue derived by renting the lot to the manager, but you would also recognize an equal expense by paying the manager the same amount.
For example, one of our managers gets free lot rent at a property that has lot rent of $490. In Rent Manager, we charge all tenants, including the manager $490 on the first of the month. Also in Rent Manager, we have a recurring -$490 charge to the manager using the code WCRD, which is work credit. When you look at the income statement, you will see $490 in revenues and you will see $490 in expenses for the work credit and the net income from this tenant would be zero.
Thank you, very helpful. And I’m assuming if things go sour I just send a termination of agreement and start charging lot rent like normal?
You terminate the management agreement only, and the manager reverts back to a typical tenant. You would’ve been charging rent all along, so you just stop paying management fees.
Some property owners do not let a former manager continue to live in the community.