Management Fee

A management fee is the amount a property management establishment charges the owner for managing their property, usually calculated as a percentage of rent actually collected, or as a fixed monthly or annual amount per unit or for the whole property. In Saudi Arabia the Real Estate Brokerage Law sets no rate or cap for property management fees; they are left to agreement, and market rates commonly range between 5% and 10% of rent collected depending on property type, size and scope of service. The fee must be distinguished from the leasing brokerage commission, which Article 14 of the law sets at 2.5% of the first year's rent only, unless the parties to the brokerage contract agree otherwise in writing, and which is paid by the party that contracted with the broker. For tax purposes, management fees are subject to 15% VAT if the establishment is VAT-registered (registration is mandatory once taxable supplies exceed SAR 375,000 a year), even when the residential rent being managed is exempt. In practice it is better to link the fee to rent collected rather than rent due, so the manager shares the owner's default risk and has a clear incentive to collect.