What typically happens when disbursements exceed receipts in a month according to the management agreement?

When disbursements exceed receipts in a month, it typically indicates that expenses are higher than the income generated from the property. According to the management agreement, this scenario is often managed by utilizing funds from a reserve fund. Reserve funds are set aside specifically for unanticipated expenses or shortfalls, allowing property managers to maintain operations and cover necessary costs without disrupting cash flow or immediately raising rents.

Using a reserve fund is a prudent practice as it allows for the smooth management of financial fluctuations without placing an additional burden on tenants or needing immediate external funding. This approach helps to ensure the property continues to run effectively, even during financially challenging periods. It also reflects responsible financial planning, as reserve funds are allocated for the very purpose of handling such discrepancies in income and expenses.

On the other hand, raising rent or cutting expenditures might not be immediate responses to a temporary shortfall and could potentially lead to tenant dissatisfaction or financial strain. Borrowing from the owner could disrupt the trust and relationship between the property manager and owner, and should generally be considered a last resort.