Navigating Risk When Managing Property

Kristin E. Rosan

Partner, Madison & Rosan, LLP Attorneys at Law

As the economy rebounds from the mortgage loan crisis, the market has seen increasing numbers of residential rentals. With these rentals come a growing need for property managers. Although there is a volume of work in this practice area, it comes with an equally high volume of risk.

Property management is a highly detailed segment of the profession. It involves more than just finding a tenant. Depending on your arrangement with the owner, you may be taxed with selecting the tenant, collecting rent monthly, paying any expenses, repairing the property and evicting the tenant. You will be navigating not only your jurisdiction’s landlord tenant laws but also professional legal and ethical standards. It is not easy work and it is that much harder for the inexperienced property manager.

Below are some best practices to help keep your clients happy while managing your own professional risks.

1. Brokerage Licensure Required. Property Management almost always requires a real estate license and that the practice be run through a brokerage. This means that salespeople cannot run a property management business outside the brokerage, but instead must run the practice under the brokerage’s name with the broker’s knowledge and consent. Residential leasing agents or on-site managers under the supervision of a licensed broker need not be licensed, provided they only work at one location and do not receive special compensation for management services, such as preparing leases, collecting rents, showing units or executing rental agreements.
2. Unlicensed Assistants. Unlicensed assistants may not negotiate leases, approve rental applications, prepare documents with a consumer or advertise the property for lease. Unlicensed assistants may only facilitate paperwork, maintenance and provide secretarial and clerical support services. Monitor your unlicensed assistants closely. As the employer of an unlicensed assistant, you can be at risk if they engage in conduct that requires a license.
3. Trust Accounts. Brokerages are required to maintain a property management trust account. This account is used for the deposit of security deposits, rent and any other money the Brokerage receives in its fiduciary capacity for the owner. Under certain circumstances the trust account can be maintained in a depository that is located out of state. If the Brokerage opens or closes a trust account, it must submit a form to the Arizona Department of Real Estate.
4. Be vigilant to keep the property in good repair, documenting all expenses approved and incurred on the owner’s behalf. It is not uncommon for owners to complain that a manager allowed a property to fall into disrepair, or is responsible for code violations, loss of tenants, or high turnover or eviction rates.

The property management practice has become very specialized. In recent years, the industry has started discussing a separate type of license solely for property managers. If you’re considering this practice, avail yourself of additional educational opportunities to learn the ins and outs of the industry. Find a colleague or mentor that will help you navigate any issues that may arise. If you take steps to minimize the risk, there is great reward in this hot rental market!