Question: Several of our Sales Associates represent investors who not only want our brokerage to help them buy rental property but to also find them Tenants for those properties. Our brokerage has no desire to be involved in Property Management, in part because our Errors and Omissions Policy specifically excludes that type of licensee activity.
We are concerned that our Sales Associates may inadvertently become Property Managers. Are there some guidelines that I can provide to our Sales Associates to help determine the line that separates being an agent who takes lease listings and a Property Manager?
Answer: The rules regarding when a licensee becomes a Property Manager are relatively clear. Once the lease/rental agreement is signed, the initial payments are made to the Landlord, and the Tenant successfully moves into the property defines the end of the rental process that your Sales Associates can safely handle. Any activity beyond termination of the rental process can be construed as performing the duties of a Property Manager.
To avoid becoming an inadvertent Property Manager special care is needed in the drafting of the Lease Agreement. Most Leases contain provisions regarding:
(1) Where the Tenant is to send the rental payments;
(2) Who the Tenant is to contact to provide any statutorily-required notices (such as if or when the Tenant becomes aware of bed bugs);
(3) Who the Tenant is to contact regarding complaints about the condition of the Property;
(4) Who the Tenant is to contact in case of an emergency; and/or
(5) Who the Tenant is to contact regarding the termination or renegotiation of the lease.
All of these provisions in the Lease need to make it clear that the Tenant is to contact the Landlord directly and not the Lease Listing Agent who handled the rental process. Then, after making sure that the Lease is properly drafted, the Sales Associates can no longer be involved in any aspect of the rental property and needs to defer everything to the Landlord.
PRACTICE TIPS
- Make certain that the Lease Agreement specifies that all Tenant issues, problems, concerns, notices and rental payments need to be directed to the Landlord, not the Lease Listing Agent.
- If the Tenant mistakenly contacts the Lease Listing Agent, the Tenant needs to be redirected to the Landlord.
- Regardless of any business or personal relationship with the Landlord, after the termination of the rental process the Lease Listing Agent:
(a) Cannot Accept or transmit rental payments;
(b) Cannot be the contact person for any tenant notices, issues, problems or concerns;
(c) Cannot determine what repair work is or is not needed;
(d) Cannot schedule or arrange for repair work;
(e) Cannot supervise, confirm or in any other way be involved in any repair work
(including, but not limited to, providing access to the property for the repair people or transmitting repair invoices or reports).
- If a Landlord does not wish to be involved in the day-to-day operation of leased property, the Landlord should be referred to a Property Management Company that is properly set up to handle all of the issues noted above, including, but not limited to, the specialized Trust Fund Accounting Procedures that the Department of Real Estate requires Property Managers to maintain.
This Weekly Practice Tip an attorney client privileged document and is for the exclusive use of clients of Broker Risk Management and their agents. It may not be reproduced or distributed without the express written consent of Broker Risk Management. The advice and recommendations contained herein are not necessarily indicative of standards of care in the industry, but rather are intended to suggest good risk management practices.
© Copyright Broker Risk Management 2018 11/02/18