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When Does Property Management Not Require a Real Estate License?

By: Carter, Brian on in

Landlords frequently hire property managers to manage properties and deal directly with tenants. Plenty of confusion exists among brokers, agents and landlords relating to permissible property management activities, especially when property managers do not have a real estate license and we get plenty of questions about this on the PAR Legal Hotline.

The licensing law generally requires a real estate license when providing real estate services to others. However, the licensing law identifies 11 distinct exclusions from the licensing requirement. Some exclusions are fairly obvious, such as attorneys handling client matters, while others are not so obvious, such as some public utility employees.

The licensing law contains a limited exclusion from the licensing requirement for persons employed by the owner for managing and maintaining multifamily residential properties. To rely on this exclusion, the regulations require the owner to retain all decision-making authority, including conditions of occupancy, negotiating leases and entering into leases with tenants.

Provided these conditions are met, employees are able to show rental units, provide information about rental amounts, inform prospective tenants of rules and regulations and inform applicants of leasing determinations.

Qualifying for this exclusion can be broken down into two parts. First, the person must be employed by the owner of the property. A W-2 employee is obviously employed by the owner. But a separate property management company the owner contracts with can also be considered as employed by the owner and eligible for the exclusion.

The second part relates to the management of multifamily residential properties. Management of apartment and condo buildings meet this condition. Management of a duplex may meet this condition. But management of single-family or commercial properties does not meet this condition, instead requiring a real estate license for property management activities.

Even when meeting the two conditions for the exclusion, it is important to remember the range of activities the exclusions allow are very limited. By and large, these activities are administrative in nature – providing general information about rental units, property rules and informing prospective tenants about leasing determinations. The most traditional type of real estate activity employees can perform is showing rental units to prospective tenants.

Conversely, these same unlicensed employees are not able to negotiate terms of leases, conditions of occupancy nor enter into leases on behalf of the owner. Only owners and brokers are permitted to perform these activities. Salespersons are authorized to assist a broker but are prohibited from negotiating and executing leases on behalf of an owner.

When a property is owned by a business entity, such as a corporation, partnership or limited liability company, the owner exclusion extends to up five officers, partners or members of the entity that owns the property. The owner exclusion does not extend to employees, which is why the law and the regulations provide a separate, but limited, employee exclusion for managing and maintaining multifamily residential dwellings.

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