Caveat (Property) Manager

In the “old days”, when one could get 10%+ in a money market, a real estate management fee of 4-6% on rents did not excite many folks in the real estate industry about jumping into the property management business.

Now that 1% is considered a “high rate of interest”, and the stock market is rather volatile, management fees (and real estate as an investment) are a lot more attractive.

Before you rush to form your “Property Management LLC” company, however, “caveat manager”.

In Ohio, subject to limited exceptions, property management companies must have a real estate broker's license.

While there is no specific Ohio statute governing property managers, Chapter 4735 of the Ohio Revised Code governing Real Estate Brokers is dispositive. Why? Because pursuant to ORC Section 4735.01 (A), there are a list of activities, that if performed for another party, require a real estate license, and a number of these activities (including leasing and renting) are key components of property management.

What property management activities performed for another party require a real estate license?

-Pursuant to ORC Section 4735.01 (A) (1), one who rents or leases, or negotiates the rental or leasing of any real estate must be licensed.

- Pursuant to ORC Section 4735.01 (A) (2), one who “offers, attempts, or agrees to negotiate the …. rental or leasing of any real estate” must be licensed.

-Pursuant to ORC Section 4735.01 (A) (5), one who “operates, manages, or rents, or offers or attempts to operate, manage, or rent, other than as custodian, caretaker, or janitor, any building or portions of buildings to the public as tenants must be licensed.

Also included in the list of activities typically performed by property managers that require a license are: advertising or holding oneself out as in the business of leasing, one who performs any acts directed at procuring tenants for a property and one who collects rental information for purposes of referring prospective tenants to a rental unit.

Are there any exceptions to the requirement that one engaged in property management activities have a broker's license?

- There is no requirement that a community association manager or condo association manager in Ohio hold a real estate broker's license.

- Property owners managing their own properties are exempt. Additionally, receivers or trustees in bankruptcy, or guardians, executors, administrators, trustees, assignees, commissioners, or others  under authority or appointment of, or incident to a proceeding in, any court ;or under any trust agreement, deed of trust, will, or other instrument creating a like bona-fide fiduciary obligation are exempt. Also, public officers while performing the officer's official duties, and attorneys at law in the performance of the attorney's duties are exempt.

- Companies/individuals performing custodial, caretaker, or janitor services only are exempt.

 -While a real estate salesperson cannot manage property in his/her own name, or in the name of a separate management company he/she has formed, generally, a salesperson working under a broker may engage in management activities (See also OAC Section 1301:5-5-07 summarizing what property management activities an unlicensed employee may or may not engage in with respect to residential real estate).

Are there specific property management rules required of brokers to follow?

Yes. The Ohio Association of Realtors “Property Management White Paper” (http://ohiorealtors.org/legal/topics/wpproperty-management-laws/pm-whitepaper/) is one of the best summary guides available, but as a general matter, such rules pertain to:

-Property Management Accounts (OAC Section 1301:5-5-11);

-Security Deposits (OAC Section 1301:5-5-11 (D); and

-Rules governing sales as well as management/leasing activities such as: Agreements (ORC Section 4735.55); Property Records (ORC 4735.18 (A)(24); Consumer Guide to Agency Relationships (ORC Section 4735.56) and Agency Disclosures (ORC Section 4735.58).