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The Importance of Making Sure Your Property Manager is Properly Licensed

IS PROPERTY MANAGEMENT A LICENSED SERVICE OF REAL ESTATE?
AS DEFINED BY FLORIDA STATUTE CHAPTER 475

by Claire Schwartz MPM® RMP®

For many years this has been a grey area and NARPM® members have led the initiative asking for clarification.

For those of you who are not familiar, it was 2011 when I first became aware of the fact that there was a growing problem in the State of Florida and it was documented by the number of FREC complaints that were filed in the name of property management. To give you just a couple of scenarios;

  1. The Licensee, who while working under the direction of a Broker, often  Leases a property and then Manages the property, without the knowledge of his/her Broker, sometimes setting up a separate company (not a real estate company), strictly for the purpose of managing the properties. This unregulated “company” is holding security deposits in escrow and collecting and disbursing rents.
  2. The Licensee, working under the direction of a Broker, leases a property and collects the deposits in a name not associated with his Broker, a non-real estate related Property Management Company, owned/operated by a non-licensee, often a friend or family member. Again this company is collecting/holding escrow and rental collection and disbursements.

In both these cases, these companies are operating without licensure, no regulation, no accountability, yet the public would assume that they could expect the same fiduciary responsibility that a licensed broker would be subject to. The argument has been that the service of real estate ended at “Leasing for another, for compensation”. Nowhere in Chapter 475 does it clearly incorporate the services of “Property Management, for another, for compensation”. The question is; what is “property management”? Is it taking care of a friend’s home, having it cleaned, mowing the lawn, etc. or are you taking care of all the finances and doing it for compensation?

It was 2012 when it was first brought to the attention of Florida Realtors at the Property Management Subcommittee level and from there it was addressed at other Public Policy Committees and in each meeting it was met with total disbelief that there may be a loophole in Chapter 475 that could actually legally permit property management without a real estate license. Everyone agreed it was worth further investigation, so NARPM® formed a task force to discuss and do further research.

We had several meetings with policymakers, Legislators and with the Florida Real Estate Commission (FREC), Division of Real Estate Director, Juana Watkins. It opened up discussion statewide, some were supportive, and others feared amended legislation or more regulation. The consensus was that we wanted to be advocates for education and professionalism in property management. That is everything that NARPM® stands for, and DBPR, FREC, and Florida Realtors® were in agreement.

Director Juana Watkins pointed out Chapter 475.25(k) states;  A broker may place and maintain up to $5,000 of personal or brokerage funds in the broker’s property management escrow account. The intent is clear that the fiduciary responsibility of property management escrow falls under the Licensed Broker; therefore, property management should be a service of real estate.

Recent similar cases brought before FREC have ruled as such. As in example 1 (above):

Chapter 475.42(d) – A sales associate may not collect any money in connection with any real estate brokerage transaction, whether as a commission, deposit, payment, rental, or otherwise, except in the name of the employer …

Chapter 455.227(j) – Aiding, assisting, procuring, employing, or advising any unlicensed person or entity to practice a profession contrary to this chapter, the chapter regulating the profession, or the rules of the department or the board.

The licensee was found guilty and ordered to pay a $500 fine, attend (2)2-day FREC meetings and the license was suspended until completion.

Example 2: As in Example 1, violation of 475.42(d) for collecting monies and not delivering to his/her broker timely. Penalties imposed by FREC were, in this case, a 2 – year suspension and an administrative fine of $6,000.00. The management company was reported for a ULA (unlicensed activity) violation.

Below is a real case summary filed in 2012;

DBPR, Div. of RE vs. Olmsted 
Olmsted was a Licensed Sales Associate with Winners Realty Inc., Olmsted was also President for Adam Management Corp. as registered with the Dept. of Corporations, but not registered as a Real Estate Corporation with DBPR.

The complaint was filed by Landlord claiming that he did not receive rental income for four (4) months.

Conclusions approved all counts as in Examples 1 and 2, Ch. 475.42(d) and Ch. 455.227(j). Additionally, they found Olmsted guilty of violation of Ch. 475.25(b)-  Has been guilty of fraud, misrepresentation, concealment, false promises, false pretenses, dishonest dealing by trick, scheme, or device, culpable negligence, or breach of trust in any business transaction in this state.

Ordered – License Revocation and a fine of $2,000.00 plus costs of $684.75.

Conclusion: This was the missing piece!  The historical reference to case law was lacking until this case went before the Florida Real Estate Commission (FREC). Now, when challenged, FREC can identify case law to state that the service of property management, for another and for compensation, is a service of real estate and subject to Florida Statute.  The fiduciary responsibility requires a Licensed Florida Real Estate Broker or an active Broker-Associate or Sales-Associate under a qualifying Broker.

Not every service of property management requires a real estate license and if one feels that their business model is an exception; a Declaratory Statement is an option. A formal request for a Declaratory Statement is made by submitting a petition to DBPR FREC for a legal opinion of how the statute may potentially affect you in your particular set of circumstances. There are certain guidelines of which to submit a Declaratory Statement. More information can be found at http://www.myfloridalicense.com/dbpr

Have we solved the problem? No, not yet, but we have taken steps in the right direction. This is our industry and it is up to each and every one of us to keep the education going and to ensure that professionalism is a priority.

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