by Peg Ritenour
Vice president
Legal Services and Administration
Given the current market conditions, leasing property is becoming a more viable option for many property owners. In many cases, these owners are unfamiliar with the rental business and need the assistance of real estate professionals to help them lease and manage their property.
In recent months, the OAR Legal Hotline has received an increasing number of calls from brokers looking into offering property management services.
Before jumping into this field, however, it is imperative that brokers know the basics. Below are some of the most important things you need to know to comply with the license law.
1) Managing property requires a real estate license. Leasing and managing property for a third party for a fee is activity that requires a real estate license. Individuals or companies that provide this service without the necessary license are violating Ohio law and can be fined up to $1,000 per day by the Ohio Real Estate Commission and be found guilty of a first degree misdemeanor.
2) Agents must manage property through their brokerage. Because Ohio law requires a real estate license to engage in property management activities, it also requires that the property management services be conducted through the real estate brokerage. A real estate salesperson cannot manage property in his own name or in the name of a separate management company that he has formed.
3) The brokerage must manage the property in the brokerage name. A real estate broker may also not manage property in a name other than the name that appears on the brokerage license. Nor can a broker form a separate unlicensed company for management services. Instead, the property management agreement and all property management services must be performed in the name of the real estate brokerage.
4) You will need a separate trust account. Ohio license law requires a separate trust account for property management funds. The account must be in the brokerage’s name and must be designated as the brokerage “property management trust account.” The account must be at an Ohio depository and the name, account number, and location of the depository must be provided to the Ohio Division of Real Estate and Professional Licensing. Security deposits, rents and money received from the owner or on the owner’s behalf for payment of expenses related to the management of the property must be deposited in this account. The brokerage can maintain one property management trust account for all owners or may have several property management trust accounts (i.e. one for each owner whose property it manages).
5) You need to keep specific records. Ohio license law has very specific record keeping requirements for a brokerage regarding deposits and disbursements from a property management account. License law requires a separate ledger for each owner of property managed by the brokerage. Each ledger sheet must identify the following information in columnar form:
• Name and/or address of the property
• Parties to the transaction
• Amount, date, and purpose of deposit(s)
• Party from whom deposits are received
• Amount, date, check number, and purpose of disbursements
• Party to whom disbursements are made
• Running balance of funds on deposit for the particular owner of property
• Amount of interest earned on behalf of the owner(s) of the property(ies) if any
6) You must provide owners with an accounting. Ohio license law requires all brokerages that engage in property management activities to provide an accounting to each owner of managed property on at least a quarterly basis. The purpose of this requirement is to assure that owners are regularly updated on the funds the brokerage receives and disburses on their behalf.
7) You will need forms. A brokerage that offers property management services will want to have their company attorney draft a property management agreement which clearly details the relationship between the brokerage and the owner. This agreement should address issues such as the duties to be performed by the brokerage, brokerage fees, the property management account and how security deposits will be handled. Ohio license law requires that a property management agreement for residential property have a definite expiration date, include the required fair housing language and logo and have a place for the licensee and owner to sign and date. You will also need to discuss with the owner if the owner, or their attorney, will supply the rental application and lease or if you are expected to supply these documents. Some local Boards have developed a residential lease form. If not, the lease should be drafted by an attorney.
8) You will need to familiarize yourself with pertinent laws. Residential property management requires knowledge of regulations such as the fair housing laws, lead-based paint regulations, Ohio’s landlord-tenant provisions, the Fair Credit Reporting Act, eviction provisions, and landlord registration requirements.
9) You may need additional E&O coverage. Before launching a property management business, brokers should check with their insurance company to make sure this activity will be covered by your E&O policy or if additional coverage must be purchased.
More detailed information about property management can be found in OAR’s Property Management White Paper located in the legal section of our website, www.ohiorealtors.org.