By Stephen Fussell, Consumer Protection Officer
In the course of answering numerous telephone inquiries and investigating complaints filed against brokers, the Commission’s legal staff has identified some issues which, if handled properly, can help maintain good relationships between property managers and their owner-clients.
1. Have a written property management agreement and operate within the authority granted by the agreement. Commission Rule A.0104(a) requires a broker to enter into a written property management agreement before beginning to manage an owner-client’s property. The agreement should include all terms and conditions including when rent proceeds will be sent to the owner-client, the extent of the background checks for prospective tenants, the frequency of inspections and authorization for repairs .
2. Inquire about the status of the mortgage on rental property (if applicable). In today’s economy, foreclosures have become common. Before accepting a rental property, a broker should ask the owner whether the mortgage is current, whether the rent proceeds will cover the mortgage payments and whether the owner has sufficient funds to cover the mortgage payments in the event that the rental property becomes vacant or the tenant stops paying rent.
3. Verify the qualifications (i.e. income, credit, rental history, etc.) of a prospective tenant before renting the property. Thorough background checks of prospective tenants may reduce the risk of non-payment of rent, early termination of leases and property damage by tenants.
4. Perform move-in and move-out inspections and make periodic inspections during each tenancy. Document in writing and with photographs (when necessary) the condition of a rental property before and after each tenancy. This will help assign responsibility for damages to the property.
5. Deposit all monies collected into a trust account before disbursing to owners, vendors or to yourself for management fees. Brokers are prohibited from depositing rent monies or security deposits directly into an owner-client’s account. All monies collected by a broker in the course of managing an owner-client’s property are trust monies and must be deposited into the broker’s trust account.
6. Remit rent proceeds to owners in a timely manner. Brokers should allow sufficient time for rent checks to clear their respective banks and then promptly disburse rent proceeds to the owner-clients. The broker’s policy should be clearly set forth in the property management agreement.
7. Keep owner-clients informed regarding tenant issues (i.e. non-payment of rent, damages, etc.) and financial issues. A broker should notify the owner-client immediately regarding repairs, nonpayment of rent and other serious issues affecting the rental property. Accurate monthly statements will provide the financial information needed by owner clients.
8. Maintain properties in safe and habitable condition and obtain authorization for repairs exceeding the amount set out in the management agreement. A property owner and his agent are responsible for maintaining residential rental properties in safe and habitable condition. This means that repairs, safety issues and conditions such as insect infestations should be addressed promptly. Property management agreements should indicate the extent of the broker’s authority to take corrective action. If a broker agrees to contact an owner regarding corrections that will exceed a certain cost, then this agreement should be specified in the property management agreement.
9. Limit deductions from security deposits to those allowed by the Tenant Security Deposit Act and educate owner-clients to expect normal wear and tear. Brokers must use good judgment and be reasonable when determining whether to charge a tenant.
10. Retain copies of property management agreements and leases for three years from the date on which the broker stops managing a property. All information and documentation acquired by a broker during the course of managing an owner’s property must be furnished to the owner if requested by the owner. A broker cannot withhold information or documentation from his client.
While this list is not intended to be all-inclusive, it addresses the issues most often raised by rental property owners and tenants. Paying attention to these issues will enable brokers to better represent their owner-clients, to be more responsive to tenants and lessen the risk that they will become the subject of an investigation.
This article came from the March 2011-Vol41-3 edition of the bulletin.