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Property Management Issues


Using Unlicensed Employees of Brokers in Property Management
Tenant Referral Fees
Can a Licensee Manage Property for Others Independent of the Firm?
Answering Fair Housing Questions

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Using Unlicensed Employees of Brokers in Property Management

The license law both identifies and limits the duties that unlicensed employees of brokers may undertake in property management.

The Official Code of Georgia Annotated Section 43-40-29 (10) exempts from licensure:

Any individual employed by a broker to assist in property management services on which the broker has a written management agreement that the broker procured from and negotiated with the owner, provided that such individual's activities are explicitly authorized by the broker in a written agreement between the broker and the employee and provided that such activities are limited to one or more of the following:

(A) Delivering a lease application, a lease, or any amendment thereto to any person;

(B) Receiving a lease application, a lease, or any amendment thereto, a security deposit, rental payment, or any related payment for delivery to and made payable to the broker or the owner;

(C) Showing a rental unit to any person, provided that the employee is acting under the direct instructions of the broker, and executing leases or rental agreements;

(D) Providing information about a rental unit, a lease application, or a lease;

(E) Providing information to a tenant about the status of such tenant's security deposit or rent payments or to an owner about the owner's financial accounts and payments from the owner's tenants; and

(F) Performing any ministerial acts that are explicitly authorized by the broker in a written agreement between the broker and the employee.

Any broker utilizing the services of such an employee shall be held responsible under this chapter for the activities of that individual [.]

Licensees should note particularly two points in this law. First, it defines "ministerial acts" that a management employee may perform as those acts that do not require the exercise of discretion by the employee or require a licensee's judgment. Thus, an unlicensed employee may perform ministerial acts other than those listed in the law above if the broker authorizes them in a written agreement.

Second, a broker who utilizes unlicensed employees is directly accountable under the license law for any law violations by such employees even if the broker does not ratify or participate in those acts. A broker who utilizes licensed personnel in property management activities is not responsible for law violations by those licensees if the broker does not ratify or participate in those activities.

This exemption from licensure does not apply to firms. A management firm must obtain a broker's license. This requirement applies whether the firm is a traditional "full" service management firm or a "specialty" service management firm, such as an apartment locator firm. The exemption from licensure is a choice such management brokerage firms can make for their employees.

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Tenant Referral Fees

Many owners of multi-family complexes attempt to maximize occupancy by paying referral fees for new tenants to current residents. Such owner-originated-and-paid programs generally do not violate provisions of the license law. However, they do have the potential for license law violations in at least two circumstances.

First, if the owner of the multi-family complex is a real estate licensee, such owner cannot pay a referral fee to an unlicensed tenant. The Official Code of Georgia Annotated Section 43-40-25 (a)(17) prohibits a licensee from paying compensation to an unlicensed person for performing the acts of a licensee. Since procuring prospects (referring prospective tenants) is an act of a broker, a licensee cannot pay compensation to an unlicensed person for such an act.

Second, the owner of a multi-family complex may ask the broker to pay the referral fees for new tenants to current tenants. As noted in the proceeding paragraph, a broker may not pay part of his management fee as a referral fee to unlicensed parties. Thus, the broker must take care to avoid even the appearance that the broker (rather than the owner) is paying such fees. For example, advertisements should expressly state that the owner, not the broker, will pay the referral fee. In addition, the owner, not the broker, should pay such fees.

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Can a Licensee Manage Property for Others Independent of the Firm?

Assuming that a legal business practice in one situation applies in a similar situation may lead to unintentional license law violations. For example, a broker who operates a firm engaged exclusively in sales activities may have an associate who wishes to manage property for others. Some brokers have mistakenly believed that they could authorize the associate to open a trust account and manage property for others if the associate gave the broker periodic accounting reports.

That practice is available only for an associate to manage his or her own real property. It is not available for an associate to manage the property of others. If an associate wants to manage the property of others, all trust funds collected by the associate must be placed in the trust account owned by the broker; and the broker must maintain the accounting records on those funds.

Before undertaking a new business practice or marketing technique, an associate should discuss the proposed activity carefully and fully with his or her broker. The broker in turn may want to explore the legal implications of that activity with legal counsel in order to avoid unintentional violations of the law.

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Answering Fair Housing Questions

Sometimes clients or customers ask property managers (particularly site managers of multi-family units) to supply information about the racial, ethnic, religious, or family composition of the available unit, the complex, or the neighborhoods. How should the property manager respond?

With great care.

Such questions do not necessarily indicate an intent by the questioner to discriminate. Consider just two examples. First, an elderly couple asks a sales associate whether there are small children living in the development. Federal law allows discrimination if the development is intended for, and solely occupied by, persons 62 years of age or older. Second, a prospective tenant makes racial, ethnic, or religious comments or jokes in the presence of the property manager and asks about the racial, ethnic, or religious composition of the development or neighborhood. Such a prospective tenant's question may indicate an intention to discriminate based on those grounds. If the property manager answers either of these questions (and certainly the second one), the property manager's doing so may result in a violation of the fair housing laws.

Thus, property managers should take great care in how they handle such questions. Some property managers feel that they should answer such questions by "telling the t ruth." That approach involves at least two pitfalls. First, what is the truth? Rumor is not truth. What may have been true yesterday, or last week, or last month, may no longer be true today.

"Telling the truth" works well on the playground or in the courts. On the playground, others can and will immediately dispute a version of "the truth." In the courts, independent authority figures can choose among disputed versions of the truth in light of their experience and wisdom. In a real estate transaction, when a prospective tenant asks about the population composition of the development or neighborhood, neither other versions of "the truth" nor independent authority figures are usually present.

Second, even with a "truthful" answer, the sales associate may have violated (or caused a violation) of the fair housing laws if the response has the result of discrimination. The issue is not what the property manager intends, but what happens. The fact that a person unintentionally breaks an arm does not remove the pain and suffering caused by the broken arm.

Perhaps the safest approach to such questions is to explain the requirements of the law and its effect on the actions of both you and your prospective tenants. You may state simply that state and federal laws do not allow you to lease property on such grounds. Therefore, you do not gather such information to convey to prospective tenants.

What if your client (the landlord) suggests that you should avoid leasing the property to persons in any protected class listed in the fair housing laws. You should seek protect your client (the landlord). You can do so by informing him or her that making decisions to lease or rent based on discriminatory practices against protected groups may violate fair housing laws and subject him or her to substantial penalties.

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The information contained in this article is believed to be current and accurate. The GREC staff reviews the contents periodically and updates it when appropriate. If you have questions or comments about this article, you may contact us at . Last reviewed August, 2006.