A home has been listed for months with very little activity. The owner decides to lease the property and asks the listing agent to find a tenant. The owner is even considering having the agent manage the property. With the current market conditions, agents are confronting this scenario more often. Agents and their brokers who have not offered leasing or management services in the past are now considering doing so. In order to make this decision, licensees need to be aware of the laws and documents required for residential leasing and property management. This article addresses some of these issues.
The first issue to address if leasing the home is the brokerage fee that would be earned if the brokerage is successful in finding a tenant for the property. Does the listing agreement cover a lease transaction i.e. is it clear what commission will be paid if the brokerage procures a tenant for the property? If not, this issue will need to be addressed in an addendum to the listing agreement or in a separate leasing agreement.
Once the rental rate has been set, the brokerage can begin to market the property. Prospective tenants should complete a rental application and go through the tenant screening process. This usually includes obtaining a consumer report from a credit bureau or tenant screening service. If a consumer report is used, compliance with the Fair Credit Reporting Act is required. This includes providing an adverse action notice if an application is denied based upon information contained in the consumer report.
The agent will need to discuss with the owner if the owner, or their attorney, will supply the lease or if the agent is expected to supply this document. Most likely, the owner will want the agent to supply the lease. Some local Boards have developed a residential lease form. If not, the lease should be drafted by an attorney. The Consumer Guide to Agency Relationships and the Agency Disclosure Form are not required for residential leases of 18 months or less. If the lease is over 18 months, then both forms are required.
If an owner is asking the agent to manage the property (i.e. collect rent, handle maintenance requests, and pay the mortgage payment, property taxes and other expenses) the agent needs to discuss with their broker if the brokerage could provide this service. Property management is an activity that requires a license and therefore must be done through the brokerage company. An agent cannot manage property on his own. A broker considering property management will want to contact their insurance provider to make sure their policy covers this type of service.
Residential property management requires knowledge of regulations such as the fair housing laws, lead-based paint regulations, Ohio’s landlord-tenant provisions and the Fair Credit Reporting Act. There are also specific property management requirements under the real estate license laws. One requirement is the trust account. All brokerages engaging in property management must have a separate property management trust account or an account in the property owner’s name on which the brokerage has signatory authority. Ohio license law has specific record keeping requirements for deposits and disbursements from a property management account. The license law also requires the brokerage to provide an accounting to each owner of managed property on at least a quarterly basis.
When a tenant has been found for a property, a security deposit is routinely collected to secure performance by the tenant at his obligations under the lease. The agent will need to discuss with the owner how the security deposit will be handled. Ohio license law requires that security deposits received by the brokerage be deposited and maintained in the property management account unless the lease and property management agreement provides otherwise.
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. The owner must be provided with the brokerage’s Consumer Guide to Agency Relationships and a copy of the signed property management agreement.
This article provides an overview of some of the issues involved in residential leasing and property management. For a detailed review of the license law requirements for property management, see the Property Management License Law White Paper in the legal section of OAR’s website www.ohiorealtors.org.
