Many brokerages manage rental property for owners, and property management questions appear on broker exams because it combines agency, trust funds and landlord-tenant law. The examples below come from the California Department of Real Estate's Reference Book. Landlord-tenant law varies considerably by state, so learn your own state's specifics.
It's licensed activity
Leasing and collecting rents on real property for others, for compensation, is activity that requires a real estate license in California. The broker usually acts as the owner's agent under a written property management agreement that sets out the broker's authority, duties and compensation.
Related: What to Expect on Your State's Real Estate Broker Exam
Rents and deposits are trust funds
Money a broker receives on behalf of owners and tenants, including rents and security deposits, is held in trust. Key rules:
- Trust funds must be kept separate from the broker's own money. Depositing rents or security deposits from broker-owned properties into the trust account is a common example of commingling.
- The broker must keep accurate, current and complete records of the trust account, with a separate record for each owner or beneficiary.
- A management fee may be taken from the trust account only when it's earned and properly documented. The DRE notes a management company may find it impractical to take its fee every time a rent check arrives, and addresses how earned fees can be handled.
Security deposits
A security deposit secures the tenant's performance under the lease, and it is held for the benefit of the tenant. In California residential leases, whatever the money is called (a "cleaning fee," an "advance payment"), a deposit that secures the tenant's obligations is a refundable security deposit, and a tenant can't waive the right to its refund, less lawful deductions. If the property is sold, the deposit must be transferred to the new owner or returned to the tenant according to the statute.
The landlord's right of entry
A landlord or managing agent can't enter a tenant's unit at will. In California, except in emergencies or when the tenant consents at the time, entry is limited to normal business hours with reasonable notice, and 24 hours' notice is presumed reasonable. The right of entry may not be used to harass a tenant, and a tenant can't waive these protections.
Habitability
A residential landlord has a legal duty to keep the dwelling habitable. California law lists specific criteria, starting with effective waterproofing and weather protection of the roof and exterior walls, including unbroken windows and doors. A tenant can't waive the warranty of habitability.
Fair housing applies
Fair housing laws apply to renting just as they do to selling. Advertising, screening, rules and responses to tenant requests must not discriminate against protected classes.
What broker exams test
- when property management requires a license
- trust fund handling: separate accounts, records, no commingling
- who a security deposit belongs to
- entry and notice rules, and habitability