Property Management Companies and Property Managers - Rentate

Property management companies?and?property managers?of California are providing a purported Eviction Protection Service to?landlords?and?real estate?owners and are collecting fees monthly from them funds to cover this service. These fees, usually ranging between $7 ? $25/month in the cases we have seen, are collected monthly from?landlords?or?real estateowners under the terms of?property management?agreements. In return, if a?tenant?is to be evicted at a future date, thelandlord?or real estate owner would not be charged for the costs of the eviction process.

Essentially, it is like an insurance protection provided by aproperty management company?or?property manager?to landlords and real estate owners against eviction costs. In cases we have seen, the money is treated by?property management companies?or?property managers?as income and disbursed monthly at the time of collection of management fees, even though an eviction has not taken place.

The first question is, ?Are these eviction protection funds trust funds?? Trust funds are defined in the Department of Real Estate Reference Book as follows:

?Trust funds are money or other things of value that are received by a broker or salesperson on behalf of? a principal or any other person, and which are held for the benefit of others in the performance of any act for which a real estate license is required.?

In this case, rents and other property-related collections are received on behalf of a?landlord?or real estate owner and held in the future performance of acts related to the management of property for compensation. If a real estate licensee is managing a property for compensation, these collections are trust funds. As trust funds, these monies must be held in a trust account in the name of the broker or the broker?s dba, and must remain there until utilized on behalf of the owner (in this case, used to cover costs of an eviction). If such expenditures do not come to pass, the funds will need to be refunded to the principal owner from the appropriate trust account(s). As trust funds, these monies must be accounted for in accordance with the Real Estate Law and Commissioner?s Regulations.

The next question is whether these fees are advance fees. An advance fee is defined as:? ?? a fee, regardless of the form, that is claimed, demanded, charged, received, or collected by a licensee for services requiring a license, or for a listing, as that term is defined in Section 10027, before fully completing the service the licensee contracted to perform or represented would be performed. Neither an advance fee nor the services to be performed shall be separated or divided into components for the purpose of avoiding the application of this division.?

We have heard arguments which attempt to say that the fee collected is for the eviction protection service, which is not an act or which a license is required. It is the Department of Real Estate?s position that the fees collected relate to the service of managing the property itself, and the breaking down of this service into components (including the eviction handling component) cannot be done to avoid the advance fee requirements. Therefore, the DRE does consider fees collected for the eviction handling component-as an attendant to?property management- to be an advance fee. A licensee collecting such a fee must handle the funds as trust funds and comply with the advance fee provisions of Business and Professions Code (B&P) Section 10085 (Advance Fee Agreement and Materials) and Commissioner?s Regulations 2970 (Advance Fee Materials) and 2972 (Advance Fee Accountings). Therefore, a licensee must submit the advance fee agreement and solicitation materials to the Department for review prior to their use,and receive a letter stating there is no objection to the use of the materials. The funds must only be expended for the promised services and periodic accountings of the disposition of the advance fees must be provided to the landlord or owner.

To summarize, funds collected by a broker for providing an Eviction Protection Service in the course of managing a property for compensation from a landlord or real estate owner must be handled and accounted for as trust funds. These funds must be held in a trust account in the name of the broker or the broker?s dba, and must remain there until utilized on behalf of the landlord or real estate owner. These funds should not be paid out of the trust account until expended for the purpose of paying the costs of an eviction, or until refunded to the landlord or real estate owner. Advance fee provisions of the Real Estate Law and Commissioner?s Regulations must also be followed.

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