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Professional Standards Manual

Rental Property Management Services

1. Overview

(c) Common Licensing Scenarios - Rental

Scenario #1

In managing an apartment complex for its owner, Acme Property Management Corporation (Acme) employs a ‘‘resident caretaker’’ or ‘‘on-site manager’’ who shows apartments to prospective tenants, collects security deposits and rents, arranges needed repairs, and schedules regular maintenance on the property. This resident manager also negotiates and executes leases.

What real estate licences are required?

Since Acme is acting on behalf of a third party for remuneration, it must hold a real estate brokerage licence. This licensing of the corporation does not automatically entitle any of the corporation’s officers, directors, shareholders, or employees to engage in leasing activities.

In addition, Acme’s property management services must be supervised by a managing broker who is licensed to provide rental property management services and all other persons employed by Acme as leasing or rental agents must be licensed as representatives (or associate brokers) to provide rental property management services under RESA.

If, in this scenario, the resident manager was instructed to immediately remit any security deposits and rents to the brokerage for deposit into its trust accounts, and if he or she were not involved in negotiating and executing leases, no licence would be required under the exemption for resident caretakers cited above (Section 2.14 of the Real Estate Services Regulation).

However, since the resident manager does negotiate and execute leases, a representative’s (or associate broker’s) licence is necessary. Failure to have him/her licensed could result in disciplinary action being taken against the brokerage and Acme’s managing broker.

Scenario #2

Joan, who is licensed as a representative to provide trading services, promises to look after a rental unit she recently sold. She hopes that when the owner is ready to sell, he will give her the listing and in gratitude will refer her to his friends.

Is Joan adequately licensed?

Joan is providing rental property management services to another person in the hope of future remuneration, even though her current licence does not allow her to do so. If her conduct were reported to the Council Joan could face disciplinary action. She must stop her unlicensed activity until properly licensed for rental property management with an appropriately licensed brokerage. Once properly licensed, a rental property management service agreement between her brokerage and client would be necessary, and if rent is to be collected by Joan, the trust accounting requirements of the Real Estate Services Act apply.

Scenario #3

John Smith, an unlicensed individual, owns a number of office buildings in Victoria. John wants to manage these buildings using his employees.

What real estate licences are required?

Neither John nor any of his employees are required to be licensed. A real estate licence is not required of an owner — whether a sole proprietorship, a corporation, or an association — when personally selling, leasing, or managing his or her own property; nor is a licence required by employees of the owner when renting, leasing, or managing property owned by their employer, provided that they do not provide real estate services for any other person (Section 2.1 of the Real Estate Services Regulation).

Scenario #4

Joe Pipe, a plumber working for a mechanical services company, has a 40% interest in a real estate investment company called Three Brothers Investment Co. Joe’s two brothers each own a 30% interest in the company, which has recently purchased an apartment complex. The brothers have decided that Joe should perform the rental property management services required for this investment.

Is a licence required?

No. By having a substantial interest in the real estate being managed, Joe is acting as a principal (owner) and, as such, is not subject to the requirements of the Real Estate Services Act.

Scenario #5

The ABC Group, a limited partnership, owns several shopping malls. Rather than employ an independent property management firm, ABC purchases a minority interest (10%) in Hill View Management, a separate corporation that will manage its properties, as well as those of other clients.

What real estate licences are required?

Since the affiliated management corporation, Hill View Management, is a separate legal entity acting as a leasing agent for ABC (see the next scenario) and other property owners, it must obtain licensing.

Hill View Management must hold a real estate brokerage licence, its rental property management services must be overseen by a managing broker licensed to provide rental property management services, and anyone providing those services on behalf of its clients must be licensed as representatives (or associate brokers) under the Real Estate Services Act.

Scenario #6

Canada First Realty Ltd., which owns numerous commercial and residential rental properties, forms a separate, wholly-owned subsidiary called BZ Property Management Inc., for the sole purpose of managing its real estate.

What real estate licences are required?

Assuming BZ Property Management Inc. is a legal entity separate from the owner of the property having no substantial interest in the property, either directly (as part owner) or indirectly (through share ownership in Canada First Realty), it is acting on behalf of another person in providing real estate services. Therefore, BZ Property Management Inc. must meet all the requirements of the Real Estate Services Act. It must be licensed as a brokerage, employ a licensed managing broker, and have only licensed representatives engaged in rental property management.

If Canada First Realty Ltd. wishes to avoid a situation in which licensing is mandatory, it should have its own employees manage its real estate assets (Section 2.1(1) of the Real Estate Services Regulation).

Scenario #7

Ray, the managing broker at XYZ Property Management Ltd., a brokerage licensed to provide rental property management services, is asked to submit a proposal for the management of Berkshire Mews, a privately held cooperative. Ray is not being asked to manage individual rental units, but to provide management to the complex on behalf of the cooperative itself, in a manner akin to strata management.

Can XYZ manage the Berkshire Mews?

Yes. However, Ray must take care to discover by what title the Berkshire Mews Cooperative corporation holds its underlying corporate interest in the Mews.

If the cooperative has a headlease and grants subleases under that headlease to its shareholders, then XYZ will be providing rental property management services. The property, in this instance, is ‘‘rental real estate’’ because the cooperative interests are considered real estate and are intended to be rented or leased. NOTE: A ‘‘cooperative interest’’ is considered ‘real estate’ and means an interest that includes both: (a) a right (i) of ownership, directly or indirectly, of one or more shares in the cooperative association, or (ii) to be a partner or member, directly or indirectly, in the cooperative association, and (b) as a result of the right described in paragraph (a), a right to use or occupy a part of the land in which a cooperative association has an interest (Section 1 of the Real Estate Development Marketing Act).

Since XYZ is licensed to provide rental property management, Ray can submit a management proposal.

If the cooperative’s interest in the Berkshire Mews is freehold, it may offer direct leases to its members, rather than subleases under a headlease. In this case, once again the property is ‘‘rental real estate’’ because it is real estate that is leased.

Since XYZ is licensed to provide rental property management, Ray can submit a management proposal.

If the cooperative’s corporate interest in the Berkshire Mews is freehold and the occupancy rights granted to its members arise under a shareholder’s agreement that does not involve a lease, then the management services being proposed will not be considered real estate services at all. Although a cooperative interest is considered real estate, where no lease is involved, the services rendered in managing a cooperative do not fall under the definition of ‘‘real estate services’’ contained in RESA, which includes only:

(a) rental property management services,

(b) strata management services, or

(c) trading services (Section 1 of RESA).

In this case, Ray, or anyone else for that matter, can offer to manage Berkshire Mews. If Ray decides to do so, he must make sure that any money held on behalf of the Mews is not placed in accounts set up as a requirement of RESA, but is held apart from all real estate trust funds.

Ray would also be wise to disclose to the cooperative’s board that:

(i) even though licensed under the Real Estate Services Act, XYZ is not acting as a licensee in this case, and consequently;

(ii) XYZ is not regulated under the Real Estate Services Act in relation to the management of Berkshire Mews; and

(iii) any money held on behalf of the Berkshire Mews will not be protected by the Real Estate Compensation Fund Corporation nor will Ray be indemnified by the Real Estate Errors and Omissions Insurance Corporation.

Scenario #8

Fred provides property management services for several owners of vacation rental properties located in the Okanagan Valley. Fred provides a central booking service for people who wish to stay in self-contained units when they vacation during the summer months. He takes initial deposits and collects the balance of the fees on the first day the property is to be occupied. Fred also arranges for housekeeping services while the units are occupied, takes care of minor repairs, and in the case of the detached homes in his rental portfolio, he also arranges for the yard maintenance. He sends the owners the remaining funds each month, along with accounting statements.

Some of these properties are made available for fixed term occupation during the off-season. Fred finds tenants and negotiates fixed term leases for these properties. He collects and holds the security and pet damage deposits for these properties, collects the rents, pays the expenses on behalf of the owners, and sends the owners the remaining funds each month, along with accounting statements.

In return for these services, Fred receives a percentage of the rental income from which he must pay for all housekeeping services during the vacation season. Regular maintenance is invoiced to the owners separately. During the off-season, Fred receives a percentage of the fixed term lease payments.

Does Fred need to be licensed under RESA?

The management of the short term vacation rentals does not require licensing under RESA; however, activities related to the provision of travel services to the public, when those travel services are supplied by another person, require licensing under the Business Practices and Consumer Protection Act. Because travel services include accommodation that is for the use or benefit of a traveler, tourist, or sightseer, Fred appears to be providing travel services in relation to his vacation rental portfolio. Fred should contact Consumer Protection B.C. (www.consumerprotectionbc.ca), the organization responsible for administration of the Business Practices and Consumer Protection Act, to determine whether he is required to be licensed under that legislation.

Management of the fixed term lease portfolio during the off-season does require licensing under RESA. The services Fred provides to the owners of these properties constitute rental property management services provided on behalf of the owner/landlord. These rental property management services, like all real estate services, must be provided in the name of and on behalf of a licensed brokerage. All monies received in relation to these services must be treated as trust funds under RESA.

Another important component of RESA is that the money Fred receives and holds in relation to the short term vacation rentals must not be commingled with the money he receives in relation to the fixed term leases. This is true even where the money is received in relation to the same real estate, e.g. short term vacation rental during the summer and fixed term lease during the off-season. Separate accounts must be established for funds received in relation to these two different types of service.

As a real estate licensee, Fred should ensure his clients understand which of his services are regulated under RESA, which are subject to the Business Practices and Consumer Protection Act, and that any funds he collects on behalf of the clients will be held by his brokerage in segregated accounts.

Scenario #9

Mary has leased a home and now intends to sub-lease that home to John. Does Mary have to be licensed under RESA to do so?

No. Section 1 of RESA defines the term “owner” in relation to rental real estate to include “a person entitled to possession of the real estate who exercises a right to sub-rent or sub-lease the real estate to another.” Section 3 of RESA states that:

“A person must not provide real estate services to or on behalf of another, for or in expectation of remuneration, unless the person is

  1. licensed … to provide those real estate services, or
  2. exempted from the requirement to be licensed … in relation to the provision of those real estate services”

Mary is an “owner” as defined in section 1 and may, therefore, act on her own behalf in all aspects of this sub-lease without having to be licensed.