How California Regulates Property Managers, and How to Check One

Managing for others is licensed work

You are about to hand someone your keys, your tenant and your rent. Before you do, it helps to know that California treats this job as real estate brokerage, not general office work, and regulates it through the Department of Real Estate (DRE).

Business and Professions Code 10131(b) defines a broker to include anyone who, for compensation and for another person, leases or rents property, places it for rent, solicits tenants or listings of places for rent, or collects rents. Section 10130 makes it unlawful to act as a broker or salesperson without a DRE license.

Two points follow. Renting out your own home needs no license, because the definition covers acts done for another. And a salesperson cannot run a management business alone: B&P 10137 bars a salesperson from taking pay for licensed work from anyone except the responsible broker they are licensed under.

Who is exempt, and who is not

The exemptions are narrow, and the law says they cannot be used to dodge the licensing rules. Under B&P 10131.01 and B&P 10133, these people may do some or all of the work without their own license:

• The resident manager of an apartment building, complex or court, and that manager's employees.
• Employees of a property management firm at an apartment building or complex who show units, hand out and accept applications, accept deposits and rents, quote rates from a set schedule and accept signed leases, under a broker's supervision.
• A person holding a duly executed power of attorney from the owner.
• A regular officer of a corporation, or general partner of a partnership, handling the entity's own property without special compensation.
• An attorney giving legal services, and a receiver or other person acting under a court order.

The trust account rules behind your rent

Most of the protection for owners sits in the trust fund rules. B&P 10145 requires a broker who receives money belonging to others, and does not pass it straight to the owner or a neutral escrow, to deposit it in a trust fund account at a bank or recognized depository in California, and to keep it there until it is paid out on instructions from the person entitled to it.

The Real Estate Commissioner's regulations (10 CCR, Chapter 6) fill in the details. Funds go to the owner, a neutral escrow or the trust account within three business days of receipt (2832). The broker keeps a running record of all trust funds plus a separate ledger for each owner (2831, 2831.1), and reconciles them at least once a month when the account has activity (2831.2). Only the broker, or people the broker authorizes in writing, may sign withdrawals, and the broker stays responsible (2834).

Mixing the broker's own money with clients' money is grounds for discipline under B&P 10176(e), with narrow exceptions in 10 CCR 2835. 10 CCR 2830 treats the broker as your agent for this money: a benefit tied to handling your funds in trust belongs to you by law, and the broker must pass it along. Brokers must keep trust records and transaction documents for three years, and DRE may audit them (B&P 10148).

License numbers on ads and websites

A licensee has to show their name, license number and responsible broker's identity on first-point-of-contact materials such as business cards, ads and signs (B&P 10140.6(b)(1)). The regulation, 10 CCR 2773, lists websites the licensee controls, flyers, email and online ads, print ads, and for-rent signs that display the licensee's name, and requires the eight-digit license number in type no smaller than the smallest type used.

That gives you an easy first check. SPMG's About page, for example, lists the responsible broker's DRE license number. The responsible broker must also reasonably supervise salespersons, including the handling of trust funds and advertising (10 CCR 2725).

How to look up a manager

The DRE's landlord brochure suggests checking the license before you sign. The lookup is free and takes a few minutes:

• Open the DRE Public License Lookup and search by name or license number.
• Confirm the status reads "Licensed," as the DRE brochure advises.
• If the person holds a salesperson license, confirm they work for a broker.
• Look for any prior disciplinary action or restrictions on the license.
• Check that the name on the license matches the name on the management agreement you were handed.

If something goes wrong

DRE's Quick Guide for Landlords Hiring a Property Manager lists warning signs: owner checks that are often late or short, a bounced check, no copies of invoices for expenses, or undisclosed income from managing your property, such as an ownership share in a repair company. Its advice is to ask the manager for an accounting of your funds first and to consider a complaint with DRE.

Complaints go to DRE on Form RE 519 or through its Enforcement Online Complaint System, with copies of your documents (DRE complaint page). The brochure also says you may be able to file a claim with DRE against a licensed property manager who defrauds you. A license does not prevent every problem, but it gives you records to request and a regulator to call. Once you know the rules, the next decision is how much of the work to hand over; the full-service vs leasing-only comparison sets out the options. The ROI post covers what a manager does day to day.