Property Management Requirements in California: Avoiding Legal Problems

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The duties of a property manager or property management company typically include — wait for it — managing property that's owned by someone else and keeping the rent money coming while rigorously maintaining the rented buildings. But in addition to those day-to-day responsibilities, those in the California property management business are beholden to plenty of legal responsibilities, too.

Property managers in the Golden State can run into legal snags on lots of fronts, including licensing, hiring and real estate-related duties; avoiding legal problems on the job requires compliance with California laws that reach way outside of the real estate realm.

California Property Management: Licensing

Per California's Business and Professions Code, most real estate-related professions require a real estate license, but the code does make some exceptions for property managers. However, there are some cases in which a property manager needs a real estate license to avoid legal issues.

Section 10131 of the Business and Professions Code requires property managers who solicit tenants, negotiate leases and collect rent monies to have a license. So, if property managers do not lease units or collect rent payments, they don't need licenses. The problem is, those duties are pretty central to the whole property management job description.

That's where the big exception comes in handy for avoiding legal hangups in this arena: If a property manager lives on site at an apartment building, California law does not require them to hold a real estate license to work on leases or collect rents. While this likely won't protect property managers of spaces such as industrial and office buildings or shopping centers, it applies to a significant swath of residential property in the state, as MarketWatch estimates that California is home to about 17 million renters as of 2020.

Property Management Employees and Assistants

Employees of live-in property managers don't need real estate licenses either under Section 10131.01 (a) of the Business and Professions Code. Those employees don't have to live on site and may perform duties such as administering rental applications, showing rental properties to interested tenants, accepting deposits, rents and fees and even entering into leases. However, to stay on the right side of the law in California, these employees must be supervised by a licensed broker or salesperson.

The California Department of Real Estate makes numerous exceptions for unlicensed assistants working for property managers. They can make phone calls to canvass and gauge interest for prospective tenants, but must hand off to a licensee or property manager the job of providing leasing and other services. They can also assist at open houses, arrange appointments, help out with advertising, prep and review documents and provide access to properties. Largely, the assistants' tasks are relegated to communicating and conveying factual information, which helps keep them on the legal safe side.

Duties of a Property Manager

Naturally, the duties performed by property management services on a day-to-day basis intersect with California real estate laws in a wide variety of ways. Primarily, property managers must comply with California's legally mandatory health, safety and building codes as they're tasked with building maintenance.

These extensive building standards are detailed in the state's Health and Safety Code starting with Section 18938.5. These laws, known collectively as the California Building Standards Code, cover everything from green building mandatory standards to pool safety requirements to the basics of plumbing and electrical specifications. If rented buildings do not conform to these codes, California tenants have the right to refuse to pay rent. Likewise, California tenants have a legal right to an implied warranty of habitability, allowing them to withhold rent when important repairs have not been addressed.

Property managers who collect security deposits also must adhere to Section 1950.5 of the California Civil Code, which dives into security deposit laws. For instance, security deposits must be no greater than double the monthly rent for unfurnished living spaces and the funds must be held and not spent by the owner, unless put toward necessary repairs, cleaning or missing rental income upon the tenant's departure.

When collecting rent, property managers are subject to the state's rent control ordinances, too. These laws historically varied widely across the state and across building types, but legislation signed into law by governor Gavin Newsom in late 2019 limits rent increases to 5 percent, plus the rate of inflation, per year until the year 2030, excluding single-family homes not owned by corporations or investment trusts and duplexes where the owner resides. Estimated to affect 8 million renters, this law hugely impacts the rent amounts that California property managers collect.

Similarly, California tenants rights laws regulate fee-related issues such as how much the tenant can be charged for a bounced check — $25 for the first one as of 2020 — and how much notice the property manager must give before evicting a tenant who has failed to pay. Property managers are even required to give California tenants at least 24 hours of notice before entering occupied rental properties.

Dealing With Tenants

A famously tenant-friendly state, California's housing laws don't end at the physical structure of the building and the money landlords and property managers can collect; federal laws also affect how California property managers do their job if they want to avoid legal issues.

For instance, the federal Fair Housing Act of 1968 protects tenants against discrimination on the basis of nationality, ethnicity, religion, sex, disability or familial status. These protections exist from the moment tenants engage with property managers in the interview to the way managers and building owners treat them as renters. In California, property managers are legally able to reject applicants based on their credit history, but the state's own laws extend beyond the federal laws in some ways, protecting citizens against discrimination on the basis of sexual orientation, gender identity or the receipt of public assistance.

When tenants exercise their legal rights, such as prorating rent when the applied warranty of habitability is breached or refusing entry into their rental space when they haven't received 24 hours of notice, the state protects the tenant by making it illegal for the property management company or landlord to retaliate. For example, it's not just petty for a property manager to raise a tenant's rent in response to complaints about having no heat in the wintertime — it's illegal to do so in the state of California.

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About the Author

As a freelance writer and small business owner with a decade of experience, Dan has contributed legal- and finance-oriented content to diverse sources including Chron, Fortune, Zacks.com, Motley Fool and MSN Money, among others.