When is a property management license required?

Mark Twain once said, “Buy land because they are not making it anymore”. The principle of real estate as a valuable investment has stood the test of time in all cultures around the world. When you own a primary residence you can increase equity through both appreciative growth, as well as mortgage pay down. Those who choose to invest in real estate ownership beyond their primary residence however have the potential to gain additional cash flow through that investment as well. The simple fact is however, that when you live in a property you own, you care for it and maintain it yourself, but when you rent a property you own, it requires management of tenants and situations, either by yourself or someone else. Let’s consider when a licensed property manager is required and when you can handle it yourself.

Legislation

The Real Estate Act of Alberta states that property management activities are a trade requiring a license under the act. For this reason, the Real Estate Council of Alberta licenses a specific real estate designation for property managers in Alberta. Anyone who collects rents, damage deposits, arranges leases, advertises for tenants, etc. on behalf of the owner of the real estate itself requires a license to do so in Alberta. Additionally, anyone carrying out these activities without a license can be prosecuted under the legislation for trading in property management without a license, with fines up to $25,000 per violation.

Self-Managed

REALTORS^® love real estate and many invest in real estate making them landlords too. In situations where the owner has the ability and desire to manage their own real estate property, the legislation does allow for this. The owner may collect rents, hold deposits, etc. on their own property, as well as seek trades and experts to help in the various activities requiring attention concerning the property. This is the same for any individual regardless of whether they are licensed REALTORS^® or not, however, a REALTOR^® is expected to provide a higher standard of care to consumers as a licensee under the act. This means a REALTOR^®, as a landlord must maintain the professionalism and integrity their license requires even where their license is not engaged in the activity. Put another way, a REALTOR^® is a professional and must always maintain that level of professionalism.

Substantial Interest 

Real estate is expensive and often brings together friends or family to pool their resources to purchase the property, sharing in both the profits and the expenses. Depending on the arrangement, different owners may own different percentages of the property. To be permitted to manage a property without a license, an owner must demonstrate a substantial interest, and the Real Estate Act of Alberta defines substantial interest as no ownership interest less than 25%. This means if you own less than 25% of the property you cannot manage that property without the requirement of a property management license under the act. If you own more than 25% then you are considered a substantial owner and can self-manage the property.

Corporate Ownership

When a property is owned by a corporation in Alberta, the shareholders of that corporation are beneficial owners who have an interest in the property but the corporation itself is the owner. A corporation can employ an individual to manage the property who is not a licensed property manager under the act where they are acting on behalf of that corporation as its representative in an employee-employer relationship. If the individual operates as an independent contractor for the corporation, this would be considered third party and require a license under the act.

Property management is a complex and difficult profession touching many legislations including the Real Estate Act and Rules, the Residential Tenancies Act, and others. The requirement for property managers to be licensed under the act ensures the proper handling of the landlord and tenant relationship, management of funds, and maintenance of the property value for future years. Where an owner has determined they are not able or willing to manage the property themselves, the only option in Alberta is a licensed property manager.