To Hire or Not to Hire: Licensed Property Management Companies and Strata Management
Strata council members are responsible and accountable for strata management, but this doesn’t mean they need to do all the work themselves. It is very common for strata councils to delegate authority to licensed property management companies and it is important for councils to understand the implications of this decision.
The Delegation of Authority to a Licensed Property Management Company
For a more general review of the consideration of delegating authority see our article Strata Management: Responsibility, Accountability, Delegation.
This article focuses on the implications of delegating to a licensed property management company, instead of to other owners or sub-committees.
There are three primary benefits to delegating to a licensed property management company:
- The experience and expertise of licensed property managers;
- The connections most licensed property managers have with other service providers; and
- The regulation of licensed property managers by the BC Financial Services Authority.
Experience and Expertise of Licensed Property Managers
A person that provides strata management services for a fee are generally required to be licensed under the Real Estate Services Act. This means that they have successfully completed the “Strata Management Licensing Course” at the UBC Sauder School of Business, Real Estate Division, and are subject to professional regulation.
In addition to having completed this personal instruction, licensed property managers also need to be part of a brokerage with a managing broker. Although some property managers are sole proprietors (they are the property manager, the brokerage and the managing broker) the vast majority are part of larger corporations, many with multiple locations. This exposure to other experienced managers and the processes and systems used by a brokerage mean that most licensed property managers have an understanding of the Strata Property Act and the law as it applies to strata corporations.
The experience and expertise of the average licensed property manager means they are likely to be more familiar than an owner with no formal training regarding strata management.
Connections with Other Service Providers
It can be difficult for a strata council to identify and retain appropriate service providers. It is a complicated process to decide on which company to hire for landscaping services. The process is significantly more difficult when a strata corporation is trying to decide which company to hire to prepare a depreciation report, which accountant to hire to audit its financial records, or which lawyer has the proper training and experience to provide legal advice.
A significant advantage of most licensed property managers is that they are part of a network of other service providers. A licensed property manager should be able to provide introductions and advice regarding other service providers. We note that if a property manager is receiving a benefit, directly or indirectly, from the strata corporation spending money that the property manager needs to disclose that to the strata corporation. For example, if a property manager receives a ‘finders fee’ it needs to tell the strata corporation about that fee before the property manager can accept it.
A reasonable way for a strata corporation to evaluate a potential licensed property management company is to ask it about its network. If the property management company does not have a strong network with other service providers with strong reputations that may be an indicator that it is new to the market or does not have a strong reputation. A strata corporation should be willing to contact other service providers mentioned by a property management company and ask about their experience with that company.
The Regulation of Licensed Property Managers
The fact that licensed property managers are regulated is a significant factor that should not be underappreciated.
Significantly, licensed property managers are bound by professional obligations that extend beyond the terms of the contract with the strata corporation.
Here are some of key advantages to a strata corporation:
- Licensed property managers owe specified duties to the strata corporation;
- Licensed property managers have strict rules about accounting and record keeping;
- Clear service contracts; and
- Opportunity to file a complaint.
Specific duties to the strata corporation
A licensed property manager must act honestly and with reasonable care and skill when providing real estate services to the strata corporation. In addition to this general requirement, they must also:
- act in the best interests of the strata corporation;
- act in accordance with the lawful instructions of the strata corporation;
- act only within the scope of the authority given by the strata corporation;
- advise the strata corporation to seek independent professional advice on matters outside the expertise of the licensee;
- maintain the confidentiality of information respecting the strata corporation;
- disclose to the strata corporation all known material information respecting the real estate services; and
- take reasonable steps to avoid any conflict of interest and, if a conflict of interest does exist, promptly and fully disclose the conflict to the strata corporation.
These duties also exist at the common law, but because they are part of the Real Estate Service Rules a strata corporation can file a complaint with the BC Financial Services Authority if the license property manager breaches them.
Accounting and Record Keeping
Licensed property managers have to follow very strict rules when they are dealing with the strata corporation’s money.
The intention of these rules is to ensure that the licensed property manager can account for all of the strata corporation’s money. They are required to maintain separate books, accounts, and other records with respect to each strata corporation and to provide a copy of the bank statement, as well as a copy of the monthly reconciliation of the statement, to the strata corporation no later than six weeks after the end of the month for which the statement was issued.
Additionally, the licensed property manager’s brokerage must keep copies of written service agreements, financial statements provided to the strata corporation, accounting statements and invoices for expenditures provided to the strata corporation.
The brokerage must also be able to promptly provide the strata corporation with the strata corporations money if required.
For more information about handling the strata corporation’s money, see our article Paying the Bills.
Clear service contracts
A contract with a licensed property management company is best thought of as a contract delegating authority and the consequences of that delegation. Essentially, the strata corporation agrees to delegate authority to the licensed property manager if the licensed property manager agrees to perform certain actions and maintain certain records and the licensed property manager agrees to accept the delegation of that authority in exchange for payment for work performed and agreements regarding covering the licensed property manager if anyone alleges they acted improperly.
However, as the saying goes: the devil is in the details. A licensed property manager is required to address specific details in the service contract, including:
- an indication of what accounts the licensed property management brokerage will hold on behalf of the strata corporation (contingency reserve fund, operating, special levy, other accounts);
- the circumstances under which the service agreement may be terminated;
- whether the licensed property management brokerage has authority to transfer amounts between trust accounts or into a pooled trust account;
- the scope of authority of the licensed property management brokerage to act on behalf of the strata corporation regarding signing cheques, entering into contracts, and investing the strata corporation’s money;
- the accounting statements and other records the licensed property management brokerage must provide to the strata corporation;
- a description of the records that are to be kept by the licensed property management brokerage on behalf of the strata corporation;
- the use and disclosure of information respecting the strata corporation; and
- the use and disclosure of personal information about owners.
Furthermore, an amendment to a service contract with a licensed property management brokerage can only be done in writing and must be signed by both a representative of the strata corporation and a representative of the licensed property management brokerage. This is an important (but frequently overlooked) benefit because it prevents a strata council member from delegating additional authority to the licensed property manager and it prevents a property manager from stating that they did something beyond the service contract because they were told to by a member of council.
Opportunity to file a complaint
Hopefully, this is a benefit that a strata corporation never needs to take advantage of.
However, it is important for strata corporations to understand that the BC Financial Services Authority has the responsibility to investigate complaints about the conduct or integrity of licensed property managers. This means that a strata corporation does not need to engage in litigation if it thinks that a licensed property manager has acted inappropriately.
Our understanding is that the general policy of the BC Financial Services Authority is to require that complaints be provided by a strata council and not individual owners.
In general, the jurisdiction of the BC Financial Services Authority includes investigating complaints that a strata manager did not follow directions, that they acted outside the authority delegated to them, that they acted in a conflict of interest, that they engaged in professional misconduct, that they engaged in conduct unbecoming a licensee, or that someone providing strata management services for a fee was not property licensed.
A licensed property manager may have engaged in professional misconduct if their conduct:
- contravenes Real Estate Services Act, the regulations, or the rules;
- breaches a restriction or condition of their licence;
- does anything that constitutes wrongful taking or deceptive dealing;
- demonstrates incompetence in performing any activity for which a licence is required;
- fails or refuses to co-operate with an investigation the Superintendent of Real Estate;
- fails to comply with an order of the Superintendent of Real Estate; or
- makes or allows to be made any false or misleading statement in a document that is required or authorized to be produced or submitted under the Real Estate Services Act.
A licensed property manager may have engaged in conduct unbecoming a licensee if their conduct:
- is contrary to the best interests of the public;
- undermines public confidence in the real estate industry; or
- brings the real estate industry into disrepute.
It is very common for strata councils to delegate some of its authority to licensed property managers. There are several benefits to hiring a licensed property manager, but strata councils need to remember that it is the council that is responsible and accountable for strata management.