You and your neighbor have been good friends for years. Your neighbor just came over and told you that his company has assigned him to work overseas for a year. He informs you that he intends to rent his property for the year and wants you to watch over the rental while he is away. You want to help him, but tell him that you need to think about it before you give him an answer. The next morning, you call your sister-in-law, a local real estate attorney, and ask her what she thinks. She advises you to consider the following items.
- If you receive compensation, you will be considered a “real estate broker” for which you must have a real estate broker’s license. Arizona law defines a “real estate broker” as “a person, other than a salesperson who for another and for compensation” [emphasis added] rents or leases real estate and/or collects rent. (See A.R.S. §32-2101(48)(a)(b) and(g).)
- Arizona law requires that your neighbor enter into a property management agreement that meets the requirements of A.R.S. §32-2173. Those requirements include that the agreement contain all material duties and obligations of the property manager, beginning and ending dates of the agreement, cancellation provisions, provisions regarding the disposition of monies, as well as several other specific provisions. (See A.R.S. §32-2173.A.)
- Any monies that a property manager receives (rent, deposit, etc.) must be kept in a designated trust account unless your neighbor directs that all monies be deposited directly into your neighbor’s account (which the property manager can’t have access to.) (See A.R.S. §32-2174.)
- Various records (leases, financial records, etc.) will need to be maintained in accordance with the recordkeeping requirements of A.R.S. §32-2175 and will be subject to audit by the Arizona Department of Real Estate.
You are about to end the conversation, when she quickly adds that you will also have to become familiar with the Arizona Residential Landlord and Tenant Act and applicable fair housing laws so that you don’t inadvertently break the law and subject yourself to liability. Finally, she reminds you that you will also need liability and Errors & Omissions insurance.
While usually being the neighborly type, you decide that this entails way more than being a good neighbor. At that night’s neighborhood BBQ, you advise your neighbor to find a reputable, licensed property management company.