Illinois will soon require property managers to be licensed

Public Act 096-0726 has been signed by the governor and takes effect July 1, and, therefore, for the very first time property managers of condominiums and homeowners associations will be required to be licensed.

Although the topic has been debated for more than 20 years, perhaps the recent upward trend of incidents of financial irregularities by certain disreputable individuals prompted the quarreling factions to finally sit down and reach an agreement. Or maybe it was just a case of its time has come.

There are some details that have yet to be worked out, such as the appointment of a licensing and disciplinary board (seven members - five managers and two owners to five-year terms). However, the principles have been put into place and management companies will now have less than a year to gear up for new state regulation and monitoring requirements. The new act will define what constitutes a "property manager" and after the effective date it will be illegal to manage a condominium or homeowners association without a license.

It does exempt self-managed volunteer board members, managers of 10 units or less, licensed attorneys, receivers/trustees, and managers already licensed in another state. It also grandfathers current managers from the new educational and examination requirements provided they have at least five years experience, and demonstrate to a new regulatory department proof of their experience and education, including but not limited to holding a certification such as a PCAM, CPM or other professional property management designation determined by the department.

New licensing qualifications shall include a minimum of 21 years of age, having completed at least 20 hours of approved classroom work, passing an examination administered by the new department, no prior criminal record, of good moral character and mentally competence. Licensed real estate brokers and salespeople are exempt from the educational exam requirements, as well. However, holding a property manager's license does not automatically empower the manager to be able to sell real estate. All managers must carry fidelity coverage for the total amount of funds in their control; however, the cost can be passed along to their clients.

They shall be required to either maintain segregated accounts of each of their associations or with their clients consent can maintain a single co-mingled custodial account. Currently, many companies do this without their clients' consent, and that will no longer be permitted. They must also carry errors and omissions insurance.

Unfortunately, all not-for-profit corporations will have an increase in their annual fees to pay for the costs of administration to fund the new disciplinary board and other administrative expenses. The State Secretary of Financial and Professional Regulation will oversee the new regulatory agency and shall maintain a master list of licensed managers, and one for those who have had their license suspended or revoked.

Grounds for discipline shall include:

• Engaging in dishonorable, unethical or unprofessional conduct.

• Alcohol abuse.

• Discipline in another state.

• Kickbacks, fee sharing, commissions, rebates and other forms of compensation paid by third parties.

• Child abuse or mental illness.

• False and misleading advertising.

• Gross overcharging, i.e. collection of fees for services not performed, charging for services not in accordance with the contract.

• Improper co-mingling of funds.

• Charging for unauthorized services.

• Failure to account for or remit money.

• Failure to make records available.

• Purporting to be the owner of a company without active participation.

• Practicing without a license.

• Making false representations as to having a license.

• Attempting to obtain a license through fraudulent means.

• Failure to repay a student loan.

• Failure to pay Illinois taxes.

• Constituting an imminent danger to the public.

Penalties can include $10,000 fines, contempt of court citation and, for practicing without a license, a manager can even be charged with a Class A misdemeanor or Class 4 felony. Local communities that attempt to regulate or license property manager conduct cannot supersede state law.

These are obviously some severe penalties for conduct that in the past has caused some boards great frustration, such as when they change managers and their former manager refuses to turn over records, or wrongfully withholds funds. Short of hiring an attorney to try and recover records or funds, and many attorneys are reluctant to go after companies they do business with day in and day out, most boards were left to just keep nagging until the management company either finally relented or forced an unfavorable settlement.

The majority of management companies that participate in seminars and educational programs keep separate bank accounts, and act in a professional manner, and this will not change anything for them, other than filing with the state. However, for the new companies that keep coming on line with no track record and no hands-on experience, this will now cause people to think about the requirements before they just hang up a shingle.

Boards will not be able to just hire the lowest bidder when hiring a manager, but will have to insist upon showing proof of a license. This may require property management companies to raise their fees, but if it will create and industrywide upgrade in professionalism, this will in the long run pay for itself. Boards may be less inclined to fire their manager and hire a new one at the drop of a hat.

Attorneys, accountants, architects, and engineers have all had these types of requirements since the beginning of time, but property management has been self-regulating until next year. Many people decry the continuing infringement of government on their day-to-day lives, however, when an entity is responsible for administering and spending millions of dollars of other peoples' money, there is now a pending requirement that they be properly trained, act professionally, honestly and ethically and for most people that is a good thing.

• Jordan Shifrin is an attorney with Kovitz Shifrin Nesbit in Buffalo Grove. Send questions for the column to him at jshifrin@ksnlaw.com. This column is not a substitute for consultation with legal counsel. Past columns can be read at www.ksnlaw.net.