Administrative Rules of the State of Montana

BEFORE THE DEPARTMENT OF LABOR AND INDUSTRY

STATE OF MONTANA

In the matter of the adoption of NEW RULES I through VI pertaining to property management licensure

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NOTICE OF PUBLIC HEARING ON PROPOSED ADOPTION

TO: All Concerned Persons

1. On November 30, 2023, at 10:00 a.m., a public hearing will be held via remote conferencing to consider the proposed adoption of the above-stated rules. There will be no in-person hearing. Interested parties may access the remote conferencing platform in the following ways:

a. Join Zoom Meeting, https://mt-gov.zoom.us/j/84013158111

Meeting ID: 840 1315 8111, Passcode: 776823

-OR-

b. Dial by telephone, +1 406 444 9999 or +1 646 558 8656

Meeting ID: 840 1315 8111, Passcode: 776823

2. The Department of Labor and Industry (department) will make reasonable accommodations for persons with disabilities who wish to participate in this public hearing or need an alternative accessible format of this notice. If you require an accommodation, contact the department no later than 5:00 p.m., on November 22, 2023, to advise us of the nature of the accommodation that you need. Please contact the department at P.O. Box 1728, Helena, Montana 59624-1728; telephone (406) 444-5466; Montana Relay 711; or e-mail [email protected].

3. GENERAL REASONABLE NECESSITY: The 2023 Montana Legislature enacted Chapter 482, Laws of 2023 (Senate Bill 455), an act generally revising laws related to realty regulation and transferring regulatory oversight of property managers from the Board of Realty Regulation (board) to a department program. The bill was signed by the Governor on May 8, 2023, and is effective October 1, 2023. It is reasonably necessary to adopt new, updated program rules to implement the bill. The board will repeal all 14 property management rules in a separate rulemaking.

In support of the Governor's Red Tape Relief Initiative, the department is comprehensively reviewing all administrative rules of professional licensing boards and programs administratively attached to the department. The new program rules update to current standards and procedures, and eliminate unnecessary, redundant, and overburdensome regulations and those duplicated in statute. The new rules are written for more consistency, simplicity, better organization, and ease of use for customers and staff. The more streamlined rules will also increase department efficiencies by further standardizing procedures used among all licensing boards and programs.

4. The proposed new rules are as follows:

NEW RULE I FEE SCHEDULE

(1) Original application $50

(2) Renewal 50

(3) Prelicensing course application 150

(4) All fees are nonrefundable.

(5) Examination fees are paid directly to the testing service.

AUTH: 37-56-102, MCA

IMP: 37-56-102, MCA

REASON: It is reasonable to strike fees for inactive status as the department is eliminating inactive status for this program. The historically consistent small number of inactive property management licensees does not justify the staffing and costs associated with monitoring and renewing them.

It is reasonably necessary to eliminate the fee for reinstatement of suspended or revoked licenses as no other board or program charges such a fee. Prelicensing course approval lasts for three years and a new updated application is required. Course approval is not renewable. Fees for CE course approval are stricken to align with NEW RULE V and the elimination of CE course preapproval. The remaining fees are not changing.

The department estimates the eliminated fees will affect approximately 31 individuals and result in a $775 reduction in annual revenue from prior years with the board.

NEW RULE II APPLICATION TIMELINE (1) Applicants must:

(a) complete a 30-hour approved property management prelicensing course within 24 months preceding application;

(b) pass the licensure examination; and

AUTH: 37-56-102, MCA

IMP: 37-56-102, 37-56-105, MCA

REASON: This simplified new rule more clearly sets forth property management application timelines but does not change the timelines.

Licensure applications are distinct and separate. There is no need to state that applicants must comply with all necessary licensure requirements.

NEW RULE III TRUST ACCOUNTS (1) Property managers who receive any deposits, rent payments, or other monies on behalf of other persons must deposit such funds in a trust account per 37-56-101, MCA, and maintain the account according to this rule.

(2) Trust accounts must be:

(a) liquid;

(b) readily accessible;

(d) identified as trust accounts; and

(e) reconciled each month having activity.

(3) Trust funds cannot be:

(a) maintained in sweep accounts; or

(b) invested in certificates of deposit, repurchase agreements, or any other method that places funds at risk.

(4) Property managers:

(a) may separately maintain multiple trust accounts;

(b) are responsible for all funds in and maintenance of their trust accounts;

(c) may delegate authority for trust account maintenance to another licensed property manager. Both property managers are responsible for failure to comply with trust account requirements; and

(d) must deposit monies belonging to others into a trust account within three business days, unless otherwise provided in the lease or rental agreement.

(5) Trust funds may be maintained in interest-bearing accounts with interest payable to the property manager or any other person. Interest payable to a property manager must be identified as consideration for services performed and are personal funds unless otherwise designated.

(6) Property managers may deposit and hold in a trust account up to $1000 of personal funds that include interest accrued to the property manager.

(a) Personal funds may be distributed for trust account bank charges, related trust account maintenance expenses, and when due and payable to the property manager.

(b) Money due the property manager must be withdrawn within ten business days once due and payable.

(7) When managing one's own real estate, property managers must deposit security deposits in a trust account. Rents and disbursements are managed as follows:

(a) Property managers owning 100 percent of the real estate are not required to place rents in a trust account but may do so.

(b) Property managers owning less than 100 percent of the real estate must place all rents in a trust account.

(d) Disbursements may not be considered personal indebtedness if used for the maintenance of the property itself.

(8) Property managers must maintain complete and chronological records of all trust account funds received and disbursed including personal funds per (6). Each record must include a running balance and clearly identify for all transactions:

(a) dates;

(b) parties, payees, and sources of funds; and

(9) When a property management agreement is terminated, a rental agreement is still in effect, and the property manager is holding tenant funds, the property manager must:

(a) notify the tenant, in writing and within five business days of termination that:

(i) the agreement is terminated; and

(ii) funds and current tenant files will be transferred to the property owner or designee within 30 days of the termination;

(b) provide the name and contact information of the person receiving the transfer; and

(10) Property managers must maintain the following documents for at least eight years from the property management agreement termination even if the property manager sells or ceases to operate the business:

(a) trust account records:

(b) complete files of properties managed; and

(11) Trust account records must be maintained to facilitate auditing.

AUTH: 37-1-319, 37-56-102, MCA

IMP: 37-1-319, 37-56-106, MCA

REASON: This new rule updates to more general and reasonable requirements for trust accounts. The department is amending these standards to simplify and provide clear guidance regarding current trust account maintenance without overly burdensome regulation.

The department is removing the cautionary provision regarding potential discipline following a negative account balance from a dishonored deposit. Department prosecutors have never seen a case involving this section and do not believe a reasonable cause finding would result from this scenario.

Commingling of trust account funds is allowed, within the parameters of this rule. It is necessary to remove old language to eliminate potential confusion or conflict.

The department is removing outdated provisions regarding the regulation of real estate firms which do not apply to the property managers' program.

With the expansion of secure, acceptable methods of electronic fund transfer, the department concluded there is no need to specify or limit fund disbursement methods.

The department determined there is no need to specify the actual documents to keep as trust account records. The department trusts licensees to maintain adequate records for each account and situation.

The requirement to comply with department inquiries and audits is being relocated to NEW RULE VI on unprofessional conduct.

Property managers are required to keep accurate and adequate records to document all trust account activities. There is no need to require specific ledgers/records for property owners, tenants, or personal funds.

NEW RULE IV PRELICENSING COURSE REQUIREMENTS (1) Course approval is valid for three years and may be revoked for cause.

(2) To receive approval, courses must include the following topics:

(a) trust accounts;

(b) accounting procedures;

(d) federal and state fair housing laws;

(e) Americans with Disabilities Act;

(f) state licensing law and rules;

(g) contract law;

(h) leasing principles;

(i) agency; and

(j) definitions and terms commonly used in the industry.

(3) Additionally, online courses must have current Association of Real Estate License Law Officials (ARELLO) certification. Approval is invalidated if ARELLO certification is discontinued for any reason.

AUTH: 37-56-102, MCA

IMP: 37-56-102, 37-56-105, MCA

REASON: The department is relocating property management licensing requirements to NEW RULE II. Because property managers collect and hold tenants' security deposits in trust accounts, it is reasonably necessary to include Title 70, chapter 25, MCA (regarding residential tenants' security deposits) in prelicensing course content.

The department will no longer approve instructors. The department believes that course providers will ensure instructors are adequately trained to provide quality instruction of an approved course.

There is no reason to regulate course timelines and breaks. Approved courses must include the required topics, and applicants must obtain a minimum of 30 hours of instruction as for property management licensure.

Since applicants must satisfy all requirements before applying for licensure, it is not necessary to remind them to verify a course's approval before taking it.

NEW RULE V CONTINUING EDUCATION (1) Renewing licensees must complete a minimum of 12 hours of property management CE (continuing education) annually. Licensees must select quality programs that:

(a) contribute to professional knowledge and competence;

(b) contain significant intellectual or practical content; and

(2) New licensees are only required to complete four hours of property management trust account CE by their first renewal date. If no course occurs by the first renewal date, the licensee must complete the course when it is next offered.

(3) Licensees must maintain adequate CE documentation and make the documentation available upon request.

(4) Licensees found noncompliant with CE requirements may be subject to administrative suspension.

AUTH: 37-56-102, MCA

IMP: 37-1-420, 37-56-102, MCA

REASON: The department is adopting this new rule to combine all continuing education (CE) provisions in a single location. The new rule clearly sets forth CE requirements and aligns with standardized procedures used by all licensing programs and boards.

As a department program, property managers' CE now falls under 37-1-420, MCA. The department will not preapprove CE, and licensees must select appropriate courses that qualify under the standards of this rule. Compliance is monitored by a random audit process conducted on renewed licensees.

NEW RULE VI UNPROFESSIONAL CONDUCT (1) In addition to the provisions of 37-1-410, MCA, it is unprofessional conduct for property managers to:

(a) violate a federal, state, or local law or rule relating to the conduct of the profession;

(b) engage the services of any person or entity on behalf of a principal, third-party, or other person, without:

(i) informing and obtaining consent from the person obligated to pay for the services; and

(ii) disclosing any family relationship, financial relationship, and/or financial interest that the licensee or the licensee's business may have in the person or entity being engaged;

(c) manage property owned by another person or entity without a written property management agreement in place, signed by the owner;

(d) accept, give, or charge an undisclosed commission, rebate, or profit on expenditures made for a principal;

(e) fail to adequately supervise employees;

(f) fail to cooperate with or respond to a department request;

(g) practice while one's license has expired or terminated. Receiving payments for the sale of the licensee's property management business without a valid license is not considered practicing as a property manager; and

(h) commit any act of sexual abuse, misconduct, or exploitation whether or not it is related to the licensee's practice.

AUTH: 37-56-102, MCA

IMP: 37-1-410, 37-56-102, MCA

REASON: This new rule updates, reorganizes, and streamlines the unprofessional conduct for licensed property managers. It is reasonable to simplify the rule by replacing overly specific verbiage with more broadly applicable statements and eliminate the more detailed and confusing "laundry list." The new rule also eliminates many unnecessary duplications with the unprofessional conduct statute, 37-1-410, MCA, which applies to all department program licensees and license applicants.

Instead of stating specific state or federal regulations to follow, the department is including (1)(a) to require licensees comply with all applicable laws and regulations. These amendments will also facilitate the disciplinary processes by utilizing standard language among the licensing boards and programs.

It is reasonably necessary to remove overly specific and unnecessarily regulatory provisions regarding property management agreements and disclosing licensee status in practice. This behavior is considered unprofessional conduct in 37-1-410, MCA, as well as being outside generally accepted standards of property management.

The guidance on offender proximity disclosure is eliminated as unnecessary. All complaints are assessed and either processed or dismissed on a case-by-case basis with specific parties and circumstances. It is not helpful to excuse actions in any single practice situation.

5. Concerned persons may present their data, views, or arguments at the hearing. Written data, views, or arguments may also be submitted at dli.mt.gov/rules or P.O. Box 1728; Helena, Montana 59624. Comments must be received no later than 5:00 p.m., December 1, 2023.

6. An electronic copy of this notice of public hearing is available at dli.mt.gov/rules and sosmt.gov/ARM/register.

7. The agency maintains a list of interested persons who wish to receive notices of rulemaking actions proposed by the agency. Persons wishing to have their name added to the list may sign up at dli.mt.gov/rules or by sending a letter to P.O. Box 1728; Helena, Montana 59624 and indicating the program or programs about which they wish to receive notices.

8. The bill sponsor contact requirements of 2-4-302, MCA, apply and have been fulfilled. The primary bill sponsor was contacted on May 25, 2023, by electronic mail.

9. Pursuant to 2-4-111, MCA, the agency has determined that the rule adoptions proposed in this notice will not have a significant and direct impact upon small businesses.

10. Department staff has been designated to preside over and conduct this hearing.

/s/ DARCEE L. MOE

Darcee L. Moe

Rule Reviewer

/s/ SARAH SWANSON

Sarah Swanson, Commissioner

DEPARTMENT OF LABOR AND INDUSTRY

Certified to the Secretary of State October 24, 2023.