There has been a change to the Alabama Real Estate Commission Rules, related to trust funds and security deposits.
It applies to residential and to commercial properties.
It affects people who hold a real estate license and who ALSO manage properties. In other words, if you do not have an Alabama real estate license, the rule does not affect you.
The new rule is Subsection (6) of Rule 790-x-3-.03. Most of the rule simply mirrors the Alabama Uniform Residential Landlord Tenant Act requirements regarding refunds of security deposits. Some of it is new.
Formerly, if you did not refund residential security deposits in a timely manner, or provide a timely accounting of deposit forfeiture, the tenant could sue you. Often, tenants could not afford an attorney to do that, so the property manager escaped liability. Now, with the Rules change, those tenants can also file a grievance against you, with the Alabama Real Estate Commission. The statute applies to any property manager or landlord. The AREC rule applies just to real estate licensees.
Formerly, there was no statutory requirement about when commercial security deposits had to be refunded. Now, with the rules changes, there is an AREC rule saying security deposits for commercial properties have to be handled in the same manner as residential security deposits. That change applies just to real estate licensees. It does not apply to commercial property managers or landlords who do not have a real estate license.
Also, there is now an AREC rule about what to do when property under management changes ownership or changes management companies. Again, this applies only if there is an Alabama real estate licensee involved.
- If a management agreement is terminated, the former qualifying broker must provide to the new management company, or the owner, an accounting of all security deposits, prepaid rent or other related escrows. That must be done within SEVEN business days of contract termination. Also,the former qualifying broker must pay over all of those funds within the same time period.
- If the owner sells property that is being managed by a licensee, the qualifying broker of the former owner’s management company must make the same disclosures as above, and pay over the funds the same as above, within SEVEN business days of the closing. The only exception is if the funds were already transferred as part of the closing.
- In order to put a “sunset” on some potential liability issues, the former management company should also notify all tenants of the change.
You commercial property managers out there–was this a surprise to you?
Everybody–are you surprised about the new accounting rules when management or ownership changes hands?
Let me know.