D.R. Legal News: Do You Need Another License to Stay in Business?

July 2012 | D.R. Legal News

Do You Need Another License to Stay in Business?

By Steve Bochenek, IAR Chief Legal Counsel

The lead article in this edition of the D.R. Legal Newsdeals with the Community Association Manager Licensing & Disciplinary Act (“Act”). That Act was effective July 1, 2010. However, the licensing requirements under that Act are not effective until October 1, 2012. More about the licensing aspects of the Act later but first we need to discuss the application of the Act and whether this Act will require you to obtain an additional license.

Community Manager Licensing & Disciplinary Act

The legislative intent in the Act indicates that the purpose of the Act is to “provide for the regulation of managers of community associations.” The key questions are what is a “community association” under the Act and who is a manager of a community association under the Act.

The term “community association” in the Act is defined to mean “. . . an association in which membership is a condition of ownership or shareholder interest of the unit in a condominium, cooperative, townhouse, villa, or other residential unit which is part of a residential development plan and that is authorized to impose an assessment, rent, or other cost that may become a lien on the unit or lot.”  In reading this definition it is clear that the Act intends to cover condominium associations, cooperatives and other common interest communities. There are also three other key elements necessary to make one of these entities covered by the Act. First, it must be a condition of ownership of a property, unit or shareholder interest that the owner is also a member of an association. Second, that the association can impose assessments or other costs on the unit, lot or shareholder’s interest and third, that the assessment or cost if not paid can become a lien on the owner’s property or unit. However, if the association does not have the right to impose assessments or costs on units located in the common interest community or those assessment or costs cannot become a lien on a unit or lot if unpaid, then that common interest association and its manager(s) would not be covered by this Act. Given this definition many condominium complexes, cooperatives and other common interest communities will be covered by this Act.

The definition of a “community association manager” under this Act is “. . . an individual who administers for remuneration the financial, administrative, maintenance or other duties for the community association . . . .”  The definition goes on to describe examples of these kinds of services. Examples of the kinds of services referred to would be collecting, controlling or disbursing funds of the association, preparing budgets or other financial documents for the association, assisting in the conduct of association meetings, maintaining association records or administering association contracts and other documents. The definition goes on to clearly state that the Act is not intended to require the licensure of “support staff, including but not limited to bookkeepers, administrative assistants, secretaries, property inspectors, or customer service representatives.”  Any person or entity that provides these types of services for a community association will be required to be licensed as of October 1, 2012 as a community association manager unless they fall under one of the exemptions provided for in the Act.

Exemptions from the Manager Licensing Provisions

Section 20 of the Act provides for exemptions from the manager licensing provisions. Perhaps the two key exemptions are for a “director, officer, or member of a community association” who provides one or more of the listed services “without compensation for such services to the association.”  The second exemption is for any person providing the services of a community association manager for a community association of ten units or less. Other exemptions are for (1) an attorney providing one or more of these services in connection with the practice of law, (2) a person appointed by a court such as a trustee in bankruptcy or receiver who provides one or more of these services in that capacity and (3) a person otherwise licensed to provide certain of these services under some other licensing act. The last exemption can be most easily understood by referring to an example of an accountant who is licensed by the State of Illinois and who can pursuant to that license prepare financial documents and statements for a community association. The Act would not require that licensed accountant to obtain a community association manager license in order to provide financial documents for the community association. Please note that there is no exemption in the Act for a person licensed under the Real Estate License Act of 2000.

Notwithstanding the fact that there is no exemption for a licensee under the Real Estate License Act of 2000 there is a provision under Section 20 of the Act that provides that a person or entity licensed as a community association manager is not authorized to perform or engage in real estate brokerage activities unless they also are licensed under the Real Estate License Act of 2000. The result of this provision is that a licensee under the Real Estate License Act of 2000 can engage in real estate brokerage activities in regards to community associations without any additional license but cannot provide the services of a community association manager unless there is an exemption that would indicate that no licensure is required. To the contrary, a community association manager could not provide real estate brokerage services for their common interest community unless licensed under the Real Estate License Act.

Licensees under the Real Estate License Act are exempt from the education requirements necessary to take the test or examination to obtain the community association license. The rules promulgated under the Act provide that one of two examinations will have to be passed to obtain the community association manager license. One of those examinations is provided by the National Board of Certification for Community Association Managers and the other is provided by the Institute of Real Estate Management.

Requirements and Enforcement

As indicated previously, the Act provides that the requirements for licensure are not effective until October 1, 2012. The Illinois Department of Financial and Professional Regulation (IDFPR) is the agency responsible for the licensing and regulation. No clear statement has been made to this point in time as to whether the license needs to be issued prior to October 1, 2012 or whether it will be sufficient for an application for license to have been filed with IDFPR by September 30, 2012.

There are requirements under the Act for a community association management agency to have fidelity insurance providing for insurance against loss or theft of the association funds. There is also a requirement that if a community association manager or a community association management agency provides association management services for more than one community association that the accounts for those community associations must be segregated. There are also provisions in the Act requiring that appropriate insurance, such as general liability insurance, and errors and omissions insurance be obtained by the manager.

The rules promulgated under the Act also have a section dealing with unprofessional conduct. Examples of unprofessional conduct under the rules include engaging in the unauthorized practice of law, failing to disclose actual and potential conflicts of interest, breach of fiduciary duty and failure to maintain the confidentiality of clients. There are other rules besides these but the violation of these would allow IDFPR to suspend or revoke the license of a community association manager.

Another key provision of the Act is a preemption provision. Section 165 of the Act provides that the regulation of community association managers and community association management agencies is an exclusive power of the State and that home rule units may not regulate or license community association managers or community association management agencies. To the extent that municipalities may already regulate a license in these areas this provision would seem to preclude that regulation or license going forward.

The rules promulgated under the Act also provide fees to be paid in connection with licensure. Those fees are a $300 application fee for a license as a community association manager. That fee is for the initial license and does not include the exam fee. Renewal fees are $150 per year. There are other general fees imposed in connection with the restoration of a license and for obtaining other records. One unique fee provided for in Section 65 of the Act, as amended by SB3202 which has not yet been signed by the Governor, requires all community associations that have 10 or more units, that retain a licensed community association manager and are registered in the State as not-for-profit corporations to pay to IDFPR an annual fee of $50 plus an additional $1 per unit in the community association to a maximum of $1,000 per year. The Act also seems to provide that any not-for-profit corporation failing to pay this fee to the State will be potentially liable for a fine of up to $10,000.

The key for you and your business is to determine whether you are actually engaged in any of these community association management services as opposed to real estate brokerage services. If so, you will need to determine whether there is an exemption that applies to your situation. If not, a license will be required as a community association manager on or before October 1, 2012.