1.1 Company formation. The management company shall be established in compliance with all applicable laws and regulations.
Explanation of best practice 1.1. Whether the management company is formed as a sole proprietorship, partnership, corporation, or other legal entity, each of which has its own revenue and tax implications, all legal requirements should be followed in establishing it. Failure to properly and legally establish and operate the business could jeopardize the properties and other assets under its care.
1.2 Legal compliance. The management company and its employees shall conduct business activities with knowledge of and in compliance with all applicable laws and regulations.
Explanation of best practice 1.2. Numerous legal obligations are imposed on management companies. This includes laws and regulations that affect businesses in general, as well as those that affect real estate companies in particular. In many jurisdictions, a real estate license is required for third-party management companies that engage in the leasing or management of properties for others.
1.3 Management company insurance. The management company shall maintain insurance coverage that protects the management company, its employees when acting in an official capacity for the company, and the assets under its fiduciary care.
Explanation of best practice 1.3. The business environment requires management companies regardless of size to protect the interests of the principals, if desired, and company by sharing certain risks with insurance providers. Clients must have confidence that the management company as the managing agent can withstand losses and continue to do business uninterrupted. Insurance is needed to protect the company’s property from damage and destruction losses and to protect the financial interests of the company and client from losses resulting from actions taken by the firm’s ownership or employees.
Insurance for a management company generally includes, but is not limited to, the following: workers’ compensation insurance; fidelity and crime insurance; crime coverage insurance; errors and omissions insurance; business interruption insurance; employment practices liability insurance; employee benefit coverage; disability insurance; cyber liability coverage; and directors and officers liability insurance. Additional items that may be insured are: buildings and other structures; automobiles or other mobile property; machinery and equipment; furniture and fixtures; inventory; records and valuable documents; money and securities; and intangible property such as trademarks and logos. Finally, a management company may purchase insurance that protects against libel, slander, discrimination, unlawful and retaliatory eviction, and invasion of privacy suffered by tenants and their guests.
1.4 Company emergency preparedness. Emergency preparedness and emergency response plans and procedures for the management company shall be developed and, when necessary, followed.
Explanation of best practice 1.4. A management company, no matter the size, should be prepared for emergencies of any kind. Drafting an emergency preparedness and response plan that includes business continuity planning can help the management company deal more efficiently with emergencies and better protect the lives of employees as well as ensure the stability of the company’s assets and continuous management of those assets under its care. An emergency procedures manual provides step-by-step instructions on what everyone in a company should do in case of an emergency.
1.5 Company policies and procedures. Written policies and procedures shall be developed and enforced for all company operations, communicated to and readily accessible by all employees, and regularly reviewed and updated as needed.
Explanation of best practice 1.5. Policies and procedures are designed to guide actions and behaviors in the workplace. Policies help ensure that workplace behaviors conform to legal requirements and organizational expectations. Procedures, which are step-by-step lists of activities required to conduct certain tasks, ensure that routine tasks are carried out in an effective, efficient, and consistent fashion. Together, policies and procedures are a roadmap for employees and a tool to standardize the way employees handle specific assignments. While important for all management companies, policies and procedures are especially important when companies have branch offices and when managed properties have on-site management personnel.
Typically, policies and procedures are compiled into an operations manual that covers day-to-day operational procedures for the company and its personnel. These manuals generally include supporting forms and sample letters. Whether printed and distributed or provided electronically via a company website, such policies and procedures must be readily accessible to all employees and their use reinforced.
1.6 Data security. The management company shall secure all data associated with the company and its operations.
Explanation of best practice 1.6. The current business environment requires that companies protect and secure their confidential and proprietary information. Examples include company financial records, tenant/resident applications, and other confidential and proprietary information.
With the increase in identify theft, ransomware, and theft of critical data needed to operate the business, it is imperative that management companies plan in advance how best to avoid security breaches, encrypt sensitive data, and respond if a breach should occur.
1.7 Recordkeeping. The management company shall maintain company, property, and client records in accordance with all applicable regulatory guidelines, contractual obligations, and company policy, and in a manner that provides for proper and secure records storage, efficient records retrieval, and appropriate destruction of obsolete records.
Explanation of best practice 1.7. Recordkeeping is a key function of a management company. This includes records pertaining to the company itself, all properties under its management, and all clients that are served. Recordkeeping protocols are necessary to comply with various laws and to operate the business properly. A management company’s recordkeeping system should provide for the proper and secure storage, easy and efficient retrieval, and destruction of obsolete records of the following types of records for the management company itself, for each property under its management, and for each of the company’s clients:
1.8 Staff development. The management company shall endeavor to develop a diverse team and provide for the professional development, training, and credentialing of employees in accordance with their roles and responsibilities.
Explanation of best practice 1.8. Real estate management is a dynamic business that depends on the expertise, skills, and diversity of its employees. Only through ongoing education and training of a diverse staff can a management company maintain its competitiveness by increasing competency levels and eliminating deficiencies and provide a high level of professionalism for the staff. Additionally, providing opportunities to acquire education and earn professional credentials helps employees grow in their jobs and within the industry and encourages loyalty and productivity.
A diverse staff operating in an inclusive workplace environment helps the management company relate to stakeholders of all backgrounds and provide relevant services to its market. Moreover, different backgrounds introduce different perspectives to the company that contribute to the overall knowledge, skills, and abilities of the team.
Training and development are related but not synonymous. Training typically provides employees with specific skills or helps correct performance problems, whereas development is an effort to provide employees with abilities that will be used on a long-term basis to develop enriched and more capable workers throughout the career life cycle. An employee development program consists of systematic and planned activities designed to provide employees with the necessary knowledge, skills, and abilities to meet current and future job demands aligned with the company’s business needs and goals. Employee development activities should be planned for every employee, regardless of position, throughout the employee’s tenure with the company and designed to support the company’s goals; increase productivity and favorable results; decrease or eliminate performance deficiencies; increase employee commitment; and decrease turnover.
1.9 Job descriptions. The management company shall have written job descriptions that accurately represent the duties and responsibilities of each person within the company.
Explanation of best practice 1.9. Even if not currently hiring or creating a new position, an employer should have clear, concise, and accurate job descriptions for all positions. A job description serves both existing and potential or future employees. Job descriptions provide current employees with clear guidelines about their responsibilities and keep employees focused on their job. The boundaries delineated by a job description can prevent employees from encroaching on others’ responsibilities. A job description typically consists of the following elements: identification information, job summary, job duties and responsibilities, job requirements, and minimum qualifications.
In the recruitment process, a job description gives potential employees comprehensive information about the job for which they are applying. An accurate and effective job description filters applicants who are being evaluated for the opening – helping generate a higher-quality pool of applicants. It also serves as a resource to the supervisor who is filling a position by helping determine the types of selection tools that should be used when hiring. Additionally, job descriptions provide standards that can be used to judge employee performance. This provides the foundation for employee compensation programs and for comparing the relative worth of each job’s contributions to the company’s overall performance.
1.10 Company ethics. The management company shall have and enforce a written company code of ethics that defines ethical relationships between the employees of the company and its clients, residents, tenants, vendors, the public, and other employees.
Explanation of best practice 1.10. Real estate management companies have an obligation to adhere to standards for ethical behavior in their organizations. A code of ethics is essential to provide guidance and standards for all company employees as relates to conduct of business. This can be accomplished either by developing a code that is company-specific and/or by adopting the code of ethics of a professional association such as IREM.
The company’s code of ethics should be in writing, distributed to all employees when they start their employment with the company, and regularly communicated to employees on an ongoing basis. Periodic training about the code and its application is also encouraged. The examples set by the behavior of managers and executives in a firm and the training they provide employees will reinforce the company’s ethical commitment.
1.11 Accounting system. The management company shall establish, maintain, and update as needed an accounting system that supports company operations, is consistent with client directives, and complies with accepted accounting and financial reporting principles.
Explanation of best practice 1.11. The handling of client funds is accomplished through an accounting system that accommodates both the management company and the properties under its care. Accounting is generally defined as the practice of collecting, classifying, recording, and summarizing financial transactions. It is largely concerned with monitoring the flow of income and expenses in a business, accomplished through categories of debits and credits. In a further refinement, short-term movements in accounts are monitored through accounts payable and accounts receivable. Financial accounting is a system of classifying, analyzing, and interpreting financial transactions that documents the financial position of a given entity – either the management company or the properties under its management – in the form of a balance sheet and an income statement.
Client directives with respect to accounting systems can vary widely: Some institutional owners may provide the management company with an accounting procedures manual that sets forth all of the institution’s requirements; other clients may have less stringent, though no less important, accounting expectations. Any accounting system should support both cash and accrual accounting to the extent that client reporting requirements dictate.
An accounting system can be provided through an in-house accounting department, or the accounting function can be outsourced. In either case, the management company is responsible for that system and its adherence to all accepted accounting and financial reporting principles.
1.12 Company budget. The management company shall prepare, and monitor ongoing conformance with, an annual budget for the company.
Explanation of best practice 1.12. A company budget is one of the many tools available for monitoring the income and expense of the organization and therefore its viability as an entity and for measuring its success as a business.
1.13 Financial controls. The management company shall establish and adhere to internal financial controls for the handling of all company funds and client funds.
Explanation of best practice 1.13. Of the many functions of an accounting department, the handling of client funds is vitally important. Monies belonging to clients are received and paid in the name of the managed property or its ownership. For this reason, specific policies and procedures are needed for handling receipts and disbursements. Internal checks and balances reduce the possibility of theft or misappropriation of funds as well as minimize the potential for accounting errors. Internal financial controls should provide for an internal audit system in which a supervisor reviews prior transactions for irregularities; an authorization for signing checks and dollar limitations without a second signature; and other appropriate protocols to safeguard the handling of company and client funds. In addition, the company shall conduct an independent financial audit or financial review when required by law or regulation, company policy, or client directives.
1.14 Commingling funds. The management company shall not commingle the funds of multiple clients or client funds with company funds. Funds in trust or escrow accounts for multiple clients shall be clearly designated and accounted for as they apply to each client.
Explanation of best practice 1.14. Improper handling of client funds by a third-party management company can be a violation of laws and regulations and is a violation of IREM’s code of professional ethics. One of the most serious offenses is that of commingling of funds – the mixing together of two or more clients’ funds or of a client’s funds with the management company’s funds so that the ownership of the monies is unclear. Although it is possible to use a master account that contains the funds of several clients which in turn are accounted for separately on paper, most managers maintain separate bank accounts for individual clients to avoid potential problems. In many cases, separate accounts are even maintained for individual properties when a client has more than one property under management by the firm.
1.15 Strategic plan. The company shall develop, maintain, periodically update, and regularly communicate to its employees a strategic plan for the company.
Explanation of best practice 1.15. A company’s strategic plan sets out the goals, objectives, and guidelines for the organization so that all participants understand their respective roles and the direction of the organization. At its most comprehensive level, a strategic plan identifies market strategy (the services it will provide and the clients it will serve); management strategy (the functions to be performed and who will perform them); and financial strategy (how the business will be capitalized and how it will conduct its business to be profitable and economically viable). A management company benefits from planning and developing a strategy by focusing resources, precluding personal agendas that are inconsistent with the strategy, and creating a platform for communicating organizational vision.
A strategic plan is not a static document but should be a working document that can be modified as necessary to align with changing business environments. It outlines decisions about how the business will be conducted to be successful and, indeed, defines the nature of the business. In so doing, a strategic plan enables the company to optimize the firm’s potential by identifying and responding to opportunities. Ultimately, the intent of a strategic plan is to improve company performance based on measurable, identifiable standards and to serve clients by helping to ensure a stable, viable business.
1.16 Systems efficiency. The management company shall routinely assess the efficiency of its ongoing processes and practices to consider areas that can be improved.
Explanation of best practice 1.16. Advances in technology and business concepts regularly produce changes and innovations in products, systems, and techniques available to enhance the efficiency of performing various aspects of the property management business. Management company leaders should monitor property management industry journals and publications and periodically review new ideas and offerings to compare them to their existing processes and practices as potential methods of improving their company’s capability and performance.
1.17 News media response plan. The management company shall determine how the company and its employees will represent themselves with the news media.
Explanation of best practice 1.17. News media representatives routinely contact or show up uninvited at a property during newsworthy events occurring on the property. A thorough and well-designed media response plan enables the management company to be prepared before a situation arises. Whether the situation is a building emergency or a planned event, the management company should identify the appropriate media spokesperson at the property, who is to share news media protocols with the rest of the property team; the scope and extent of the response; and what information will be released to ensure the company and the client protect and preserve the optimal reputation of the property, company, and client in the community as reported by the news media.
1.18 Industry involvement and support. The management company shall participate in and support industry organizations.
Explanation of best practice 1.18. Industry organizations and professional associations can provide a management company and its employees with access to education (including continuing education); industry data and other information; advocacy for real estate owners; and resources, benefits, and services that strengthen the company and enable it to more effectively serve its clients.
1.19 Social media. The management company shall have a written policy that outlines how the company and its employees will represent themselves in social media.
Explanation of best practice 1.19. Social media creates new opportunities for communication and engagement with employees, with current and potential clients, and with current and potential tenants and residents. At the same time, in the virtual world, there are no clear lines between what is public versus private and what is personal versus professional. Crafting a social media policy that sets expectations for behavior with respect to both corporate use and employee use of social media can help protect the business and its employees.
There is no single policy that all management companies should adopt. Corporate culture and the goals of the policy will provide direction. Generally, such policies include rules on when and how employees may use social media; suggestions for adopting a social media voice; prohibitions on sharing confidential and proprietary information; guidelines on copyright laws; and a reminder of the permanence of the internet. The policy also should identify the scope of social media activities and opportunities – for example, that it includes such popular social networking sites as Twitter, Instagram, Facebook, LinkedIn, and YouTube, as well as blogs, wikis, message boards, online forums, chat rooms, and other sites and services that permit users to share information.
1.20 Electronic communications. The management company shall have a written policy that outlines how the company and its employees will utilize electronic communications, such as email, instant messaging, and texting.
Explanation of best practice 1.20. Electronic communications, including but not limited to email, instant messaging, and texting, are used by businesses as quick, convenient, and effective ways of communicating with other tenants/residents. Recognizing these forms of electronic communications as important and sensitive business tools, a management company should have policies that address their use by employees in order to maintain efficiency, achieve company objectives, minimize legal risks, and comply with relevant regulations.
Policies on email, instant messaging, and texting typically spell out what the company considers as appropriate usage and, more importantly, what is considered inappropriate usage.
Policies should also specify retention of digital communications. Maintaining records of digital communications is important in order to document communications that occur and to mitigate legal risk.