professional or personal beliefs, or stand up for
these beliefs and suffer any consequences.
Do you really have the option of staying
quiet? The outcome for you individually as a
professional and a CPM Member depends on a
number of conditions, but the lesson should be
clear: You have a duty to your client, and you
should be clear about who your clients are and
what you are undertaking as you strive to fulfill
your commitments, maintain your integrity and
enhance your reputation.
CASE STUDY BACKGROUND
The state’s real estate licensing law where this
case study takes place, and both the Institute
of Real Estate Management (IREM) and the
Community Associations Institute (CAI) codes
of ethics set the background for this case-based
study.
This particular state, along with many other
states, does not have licensing, educational,
or any other formal training and certification
requirements for entry into condominium management. However, this state does require a real
estate license for management of apartments
and commercial properties.
The property management company used as
the example in this case study required that all
their managers have active real estate licenses,
regardless of the type of property they managed
(an unusual practice in condominium management in this particular state). The property
management company actively managed apartments and condominium communities, as well
as commercial properties, and participated in
upscale commercial development. The management company partners were all brokers and
each held the Certified Property Manager
(CPM) designation. Each partner had divisional
responsibility for each type of property the
company managed. The senior property manager also held a CPM designation. All condominium managers had specific responsibilities
to the company’s broker under state licensing
law.
CASE DEVELOPMENT
In the early 2000s, Smith Apartment Company,
which owns a large number of apartment communities, decided that the company’s apartment
communities that had been fully depreciated
for tax purposes were in need of rehabilitation,
and should be disposed of due to the high cost
of curing accrued physical deterioration. The
company decided to dispose some of these
assets by converting them into condominiums.
These properties would be “freshened up” and
marketed to first-time homebuyers at attractive prices. The company would use its own
employees to direct and coordinate all work
(as one property would be finished, the crew
would start on another), and local real estate
brokers would market and sell the apartment
units from an onsite office. Property management firms would be hired to work with both
Smith Apartment Company and the homeowners prior to and after turnover of the properties to homeowner control. The management
company would then handle resale certificate
preparation when units were later resold by the
“first in” homeowners.
In 2004, Smith Apartment Company negotiated a management contract with Johnson
Management Company, whereby Johnson would
assume property management responsibilities
of Smith’s apartment communities during and
after conversion into condominiums. This would
place Johnson Management in a dual representation capacity, since Johnson Management would
work both for Smith Apartment Company and
its “developer-appointed” boards prior to the
property’s transition, and for the homeowner
boards after the turnover.
Smith also signed binding management contracts with Johnson Management for management services after turnover of each of the
properties to homeowner control (on behalf
of the new homeowner boards). With Smith’s
intention to convert a large number of its
apartment communities to condominiums over
several years, Johnson Management’s portfolio
would experience a very profitable, long-term,
This feature was
reviewed and
approved by the
chair of the IREM
Ethics Committee.
For more information about ethics
visit www.irem.
org/ethics.
