DORA’s Review of Proposed Manager Licensing—What Were the Factors?

On March 2, 2012, DORA published its official Sunrise Review of the proposed manager licensing requirements.  The review is mandated by Colorado Revised Statutes, Section 24-34-104.1 that requires any proposed legislation regulating an occupation or profession to be reviewed by DORA to ensure such regulation is necessary to protect the public.  DORA must analyze the proposed legislation based on three factors:

1. whether the unregulated practice clearly harms or endangers the public;
2. whether the public needs, and will benefit from, the proposed regulation; and
3. whether the public can be adequately protected by other types of regulation. 

In conducting its review, DORA determined that the unregulated practice of community management can result in harm to the public by defining “harm” in this case as including mismanagement, failure to perform, missing funds, and accounting failures.  When reviewing the proposed legislation using the second prong of the required analysis, DORA determined that the public could certainly benefit from an “assurance” that community managers are aware of the pertinent legal requirements associated with their profession and such knowledge could serve to “enhance consumer protection”.  It was the third prong, however, where DORA hit a stumbling block. 

When reviewing the proposed legislation and trying to determine whether the public could be adequately protected by other types of regulation, DORA concluded the public could be better protected if management companies were regulated as a whole as opposed to individual managers.  This conclusion was reached based on DORA’s observation that the harm suffered by owners and associations is oftentimes caused by non-manager employees of a management company, such as the accounting staff or bookkeeping staff.  The proposed manager licensing regulations would not affect these employees and therefore, would not protect associations and owners from the harm caused by such individuals.  As a result, DORA concluded that the HOA industry would be better served by regulation of management companies.