If you're running a property management company in California—or thinking about starting one—you need to know that this isn't a business you can just jump into without the right paperwork. California has some of the strictest licensing and insurance requirements in the country for property managers. The good news? Once you understand what's required, getting compliant isn't as complicated as it sounds.
Here's the thing most people don't realize: running a property management business without proper licensing and insurance doesn't just risk fines—it can shut you down completely. California's Department of Real Estate (DRE) takes licensing seriously, and the state's recent crackdown on workers' compensation violations means penalties have nearly tripled for repeat offenders. Let's break down exactly what you need to operate legally and protect your business.
Do You Need a License to Manage Property in California?
Short answer: yes, almost always. California law requires a real estate license if you're renting, leasing, or managing property for others in exchange for compensation. That means if you're collecting rent, showing units, or handling tenant issues for someone else's property, you need to be licensed through the California Department of Real Estate.
You have two paths. If you're working for an established property management company, you need a real estate salesperson license. This requires completing 135 hours of pre-licensing education, passing the California real estate exam, and working under a licensed broker who sponsors you. If you want to run your own property management company independently, you'll need a real estate broker license instead. Corporate property management companies must have at least one corporate officer with a broker's license.
There are a few exemptions, but they're narrow. If you're a resident manager living on-site at an apartment building or complex, you don't need a license—but only for that specific property. Hotel and motel managers are also exempt, as are clerical employees who don't negotiate leases or handle tenant relations. For everyone else, the license is non-negotiable.
Workers' Compensation Requirements Just Got Stricter
If you have even one employee—whether that's a leasing agent, maintenance technician, or administrative assistant—you must carry workers' compensation insurance in California. No exceptions. This coverage pays for medical bills, wage replacement, and rehabilitation if an employee gets injured on the job. Think someone falls off a ladder while inspecting a roof, or strains their back moving furniture during a unit turnover. Without workers' comp, you're personally on the hook for those costs.
California recently increased penalties for businesses that skip this requirement. As of 2026, if you're caught operating without workers' comp insurance, you face civil penalties of up to $10,000 per violation as a sole proprietor, $20,000 for LLCs or corporations, and $30,000 for repeat offenders. The state isn't messing around—they've made it clear that protecting workers is a priority, and they're willing to hit violators where it hurts.
Even if you're a solo operator now, plan ahead. The moment you hire your first employee, you need coverage in place before they start work. Many property managers make the mistake of thinking they can add it later—that's how you end up with a suspended license and massive fines.
General Liability Insurance: What Contracts Actually Require
Here's where a lot of property managers get surprised. General liability insurance isn't technically required by California law—but good luck finding a client who doesn't require it. Most property management contracts mandate at least $1 million per occurrence in general liability coverage, with a $2 million aggregate limit. This protects you if someone gets injured on a property you manage, or if you accidentally damage someone's property while doing your job.
Imagine this scenario: you're showing a vacant unit to prospective tenants, and someone trips on a loose floorboard you didn't notice. They break their wrist and sue for medical bills and lost wages. Without general liability insurance, you're paying that claim out of pocket—and legal fees can add up fast even if you win. With coverage, your insurance handles the claim and the defense.
The typical cost for general liability insurance for smaller property management operations ranges from $500 to $2,000 annually, depending on your portfolio size and location. That's a small price compared to a single lawsuit that could bankrupt your business. Most property owners won't even consider hiring you without proof of coverage, so treat this as a cost of doing business, not an optional expense.
Professional Liability Insurance: Your Safety Net for Mistakes
Professional liability insurance—also called errors and omissions (E&O) insurance—covers you when you make a mistake in your professional duties. Property management involves a lot of judgment calls: screening tenants, handling security deposits, enforcing lease terms, navigating fair housing laws. Get one of those wrong, and you could face a discrimination lawsuit or a claim that you violated tenant rights.
Let's say you reject a tenant application based on credit history, but you don't document your decision properly. That applicant claims you discriminated based on race or disability. Even if the claim is baseless, defending yourself in court costs thousands. E&O insurance covers your legal defense and any settlement or judgment if you lose. Many property management contracts specifically require this coverage, especially for larger portfolios or commercial properties.
This coverage also protects you against claims for mishandling security deposits, failing to maintain habitability, or breaching your fiduciary duty to property owners. Given California's tenant-friendly laws and strict fair housing enforcement, E&O insurance isn't optional if you want to sleep at night.
Other Coverage You Might Need
Depending on your business structure, you may need additional policies. If your company owns vehicles used for business purposes—like driving to properties for inspections—you need commercial auto insurance with at least $1 million per accident in coverage. If you employ staff who handle tenant funds or security deposits, many contracts require crime insurance or a fidelity bond to protect against employee theft.
Some property owners also require cyber liability insurance, especially if you're managing sensitive tenant data or processing online rent payments. A data breach exposing tenant information could lead to lawsuits and regulatory fines. As property management becomes more digital, this coverage is becoming standard rather than optional.
How to Get Started and Stay Compliant
Getting your insurance and licensing in order doesn't have to be overwhelming. Start by contacting a commercial insurance broker who specializes in property management. They can assess your specific needs based on your portfolio size, number of employees, and typical contract requirements. Don't go with the cheapest quote—make sure you're getting adequate limits and that your policy covers the specific risks in your contracts.
For licensing, enroll in a DRE-approved pre-licensing course if you need your salesperson or broker license. Schedule your exam well in advance—California's real estate exam has a pass rate around 50%, so give yourself time to study properly. Once licensed, maintain your coverage continuously. Letting your workers' comp or general liability lapse, even for a day, can trigger contract violations and put your license at risk.
California's requirements might seem strict, but they're designed to protect everyone involved—property owners, tenants, employees, and you. Operating with proper licensing and insurance means you're building a legitimate business that can grow sustainably. Cut corners now, and you risk losing everything you've built. Do it right from the start, and you'll have the foundation for a successful, protected property management company.
