Property Management in Minnesota
Minnesota's 2023 non-compete statute leaves a buyer no non-compete to enforce except the ones its sellers sign.
Minnesota banned employee non-competes in 2023 with no earnings threshold, and that single choice rearranges how a management company changes hands here. The covenants a buyer expects from your regional manager and your leasing staff are void; the ones it signs with your shareholders are not. A second statute, enacted in 2024, voids the no-hire clause that sits in most management agreements. On the tax side the state treats the gain as ordinary income, and the one percent surtax that reads like a flat add-on to any large Minnesota exit turns on material participation rather than on the size of the check.
Minneapolis-St. Paul-Bloomington (Twin Cities) / Duluth / Rochester / St. Cloud
A rolled stake is what moves a Minnesota manager inside the exception
Minn. Stat. 181.988, subd. 2(a) provides that any covenant not to compete contained in a contract or agreement is void and unenforceable. The statute sets no earnings threshold, so nothing in it turns on what a regional portfolio manager or a leasing agent is paid. Subdivision 1(c) defines employee to include independent contractors, and subdivision 1(d) defines independent contractor to reach an entity a worker was required to form, which puts a maintenance technician billing through a single-member LLC inside the ban. Subdivision 1(a) defines the covenant as a restraint operating after termination of the employment, so in-term exclusivity and anti-moonlighting obligations are untouched.
The ban is not retroactive. Minnesota enacted the section as 2023 c 53, art. 6, s 1, applying to contracts and agreements entered into on or after July 1, 2023. Covenants signed before that date are not swept away by the statute and are still tested under Minnesota's earlier common law. The first pass through the personnel binder is therefore a date check on each agreement.
Subdivision 2(b)(1) is the exception, and its wording decides who a buyer of a Minnesota property management company can actually bind. It preserves a covenant agreed on during the sale of a business by the person selling the business and the partners, members, or shareholders, and the buyer of the business. That runs to the equity, not to the payroll. Every partner, member and shareholder who signs as a seller can be bound, so all of them should sign, and subdivision 2(b)(2) separately preserves covenants agreed on among partners, members or shareholders in anticipation of dissolution. Subdivision 2(b)(1) is also a structuring instruction. Give a key regional manager even a small rolled stake and their covenant moves from void under subdivision 2(a) to preserved by 2(b)(1). Equity is not a sweetener on the retention package here; without it there is no covenant to preserve.
Subdivision 2(b)(1) conditions the exception on the covenant being temporary and geographically restricted, limited to a reasonable geographic area and a reasonable length of time. That is a precondition to the exception, not a limit operating inside it. Whether a Minnesota court would trim a sale covenant that misses the condition, or treat it as falling outside subdivision 2(b)(1) and therefore void under 2(a), has not been decided. On the employee side there is no open question: subdivision 2(c) severs the void covenant and leaves the rest of the contract standing, and subdivision 2(d) allows a court to award the employee attorney fees.
181.988 spares your nonsolicits; 181.9881 voids your no-hire clause
Subdivision 1(a) writes nondisclosure agreements, trade secret agreements, nonsolicitation agreements and agreements restricting the use of client or contact lists out of the definition of a covenant not to compete. Those are the instruments a buyer of a Minnesota book has left. Nothing stops a property manager from joining a competitor in the next Twin Cities suburb; a customer nonsolicitation agreement is what stops them from taking the management agreements along.
Being outside the statutory ban is not the same as being enforceable. A retention nonsolicit handed to staff at or after closing is presented mid-employment, so under Minnesota common law it needs independent consideration of its own and still has to be reasonable. Fund that consideration in the deal budget and make signing a condition of the retention payment rather than something asked for once it has been paid. A restriction drawn so broadly that it operates as a general bar on working in the industry invites recharacterization as a covenant not to compete under subdivision 1(a), which puts it back inside subdivision 2(a) and voids it.
Minnesota then removed a clause that sits in most third-party management agreements. Minn. Stat. 181.9881, subd. 2(a) provides that no service provider may restrict, restrain, or prohibit in any way a customer from directly or indirectly soliciting or hiring an employee of a service provider, and subd. 2(b) makes any provision of an existing contract that violates it void and unenforceable. Subdivision 1(c) defines service provider as any partnership, association, corporation, business, trust, or group of persons acting directly or indirectly as an employer or manager for work contracted or requested by a customer, and subdivision 1(b) carries independent contractors into employee by borrowing that term from section 181.988, subdivision 1, paragraph (d). That definition is drawn wide enough to describe what a third-party management agreement sets up, so on a standard contract the clause barring an owner from hiring your on-site staff is likely void. Whether these particular contracts put the company inside the definition is a question of fact for Minnesota counsel, so confirm it before a retention plan is built on the clause.
Subdivision 2(c) requires a service provider whose existing contract contains the clause to notify its employees of the section and of the restrictive covenant that violates it, so legacy management agreements still carrying one come with an affirmative notice duty the acquiring company inherits alongside the contract. Subdivision 3 exempts only workers providing professional business consulting for computer software development and related services, which reaches nothing in a management book.
The extra point most Minnesota sellers will not owe
Minnesota's individual rate schedule at Minn. Stat. 290.06, subd. 2c runs 5.35%, 6.80%, 7.85% and 9.85%, and for tax year 2026 the top bracket begins at $203,151 of taxable income for a single filer and $337,931 for a married couple filing jointly. There is no preferential capital gains rate behind it. Net capital gains enter taxable income and are taxed on the same schedule as ordinary income, so the gain stacks on the seller's other income and there is no separate capital gains regime to move it into.
Minn. Stat. 290.033 then imposes a tax of one percent on the net investment income of individuals, estates and trusts in excess of $1,000,000, for taxable years beginning after December 31, 2023. The section sits outside the rate schedule, and on its face it reads as an extra point on any large Minnesota gain. That reading is wrong for most owner-operators. Section 290.033 takes net investment income from IRC section 1411(c), and 1411(c)(1)(A)(iii) read with (c)(2) reaches gain on the disposition of property only where the property is not held in a trade or business or the business is a passive activity of the taxpayer or a trading business in financial instruments or commodities, while 1411(c)(4) tests the sale of a partnership or S corporation interest as though the entity's property had been sold at fair market value immediately beforehand. Material participation decides the question, not the size of the check.
Where the surtax does reach is the passive slice: an absentee or non-participating owner's gain, an estate or trust holding the equity, the rental and royalty income the Department of Revenue lists as net investment income, and the portion of a price allocable to passively held property such as a building the seller owns and leases back to the company. On that income the one percent stacks on the 9.85% top rate. Residency is handled inside the statute rather than through a credit: paragraph (c) computes the surtax for an individual who is not a Minnesota resident for the entire year as though they were a full-year resident, then multiplies by the ratio of net investment income allocable to Minnesota under section 290.17 to total net investment income, and paragraph (d) applies a parallel fraction to estates and trusts.
Individuals report and pay the surtax on Form M1 and estates and trusts on Form M2. Schedule NIIT is required of partners and shareholders who satisfy their filing requirement through composite income or a pass-through entity tax election and whose investment income exceeds $1 million. 2026 Laws ch. 128, art. 1, sec. 21 amended section 290.033 to add an opportunity zone adjustment in a new paragraph (e), effective for taxable years beginning after December 31, 2026, which leaves the one percent rate and the $1,000,000 threshold unchanged for a closing this year.
Questions Minnesota sellers ask
- Which of my staff covenants survived July 1, 2023?
- Only the ones signed before it, and even those get tested under Minnesota's earlier common law rather than assumed. Minn. Stat. 181.988, subd. 2(a) voids any covenant not to compete entered into on or after that date, with no earnings threshold, and subdivision 1(c) carries independent contractors into the ban, so a contract technician's covenant fails on the same terms as a salaried manager's. What subdivision 1(a) writes out of the definition survives at any signing date: nondisclosure, trade secret, client and contact list, and nonsolicitation agreements.
- Can I bind my top property manager as part of the sale?
- Yes, if they sign on the equity side. Minn. Stat. 181.988, subd. 2(b)(1) preserves a covenant agreed on during the sale of a business by the person selling the business and the partners, members, or shareholders. The exception is conditioned on a reasonable geographic area and a reasonable length of time, and no Minnesota decision has said what happens to a sale covenant that misses that condition, so the term and radius have to be defensible on their own facts.
- Will I owe the 1% Minnesota surtax on the sale?
- Not unless the gain is passive to you. Minn. Stat. 290.033 adds one percent on net investment income above $1,000,000, but it borrows its definition from IRC section 1411(c), which reaches gain on the disposition of property only where the property is not held in a trade or business or the business is a passive activity of the taxpayer. Material participation decides it, not the size of the gain. This firm does not give tax advice.
- Is there a Minnesota tax clearance certificate to clear before closing?
- No. Minnesota runs no clearance certificate regime. Minn. Stat. 270C.57, subd. 2(a) conditions the successor notice duty on a bulk transfer where an enforceable lien for unpaid taxes has already been filed under section 270C.63, so the operative diligence step is a search for a lien already filed under that section. Run it again close to closing: the statute contemplates a lien filed as late as 30 days before transfer, which triggers the 20-day Form C50 notice and becomes a scheduling constraint, while a lien filed after the purchase agreement and inside that window triggers no notice duty at all. Subdivision 2(c) then removes the statute's purchase-price cap on successor liability in a transfer that is not at arm's length, measuring liability by the value of the assets transferred instead, and subdivision 1(i) limits the tax reached here to sales, withholding and chapter 296A taxes. The Department of Revenue's own successor liability page states the notice duty without repeating the statute's lien condition, so a clean search narrows the exposure rather than closing it.
- Does the buyer need its own Minnesota license to run the book after closing?
- Yes. Minn. Stat. 82.55, subd. 19(a) lists manages among the acts that make a person a real estate broker when performed for another for compensation, so the acquirer needs its own Minnesota broker of record at closing. Minn. Stat. 82.64 lets the commissioner waive the requirements of sections 82.59, subdivision 8, and 82.61 where a reciprocal licensing agreement is in effect between the commissioner and the buyer's home jurisdiction, the individual holds a license there in good standing, and that jurisdiction's requirements are substantially similar. Section 82.64 names those two sections by cross-reference and does not itself name examination or continuing education, so confirm the scope of any waiver against them with the Department of Commerce. Minn. Stat. 82.65, subd. 1 gives a licensee ten days to notify the commissioner of a change to the information in the license application on file, including personal name, trade name, address or business location, which most rebrands and office moves trigger. And if the target folds community association management into the same entity, get a Minnesota licensing opinion rather than an assumption in either direction: chapter 82 contains no community association manager exception, but it also does not expressly reach association management, and the Department of Commerce has published no guidance resolving it.
Where these facts come from
Everything above that is a rule rather than a judgment is listed here with its publisher and the date it was checked. Licensing, tax and non-compete rules change, sometimes without much notice. None of this is legal or tax advice, and it is not a substitute for your own counsel and CPA.
Minn. Stat. 181.988, subd. 2(a) provides that any covenant not to compete contained in a contract or agreement is void and unenforceable. Subdivision 1(a) defines covenant not to compete as an agreement restricting the employee after termination of the employment, and expressly excludes nondisclosure agreements, agreements designed to protect trade secrets or confidential information, agreements restricting the ability to use client or contact lists, and agreements restricting the solicitation of customers or employees. Subdivision 1(c) defines employee to include independent contractors; subdivision 1(d) defines independent contractor to reach an entity the worker was required to form. Subdivision 2(b)(1) preserves a covenant agreed upon during the sale of a business, under which the person selling the business and the partners, members, or shareholders, and the buyer of the business may agree on a temporary and geographically restricted covenant not to compete that will prohibit the seller from carrying on a similar business within a reasonable geographic area and for a reasonable length of time. Subdivision 2(b)(2) preserves covenants agreed upon in anticipation of dissolution. Subdivision 2(c) severs a void covenant without voiding the rest of the contract; subdivision 2(d) permits an award of attorney fees to the employee. The section contains no wage or earnings threshold. Enacted 2023 c 53 art 6 s 1, applying to contracts and agreements entered into on or after July 1, 2023.
Minnesota Office of the Revisor of Statutes. Checked 2026-09-07.
The statute is not retroactive. Covenants entered into before July 1, 2023 are not void under this section and remain subject to Minnesota's pre-2023 common law. No published Minnesota appellate decision has yet applied any judicial modification power to a covenant preserved by subdivision 2(b)(1), and subdivision 2(b)(1)'s reasonableness language is a condition on the exception itself rather than a limit operating inside it, so the outcome for an overbroad sale covenant is unsettled. Enforceability of the agreements excluded by subdivision 1(a) is governed by Minnesota common law, which tests reasonableness and requires independent consideration for a covenant presented after employment has begun.
Minn. Stat. 181.9881, RESTRICTIVE EMPLOYMENT COVENANTS; VOID IN SERVICE CONTRACTS. Subd. 1(a) defines customer as an individual, partnership, association, corporation, business, trust, or group of persons hiring a service provider for services. Subd. 1(b) defines employee as any individual who performs services for a service provider, including independent contractors, with independent contractor having the meaning given in section 181.988, subdivision 1, paragraph (d). Subd. 1(c) defines service provider as any partnership, association, corporation, business, trust, or group of persons acting directly or indirectly as an employer or manager for work contracted or requested by a customer. Subd. 2(a): No service provider may restrict, restrain, or prohibit in any way a customer from directly or indirectly soliciting or hiring an employee of a service provider. Subd. 2(b): Any provision of an existing contract that violates paragraph (a) is void and unenforceable. Subd. 2(c): When a provision in an existing contract violates this section, the service provider must provide notice to their employees of this section and the restrictive covenant in the existing contract that violates this section. Subd. 3 exempts workers providing professional business consulting for computer software development and related services who are seeking employment through a service provider with the knowledge and intention of being considered for a permanent position of employment with the customer as their employer at a later date. Enacted 2024 c 110 art 2 s 12.
Minnesota Office of the Revisor of Statutes. Checked 2026-09-07.
Whether a particular third-party management company is a service provider and a particular owner client is a customer under subdivision 1 is a question of fact for Minnesota counsel on the specific contracts. The section speaks to no-hire and no-solicit restrictions imposed on the customer; it does not address covenants between the service provider and its own workforce, which sit under section 181.988. No effective-date provision separate from the 2024 c 110 art 2 s 12 enactment was verified, so this page states the enactment year and not an effective date.
Minnesota's individual income tax brackets are 5.35%, 6.80%, 7.85% and 9.85%. For tax year 2026 the 9.85% bracket begins at $203,151 of taxable income for single filers and $337,931 for married couples filing jointly. The rates are imposed under Minn. Stat. 290.06, subd. 2c. Minnesota applies no preferential rate to net capital gains, which are included in taxable income and taxed on the same schedule as ordinary income.
Minnesota Department of Revenue. Checked 2026-09-07.
The Department's page carries the rate schedule and bracket thresholds. It does not itself discuss capital gains treatment; the absence of a preferential capital gains rate follows from capital gains entering taxable income under the same schedule. Because the schedule is progressive, a gain stacks on the seller's other income and is not taxed at the top rate from the first dollar. No fifty-state comparative claim is made here. Confirm the bracket figures for the tax year in which the gain is actually recognized, since the page is updated annually at the same URL.
Minn. Stat. 290.033 imposes, in addition to the tax under section 290.06, subdivision 2c, a tax on the net investment income of individuals, estates, and trusts in excess of $1,000,000 at a rate of one percent. Net investment income takes its meaning from section 1411(c) of the Internal Revenue Code, excluding gain on class 2a agricultural property. Paragraph (c) provides that for an individual who is not a Minnesota resident for the entire taxable year, the tax is computed as if the individual were a full-year resident and then multiplied by the ratio of net investment income allocable to Minnesota under section 290.17 to total net investment income; paragraph (d) applies a parallel fraction to estates and trusts. The section applies to taxable years beginning after December 31, 2023. The Revisor's page for the section carries a note that 290.033 has been amended by 2026 Laws chapter 128, article 1, section 21. That session law section rewrites paragraph (a) so that net investment income is adjusted for capital gains in an opportunity zone as provided in a new paragraph (e), and it is effective for taxable years beginning after December 31, 2026. It does not change the one percent rate or the $1,000,000 threshold in paragraph (b).
Minnesota Office of the Revisor of Statutes. Checked 2026-09-07.
The amendment recorded in the value above takes effect for taxable years beginning after December 31, 2026, so the one percent rate and the $1,000,000 threshold are unchanged for a 2026 closing; a seller planning a 2027 or later close should read paragraph (e) as enacted. The session law text is at https://www.revisor.mn.gov/laws/2026/0/Session+Law/Chapter/128/. No claim is made on this page that a credit for taxes paid to another state is or is not available against this tax; the statute addresses non-residents through the paragraph (c) and (d) fractions rather than through a credit.
26 U.S.C. 1411(c)(1)(A)(iii) includes in net investment income 'net gain (to the extent taken into account in computing taxable income) attributable to the disposition of property other than property held in a trade or business not described in paragraph (2).' Subsection (c)(2) describes a trade or business that is '(A) a passive activity (within the meaning of section 469) with respect to the taxpayer, or (B) a trade or business of trading in financial instruments or commodities (as defined in section 475(e)(2)).' Subsection (c)(4) provides that on a disposition of an interest in a partnership or S corporation, gain is taken into account under clause (iii) of paragraph (1)(A) only to the extent of the net gain that would be so taken into account by the transferor if all property of the partnership or S corporation were sold for fair market value immediately before the disposition of such interest.
26 U.S.C. 1411, as incorporated by Minn. Stat. 290.033(a) (Cornell Legal Information Institute). Checked 2026-09-07.
Whether a specific owner materially participates, and therefore whether the exit gain is net investment income for section 290.033 purposes, is a facts-and-circumstances determination under section 469 that belongs with the seller's tax adviser. Nothing here is tax advice, and no position is taken on any particular transaction.
The Department describes federal net investment income as including interest, dividends, capital gains, rental and royalty income, non-qualified annuities, and income from businesses involved in trading of financial instruments or commodities and businesses that are passive activities to the taxpayer. Individuals report and pay Minnesota NIIT on Form M1, Individual Income Tax; estates and trusts on Form M2, Income Tax Return for Estates and Trusts. Partners and shareholders electing composite income or pass-through entity tax to satisfy their filing requirement must file Schedule NIIT if their investment income exceeds $1 million.
Minnesota Department of Revenue, Net Investment Income Tax (NIIT). Checked 2026-09-07.
Minn. Stat. 270C.57, subd. 2(a) imposes the successor notice duty only where a business transfers in bulk to a successor the business assets and an enforceable lien for unpaid taxes has been filed against the business by the commissioner under section 270C.63; the successor must notify the commissioner at least 20 days before taking possession or paying the purchase price. Where an agreement to transfer has been entered into, the notice requirement applies only if such a lien was filed prior to the date of the agreement, or if the date of transfer is more than 30 days after the date of the agreement and such a lien is filed at least 30 days prior to the date of transfer. Subd. 2(e) provides that if the commissioner fails to respond within the 20-day period, the successor is not liable for any taxes of the transferring business other than those included on the lien. Subd. 1(e) defines purchase price to include consideration for tangible property and intangibles such as leases, licenses, or goodwill, plus debts assumed or forgiven. Subd. 2(c) removes the purchase-price cap for transfers that are not at arm's length, measuring liability by the value of the assets transferred. Subd. 1(h) defines transfer in bulk as more than one-half of all business property at all locations combined. Subd. 1(i) limits tax for this section to sales, withholding, and taxes imposed by chapter 296A. Notice is given on Form C50, Notice of Business Transfer.
Minnesota Office of the Revisor of Statutes / Minnesota Department of Revenue. Checked 2026-09-07.
Read against the Department's public guidance below, which states the notice duty without the statute's lien condition. Section 270C.63 was not separately verified and no filing office for a lien under it is asserted on this page. This page does not advise on the size of any holdback or indemnity. Section 270C.57 does not reach income tax, unemployment insurance experience rating, or common-law successor liability, which are negotiated separately.
The Department states: 'If you buy or acquire a business, or the stock of goods of a business, you are a successor. Successors must notify the Minnesota Department of Revenue before the transfer takes place.' Where a successor does not notify the Department or pay amounts due, the Department issues an assessment, holds the successor liable for past-due taxes and penalties, and files a lien; the Department describes liability as capped at the fair-market purchase price of the business.
Minnesota Department of Revenue, Successor Liability. Checked 2026-09-07.
The Department's page states the notice duty in unconditional terms and does not repeat the lien condition in Minn. Stat. 270C.57, subd. 2(a). The statutory text is the operative authority, but a clean lien search narrows practical exposure rather than formally eliminating it, and this page does not tell a buyer to skip a notice.
Minn. Stat. 82.55, subd. 19(a) includes among the acts of a real estate broker, when done for another and for commission, fee, or other valuable consideration or with the intention or expectation of receiving the same directly or indirectly, one who lists, sells, exchanges, buys, rents, manages, offers or attempts to negotiate a sale, option, exchange, purchase or rental of an interest or estate in real estate. Minn. Stat. 82.56 opens: 'Unless a person is licensed or otherwise required to be licensed under this chapter, the term real estate broker does not include' the listed exceptions, of which 82.56(d) covers any custodian, janitor, or employee of the owner or manager of a residential building who leases residential units in the building. Section 82.56 contains no exception for community association or common interest community managers, and Minnesota issues no separate community association manager license.
Minnesota Office of the Revisor of Statutes. Checked 2026-09-07.
The absence of a community association manager exception in section 82.56 does not establish that community association management falls inside subdivision 19(a) in the first place, and no Minnesota Department of Commerce guidance resolving that question was located. A target that combines association management with third-party rental management should obtain a Minnesota licensing opinion rather than an assumption in either direction. Nothing on this page addresses who may broker the sale of a business in Minnesota.
Minn. Stat. 82.64, RECIPROCITY, permits the commissioner to waive the requirements of sections 82.59, subdivision 8, and 82.61 for an individual from another jurisdiction where a reciprocal licensing agreement is in effect between the commissioner and that jurisdiction's licensing officials, the individual holds a valid license in good standing there, and that jurisdiction's licensing requirements are substantially similar to Minnesota's. Minn. Stat. 82.65, NOTICE TO COMMISSIONER, subd. 1 requires a licensee to give notice in writing or in the format prescribed by the commissioner of any change to the information contained in the license application on file, including personal name, trade name, address, or business location, within ten days after the change.
Minnesota Office of the Revisor of Statutes. Checked 2026-09-07.
Section 82.64 waives the requirements of sections 82.59, subdivision 8, and 82.61 by cross-reference; it does not itself name examination or continuing education, and the scope of any waiver should be confirmed against those two sections and with the Department of Commerce. The section 82.64 text is at https://www.revisor.mn.gov/statutes/cite/82.64.
Page last reviewed 2026-09-07.
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