How current events impact your business and real estate holdings

Wednesday, May 09, 2012

Unauthorized Practice of Brokerage

Its often said that real estate agents are engaging in the unauthorized practice of law, but what about CPAs, Financial Planners, Property Managers and the like engaging in the unauthorized practice of real estate brokerage. Better yet, what is real estate brokerage in the first place?

Lets start with the Department of State's take on the matter. On their website, the Department of State has a FAQ section for Real Estate Salespersons that reads as follows:

If I am a real estate management company, do I need a real estate broker's license?
That depends on what services you provide. If you collect rent or place tenants in vacant spaces on behalf of your landlord client, the answer is yes. If, on the other hand, your services are strictly maintenance, the answer is no. you are not acting as a fiduciary (not handling another person's money).

So, does this provide the answer? Some may think yes, but when you dig a little deeper you should think about the words utilized in the answer as they actually present more questions than just simple answers. The key word that comes to attention is the term "tenants". After all what is a tenant and what isn't?

To illustrate with some questions:

  • Is the NYC Park Commission granting a private corporation the right to operate an enterprise on a percentage rental basis for 20 years a tenancy? 
  • What about a business broker affecting a lease of an operating hotel premises?
  • How about renting a cooperative unit on an hourly basis?
Are these tenancies?

To learn the answer to these illustrations and more, click here and read a decision by the State of New York, Department of State, Office of Administrative Hearings. This is the best guidance available on this topic. 

It appears that the test is if a transaction concerns "an estate or interest in real property" it requires a brokerage license where providing accommodations to transient guests does not require such a license. 

Now, it is suggested to check your local Town or Village Code, which often has a definition of transient to see if the specific activity you are engaging in is transient or "an estate or interest in real property". Moreover, you will not want to rest on that definition and instead do further research if the interest provided is a license (not brokerage) or a tenancy (brokerage). Yet, the easiest solution for property owners is to hire a licensed broker when dealing with real estate negotiations, sales or leases. This way it is unnecessary to analyze whether the activity in question is viable or instead constitutes the unauthorized practice of real estate brokerage.