Colorado Real Estate Commission rules that apply to leasing of properties:
Background:
Last year, the Real Estate Commission went through an audit of its policies and
procedures. At that time, the Commission learned that they had not been enforcing
broker rules as they applied to the leasing of real estate. Consequently, a member of the
Colorado Apartment Owner’s Association (CAA) received a “cease & desist” order
requiring that they utilize a broker in their lease transactions. This was the first time
apartment leasing entities were made aware of the rules. CAA worked with the
Commission for further clarification. These rules have recently come to RMHA’s
attention, so we wanted to promptly provide them to you. CAA drafted much of this
information, and we have added our own analysis as it applies to land-lease manufactured
housing communities.
Requirements for a real estate license:
If you lease, list, or offer to rent or lease real estate for compensation (e.g., a commission
or a fee), you fall within the definition of a real estate broker. Therefore, you are subject
to the Colorado Real Estate Commission’s regulatory authority. The definition of such a
broker is found in § 12-61-101 (2), C.R.S.
If you manage property for third parties for a fee, but do not lease land or homes to
tenants as a part of your management activities, it is likely you will not need a Colorado
real estate license based on a specific exception to the statutory definition of “broker”.
This is rare, however, as most management companies play an active role in leasing
homes and apartments to tenants.
Exemption: The Rule requiring licensed Colorado real estate brokers to be involved in
transactions involving the management and leasing of real estate does exempt certain
parties who own real estate and manage their own properties. Rule C-24 states:
The regularly salaried employee of: (a) an owner of an apartment
building or complex, or (b) an owner of condominium units, or (c)
homeowner’s association, when acting as an on-site manager and
performing customary duties of an on-site manager is exempt from the
requirements of 12-61-101(2) and (3)[Real Estate Broker definition].
While this exemption does not specifically refer to land-lease communities, based on the
similarity in definitions, we would argue that it should similarly apply to land-lease
manufactured housing communities.
For the purposes of this Rule C-24 the term “owner” includes an entity
formed by the owner to manage the apartment building or complex. The
customary duties of an on-site manager include maintenance, collecting
rents and security deposits for the owner, or owner’s licensed broker,
showing units to a prospective tenant, and quoting a rental price
previously established by the owner or the owner’s licensed broker.
To preserve this exemption:
1.
The unlicensed on-site manager must account and report directly
to the respective owner or homeowner’s association or to an entity
licensed as an independent real estate broker; and,
2.
The unlicensed on-site manager must be regularly salaried (salary
may include rent value) by the owner of the apartment building or
complex, the homeowner’s association or the entity formed by the owner
to manage the property; and
3.
The unlicensed on-site manager may not negotiate any of the
materials terms of a lease or rental agreement with a tenant or
prospective tenant or conduct any other real estate activity that requires a
real estate license.
The term “owner” includes both persons and entities recognized under Colorado law. If a
person, the owner must have controlling interest in the entity formed by the owner to
manager the land-lease community. If the owner is an entity and the entity formed by the
owner to manage the land-lease community must be under the control of the same
persons.
What you need to maintain as proof of ownership:
You will need copies of the organizational documents for each property
ownership entity and management company to demonstrate the “owner”
controls each property ownership entity and management company. This
is relatively easy to maintain and the Colorado Real Estate Commission’s
auditors will need little time to verify this information.
If not exempt, how do I comply?
You will need to have someone on your staff that is a licensed real estate broker. This
person will need to comply with all relevant real estate broker rules as they relate to
record keeping, proper disclosures, maintaining trust accounts, establishing a broker’s
office policy, etc. You do not need to have a broker at every property, but, as set forth
below, you will need to be able to show the broker retained and is supervising on-site
managers, and is the only one negotiating any material terms in a lease or rental
agreement. That said, an on-site manager who is not a licensed broker may still fill in
blanks on lease forms, show units, and collect rents and security deposits.
Many property management companies hire un-licensed persons to lease space on-site.
Rule C-23. If a real estate brokerage firm employ’s an unlicensed on-site manager who
prepares leases or rental agreements, the employing broker must:
1.
Actively and diligently supervise all activities of the on-site
manager or delegate supervisory responsibility to a qualified employed
broker.
2.
Require the on-site manager to account to and report directly to
either the employing broker or the delegated employed broker.
3.
Engage the on-site manager, either as a regularly salaried
employee or as an independent contractor; and pay the on-site manager
through the real estate brokerage firm. Salary may include rent value or
other non-commission income.
4.
Instruct the on-site manager to not negotiate any of the material
terms or rental agreement with a tenant or prospective tenant.
The unlicensed on-site manager may fill in the blanks in lease forms
provided by the brokerage firm, show prospective tenants available units,
and collect security deposits and rents.
In essence, your unlicensed managers are an extension of your brokerage company and
must be carefully supervised in the same manner as your company would supervise an
unlicensed assistant.
Commission Position 27 is also attached. The Commission Position On The Performance
of Residential Property Management Functions. As you can see, this creates certain
requirements for the management contract between a property owner and person or entity
managing the property. It also discusses additional duties for brokers supervising
property managers and situations when ownership or management of a property changes,
and conflict of interest issues.
Please let us know if you have any questions. Thank you.
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