CREJ - Journal

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January 2015 — Multifamily Properties Quarterly — Page 15
C olorado Real Estate Com-
mission compliance is a hot
topic again, partly because of
the flood of new owners and
property management com-
panies coming to Colorado and partly
driven by the commission’s increased
enforcement efforts. Due to budget
cuts and political considerations, the
commission had stopped random
audits for a number of years. Since
property management is one of the
leading sources of complaints received,
it recently reinstated random audits
as part of its proactive and stepped up
enforcement efforts. Commission com-
pliance is a complex area; the purpose
of this article is to address only the
higher-level general issues.The article
should not be relied on in determining
if your company needs a license or is
in compliance with current law.
How do you know if you need a Colora-
do real estate broker’s license? If you’re
a third-party fee manager, you need
a license.The question is not compli-
cated for fee managers. Fee managers
must be licensed.
If you own the property you man-
age, you do not need a broker’s license,
under an owners’ exemption.The key
to the owners’ exemption is whether
the management and ownership have
common control.Whether an owner-
ship and management relationship
meets the owners’ exemption can be
extremely complicated. Apartment
communities are owned by legal enti-
ties. In some cases, the ownership
entity of an apartment community is
owned and controlled by a complex
web of other legal entities. Given the
complexity of ownership entities,
management company structures and
the relationships between the two,
determining wheth-
er a specific owner
and management
relationship meets
the owners’ exemp-
tion is problematic.
Unlicensed individu-
als are not subject
to commission
enforcement actions
(audits). Accordingly,
the commission has
not ruled on the
issue of whether
owners and man-
agement companies
in these complex
relationships are in fact exempt. How-
ever, either through public complaint
or litigation, the issue eventually will be
brought before the commission.
Does the management company’s
broker need to be an employing broker?
Yes. Assuming a property manage-
ment company needs to be licensed,
the company must employ a Colorado
licensed real estate broker. Colorado
has two types of real estate broker’s
licenses: an employing broker’s license
and an employed broker’s license.
Only an employing broker can be the
licensed broker for a property manage-
ment company.The key differences
between an employing broker and an
employed broker are education and
experience. An employing broker must
take additional education classes, pass
additional testing and be licensed for at
least two years under the supervision
of another employing broker.
Amanagement company’s failure to
understand company licensing require-
ments, and the distinction between
employing and employed brokers can
cause significant problems. Specifi-
cally, many management companies
only have one broker who is both an
employing broker and the broker for
the company. If the company’s employ-
ing broker leaves, it likely will be dif-
ficult to find a replacement in a timely
manner.
Having someone quickly get licensed
and become the new company-desig-
nated broker isn’t plausible, because of
the two-year supervision requirement.
Additionally, while there are many
employing brokers, there are fewwho
are willing to forgo income from sales
activities to become an employing bro-
ker for a property management com-
pany.They can only be employed by
one company.To avoid this problem, a
management company should always
have at least two brokers.
Our company is not in compliancewith
the commission’s rules: Where dowe
start? If you are a third-party fee man-
ager, the first thing you need to do is
hire an employing broker as the com-
pany’s broker. Here are some issues
that will result in problems with the
commission if you’re not in compli-
ance:
• Failure to make proper broker-
age relationship disclosures to both
owners and tenants. Brokerage rela-
tionship disclosures to owners are
made through use of the Real Estate
Commission BDA-55 Form. Brokerage
relationship disclosures to tenants are
made through use of the Real Estate
Commission Form BDT-20.
• Failure to have brokerage office poli-
cies for your company.
• Failure to comply with Real Estate
Commission banking requirements.
• Failure to follow commission rules
regarding security deposits.
Does our company need more than
one licensed broker? Management
companies, no matter how big or how
small, need more than one broker. As
previously discussed, if a management
company only has a single employing
broker and that broker leaves the com-
pany, it will be difficult replacing that
broker.
A property management company
also should have multiple brokers to
meet the key legal requirement of
supervision. Both Colorado statutes
and Real Estate Commission require-
ments impose significant supervisory
burdens on employing and employed
brokers. If managing several thousand
units, your company is going to have a
difficult time convincing the commis-
sion that a single person is properly
supervising dozens or hundreds of
employees. Finally, every deal with an
owner requires a management com-
pany to designate the brokers involved
with the deal (BDA-55). If the BDA-55
designates a single individual and he or
she leaves the company, you now have
no designated broker.
Dowe have to use commission-
approved forms? Yes, if the commission
has a form for a specific purpose, you
must use it.
Currently, the commission is propos-
ing Rule F-8 (Standard Forms). If this
rule is adopted, it will have a significant
impact on the multifamily industry.
The proposed rule would require virtu-
ally every single form that a manage-
ment company uses (leases, addenda,
contracts and other forms, including
three-day demands for rent or posses-
sion) to be drafted by attorneys.
Compliance can be determined only
by specific legal advice based on par-
ticular factual circumstances.s
Regulatory
Mark N.
Tschetter
Senior managing
partner, Tschetter
Hamrick Sulzer,
Denver
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