CREJ - Property Management Quarterly - October 2017
In the 2017 session, the Colorado Legislature passed a law specifically defining what real-estate forms can and cannot be used by brokers and property managers. The law mandates only “standard” forms promulgated from “approved sources” may now be used. As such, brokers may not draft forms, create their own forms or use forms that are found on the internet. This rule applies to all forms commonly used in the business activities of a broker for which there are legally binding effects. The law went into effect on June 30, and is reflected in Colorado law as C.R.S. § 12-61-803(2) (2017), titled “Relationships between brokers and the public.” Restrictions on the use of such forms are nothing new. In fact, laws to similar effects have been in place for some time, however, they were clearly a cause for confusion considering that the drafting of impromptu forms or obtaining them from the web to provide a “quick fix” has been common practice in recent time. In recognition of the lack of awareness and enforcement of these laws, the Colorado Division of Real Estate attempted to resolve this issue through a proposed rule change as recently as last summer. However, due to administrative-policy disagreements between the members of the Real Estate Commission, those efforts were postponed until now. Specifically, the Commission differed as to what should be included in the proposed rule change in both its form and content. As such, it came as no surprise that the legislature felt it necessary to provide explicit clarity on this issue. There is no longer any cause for confusion. The law defines a standard form as one drafted or issued by the Colorado Real Estate Commission, a broker’s attorney, the Colorado Bar Association, a broker’s own client (in limited circumstances) and closing forms prescribed by a title company in which the broker is acting as a transaction-broker or single-agent party to the transaction. The law eliminates the ability of brokers and corporate property managers to draft their own documents or go online to obtain a form. Importantly, this law applies only to those who are licensed to engage in real estate transactions. The main parties to which this rule will apply are property managers who are also real estate brokers and third-party fee managers, such as property management companies hired to manage privately owned property. Accordingly, property managers that both personally own and manage their property do not fall under the purview of this rule. This is known as the “owner’s exemption,” the purpose of which is to allow private owners to sell or manage their properties without needing a real estate license. Forms promulgated by the Colorado Real Estate Commission are referred to as “commission approved forms.” Any noncommission approved form, even one coming from another approved source, must contain a disclosure that the form is not commission approved. For example, should a broker have a Colorado licensed attorney draft a lease on his behalf, language must appear within the document itself noting the name of the attorney or law firm who drafted or reviewed the document and the name of the broker or brokerage firm that commissioned it. Forms approved for use by the Colorado Bar Association are defined in the statute as those “issued with written approval of the CBA or its successor organization and specifically designated for use by brokers in Colorado.” CBA approved forms require that the user comply with any condition specified by the CBA in connection with the use of the form. A party to a transaction may provide its own form only when the broker is acting as a single agent to that party or as a transaction broker. Furthermore, the broker must retain written confirmation that a party to the transaction provided the form, and the broker’s use of the form must be limited to the insertion of transaction specific information. Although all of the sources described above are “approved,” the law states a broker “shall use a commission approved form when such a form exists and is appropriate for the transaction.” Therefore, when a commission-approved form is directly applicable to the situation, that form must be used. In all cases, a broker must advise the parties that the real estate forms have important legal consequences and that in an ideal circumstance, the parties would consult with legal counsel before signing. The legislature imposed this condition to encourage that both parties have a complete understanding of the rights and responsibilities of each when entering into a contractual relationship. As noted above, but worth repeating, this law applies not only to lease agreements and related documents, but to all forms regularly used for carrying out the duties of a broker. This includes leases, property management agreements, corresponding addendums and formal offers to sell, exchange, buy, list or auction real estate.