May one manage an affordable multifamily rental housing development without a real estate broker's license in compliance with the Real Estate Licensing and Registration Act (63 P.S. § 455.101 et seq.) (RELRA)? While some commentators have suggested that one must have a broker’s license in order to practically manage such a development; that is misleading, because it fails to recognize significant exemptions.
RELRA – Acting as Broker & Relevant Exemptions
Under RELRA, it is unlawful for any person to act in the capacity of a broker in Pennsylvania without being duly licensed or registered, unless such person is exempted from obtaining a license or registration certificate. A broker is any individual, corporation, partnership or other entity, who, for another and for valuable consideration performs certain acts including: (1) aiding any person in locating or obtaining a lease; (2) negotiating the lease; or (3) managing real estate.
The relevant exemptions are: (a) an owner of real estate with respect to property owned or leased by such owner; and (b) an individual, corporation, partnership or other entity employed by an owner of real estate for the purpose of managing or maintaining multifamily residential property where the authority of such engaged party is limited as required by RELRA such that the owner retains the authority to make all decisions.
Consequences of Noncompliance
Under RELRA, a first time violator will be guilty of a summary offense and upon conviction will: (i) be sentenced to pay a fine not exceeding $500; (ii) suffer imprisonment (not exceeding three months); or (iii) both. The State Real Estate Commission may also levy a civil penalty of up to $1,000.
There may be additional consequences. For example, either an entity negotiating leases and managing real estate for another or the owner may have represented in one or more agreements that such entity has all required licenses. If the managing entity does not have a broker’s license or an arrangement to manage pursuant to an exemption, the party making such representation may be in default under such agreement triggering the rights and remedies associated with an event of default.
Managing an Affordable Multifamily Rental Housing Development without a Broker's License
Permissibly operating a multifamily residential property without a broker’s license may be straightforward. For example, Housing Authority X owns the property and Housing Authority X manages the property. This does not require a broker’s license because Housing Authority X is acting on its own behalf rather than for another in exchange for valuable consideration. Housing Authority X’s powers under the Housing Authorities Law include leasing the dwellings in any housing project.
Unfortunately, there are many contexts in the management of affordable multifamily residential property that are not so straightforward when Owner owns the property to be managed by a separate Management Agent. For example:
- Owner may be an affiliate or instrumentality (as such terms are defined by the U.S. Department of Housing and Urban Development) of a housing authority or a single purpose entity organized for a low-income housing tax credit development.
- Management Agent may be a housing authority or an entity in the business of managing multifamily residential property.
Owner engages Management Agent for valuable consideration to manage and maintain Owner’s multifamily residential property. Owner and Management Agent may structure their roles, obligations and restrictions to operate pursuant to exemptions included in RELRA. For example, Owner is a single purpose limited partnership organized for a low-income housing tax credit development and Management Agent is a housing authority. One of Owner’s partners intends to enter into and execute all apartment leases and negotiate terms or conditions of occupancy with current or prospective tenants. That is, a partner of Owner intends to retain the authority to make all decisions (e.g., rental amounts, building rules and regulations and leasing determinations). Management Agent will not execute or negotiate leases and will be limited to showing apartments and providing information on rental amounts, building rules and regulations and leasing determinations and only holding money belonging to tenants on behalf of Owner. Management Agent and Owner include in the management agreement and other documents, as necessary, their roles, obligations and restrictions to operate pursuant to exemptions included in RELRA.
There is not a single answer to the question of operating in compliance with RELRA. You may benefit from taking a studied approach to identifying the owner, the management agent that may act as a broker and how the parties may work collectively to manage multifamily residential property pursuant to an exemption set forth in RELRA.