Legally speaking: ‘Rent-a-broker’ arrangements put broker’s license in jeopardy
Source: Ohio Association of REALTORS: OAR Daily Buzz
By Peg Ritenour, OAR Vice President of Legal Services/Administration
The OAR Legal Assistance Hotline receives an array of real estate-related legal questions — including license law issues, disclosure, contract law, ethics and commission problems, among others. In an effort to help you work within the law, our “Legally Speaking” series spotlights some of the timely questions that are being asked by REALTORS. This one involves problems brokers could face if they aren’t performing responsibilities stipulated by Ohio License Law…
Q: I have been contacted by a property management company that wants to hire me to act as the broker. According to this company, I really wouldn’t be required to do much, as they have their own staff who actually performs the property management functions. However they need a broker of record in order to comply with Ohio licensing laws and would pay me a monthly fee to affiliate with the company as its broker. Do you see any concerns with this type of arrangement?
A: Yes! Depending upon the nature of your duties, this situation could potentially put you at risk of being disciplined by the Ohio Division of Real Estate and Professional Licensing for participating in what is referred to as a “rent- a-broker” arrangement. Under such an arrangement, a broker basically “leases” his license to an entity for the sole purpose of allowing that entity to obtain an Ohio real estate brokerage license. If the broker performs the duties required of a broker under the license law, there is no problem with such an arrangement. However, if the broker isn’t performing those duties, the broker could be subject to disciplinary action, including a suspension or even revocation of his broker’s license.
The pertinent section of the license law is Ohio Administrative Code Section 1301:5-1-14. It provides that it is misconduct for any broker to enter into any arrangement whereby the broker lends his or her name or license for the benefit of another person, firm or corporation. It specifies that this includes any arrangement whereby a broker fails to personally oversee and direct the operations of the business of which he or she is licensed as the sole broker.
Before entering into an agreement with an entity to act as its broker, it is important to have a clear understanding of what your duties will be as the broker to assure that you are not violating the above provision. To comply with the license law, the Division of Real Estate and Professional Licensing considers the following to be the responsibilities of the broker:
- Overseeing the operations of the brokerage, including compliance with trust account, advertising, record keeping and office requirements;
- Supervising affiliated salespersons, paying agents their earned commissions in a timely manner and assuring that no unlicensed persons are performing licensed activities;
- Developing the brokerage’s policy on agency; and
- Renewing and maintaining licenses.
Therefore, if your agreement to serve as the broker includes overseeing the operations of the brokerage, including the above functions, there is certainly no problem with such an agreement. If on the other hand, you are not going to be actively involved and won’t be performing these duties, then you would be in violation of the license law and would be placing your broker’s license in jeopardy.
More information on the role of the broker can be found in OAR’s Broker Toolkit.