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Grand v. Griesinger – the problem of the property management rent-a-broker

Oct 14th, 2015 | By | Category: Real Estate Broker Law

CalBRE licensing law basics

Administrative hearing attorney  Introduction

In handling a large number of real estate licensing cases over the years, one theme that pops up quite frequently is the property management “rent-a-broker.”  In these cases, you have a salesperson or officer of a company fighting a broker after an accusation is filed, and both are pointing fingers at each other claiming it is the other one that should be losing their license.  This blog discusses this interesting scenario and potential legal arguments that might be raised.

What is a rent-a-broker

Here is a common hypothetical.   A salesperson wants to run and own a property management business, but does not have a brokers license.  All real estate activity conducted in California must be under the supervision of a licensed real estate broker approved by the Bureau of Real Estate (“BRE”).  A salesperson cannot do their own deals or service landlords and tenants without a valid broker’s license.  So the salesperson gets crafty and thinks “if I just pay a broker to have them use their license I can run my property management company.”  So this individual finds a licensed real estate broker, usually a “semi-retired” kind of person and offers to pay them to run the company.  The brokers says “that sounds fine to me” and they agree to pay the broker, let’s say $500-$1,000 per month and/or a percentage of the deal.  The salesperson then runs the business, and the broker (who has a duty to supervise all licensed activity) then decides to go back to their semi-retired lifestyle (or other pursuits, such as running their own real estate company) and this is how the business rolls on.

Typically, being in the property management business, either a complaint or a “random audit” will then be initiated and this “RENT-A-BROKER” arrangement comes to the surface with both party blaming the other for how things are done.  Following a property management audit, an accusation is filed and both salesperson and broker retain counsel and settlement discussions ensue.  The question is who is responsible for the non-compliance, failure to keep accounting records, trust fund shortages, comingling, embezzlement, failure to keep records, and other compliance issues.

One case dealing with this was Grand v. Griesinger, 160 Cal. App. 2d 397, 404, 325 P.2d 475, 480 (1958) wherein the court noted the difference between a broker and a salesperson:

The gist of appellants’ contention is a claim that the judgment is against law in that it is not supported by the findings. The argument runs as follows: ‘Appellants contend that with the registration of a licensed salesman with the Real Estate Commission by a duly licensed broker, wherein the broker names himself as the responsible broker under the Real Estate Law, as set forth in the Business and Professions Code, that thereafter the salesmen could not be charged with acting as a broker unless, his acts complained of were without the knowledge or without the consent of the broker. The mere assumption of responsibility which has been accepted by the salesman at the direction of the broker could certainly never be construed to mean that the salesman is attempting to act as a broker for the very obvious reason that a salesman accepting authority delegated to him by the broker as manager of the office would be in constant peril of the loss of his license. Under Sections 10131 and 10132 of the Business and Professions Code it will be noted that the duties and capacity of a broker and a salesman are identical excepting a salesman must be employed by a broker, therefore the salesman has the power and authority to do anything that a broker can do except that he must perform the acts as an employee of the broker.’ It rests upon a misconception drawn from the similarity of language used in §§ 10131 and 10132, Business and Professions Code.

 In this case, two salespersons took control of a property management company (while contracting with a broker) and eventually had their sales licenses revoked.  The Court discussed how the agents cannot take control of the company:
It is evident that brokers and salesmen belong in distinctly different categories and that the broker, because of his superior knowledge, experience and proven stability is authorized to deal with the public, contract with its members and collect money from them; the salesman, on the other hand, is strictly the agent of the broker. He cannot contract in his own name (Tatterson v. Standard Realty Co., 81 Cal.App. 23, 29, 253 P. 770; Weber v. Tonini, 151 Cal.App.2d 168, 170–171, 311 P.2d 132; 9 Cal.Jur.2d § 70, p. 227), nor accept compensation from any person other than the broker under whom he is licensed it is a misdemeanor for any one, whether obligor, escrow holder, or otherwise, to pay or deliver to any one other than the broker compensation for services within the scope of the act. Sec. 10138. The entire statutory scheme requires the broker actively to conduct his brokerage business and to supervise the activities of his salesmen. It precludes a salesman from taking charge of or conducting a business such as a rental agency which requires a broker’s license.
This case sets the stage for a defense for the rent-a-broker who is not allowed to run, control and manage the property management brokerage despite being the broker of record.

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Is the salesperson liable for hiring the broker to manage the company (knowing the broker is not actually going to be supervising licensed real estate activity)?

Whenever a case involving an absent rent-a-broker is present, the facts of the relationship and job duties of the broker and salesperson must be carefully examined. For example, the following factors should be reviewed in preparing defenses for the administrative hearing:

1.  How often was the broker present at the office?

2.  What agreements were signed by and between the parties?

3. What services did the salesperson perform?

4.  Did the salesperson prevent the broker from running the company?

5.  Did the salesperson receive compensation directly from tenants or a landlord?

6.  Was there any contractual allocation of the duty to keep records and perform trust fund accountings and monthly reconciliations

7.  Who were signor on the trust accounts?

8.  Was the salesperson acting in a rogue manner (to which the broker could not have reasonably anticipated)?

9.  Did the salesperson conduct business and act “as if” he or she were the broker of the company?

10.  Did either the broker or salesperson comingle or embezzle funds from the trust account.

These are the top 10 questions to think about, but other factors are always important to review.  It is important to note that in some cases where both the broker and sales agent are charged with an accusation, the BRE may not settle the case if one party wants to go to a hearing.  In these situations, your counsel may need to work with opposing counsel to try to work out a deal, including potentially splitting the audit costs and costs of enforcement and other statutory penalties and fines.

Contact a California BRE real estate administrative hearings lawyer

To discuss your case with one of our real estate lawyers, give us a call at (877) 276-5084.  You can also drop us a line using the contact form below.  We will normally get back to you within the hour.  Please make sure to leave your phone number.  We offer flat rate fees for many of our real estate licensing, accusation, administrative hearing and admission cases.

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