Sara Ladd owns two vacation properties. To supplement her income and after her employment as a digital marketer ended, she leased the first in 2009 and the second in 2013. Using her job experience, she created an online system to reserve the rental units.
Neighbors learned of her success and asked her to manage their properties too. In 2013 Sara formed a business entity and in 2016 she launched a corresponding website.
Sara’s objective was to “take the hassle out of short-term vacation rentals by handling all of the marketing and logistics that property owners would otherwise have to coordinate themselves.”
Sara Ladd acted as an independent contractor, and entered into written contracts with second home, vacation property owners. In those contracts, she agreed to market her clients’ properties on the internet, respond to inquiries, coordinate bookings, manage billings, accept and account for rent payments and security deposits, pay herself a commission and remit the remainder to her clients, and cause the property to be properly cleaned between rentals.
Those same contracts obligated her clients to execute a Lease with tenants identified by Sara, provide a list of available dates, coordinate rental rates with Sara, certify that the property was legally compliant, pay all applicable taxes, maintain short-term rental liability insurance, provide a list of household rules and instructions, and stock the property with necessary supplies.
Sara Ladd was not a party to the Leases.
Sara managed her business entity by herself. Most business operations were conducted from her home. Her fees were modest – perhaps a few hundred dollars. Sara Ladd never managed more than five clients’ properties at any one time.
Her services did not include identifying target properties or assisting her clients to buy or sell properties.
In January 2017 the Bureau charged with administration of the Real Estate Licensing and Regulation Act called Sara to inform her that she had been reported for the unlicensed practice of real estate. Sara Ladd reviewed the laws and, after determining that her short-term vacation property management services were covered by the statute and licensure was required, she closed her property management business to avoid civil and criminal sanctions.
Sara then filed a lawsuit against the State claiming that the licensing requirements violated her substantive due process rights because they impose unlawful burdens on her right to pursue her chosen occupation.
In ruling for the State, the trial court dismissed Sara’s complaint, holding that the State’s brokerage licensing requirements are constitutional and applicable to Sara. The underlying reasoning supported the court’s decision that the purpose of licensing is “to protect buyers and sellers of real estate, the most expensive item many persons ever buy or sell, from abuse by persons engaged in the business.” [I added the underscoring]
Sara Ladd appealed, challenging the trial court’s reasoning that, without consideration of her limited services, application of the State’s licensing requirements bear a substantial relationship to the stated purpose of “protecting buyers and seller . . . from abuse.” And further, as applied to her unique and non-traditional situation, application of the licensing statutes were unduly burdensome and patently beyond the necessities of the case.
Basically, Sara argued that her limited services allow her to challenge occupational licensing laws in a manner that full-service brokers could not.
To satisfy the State’s licensing requirements, Sara would minimally need to undertake 315 hours of irrelevant coursework and pass two exams on real estate practices that do not bear a relation to her ability to provide safe and quality short-term vacation property management services. The classes and exams can take three years to conclude.
Sara Ladd also argued that the ‘brick and mortar’ office requirement is archaic and bears no relation to her online, home-based business.
The Supreme Court held that the licensing requirements, as applied to Sara Ladd, are unconstitutional, and further, that the laws are unreasonable, unduly oppressive, and patently beyond the necessities of her situation.
I wasn’t expecting this.
See Sara Ladd v. Real Estate Commission; Case No. J-71-2019; Supreme Court of Pennsylvania; May 19, 2020: https://law.justia.com/cases/pennsylvania/supreme-court/2020/33-map-2018.html.
Lessons Learned / Questions Asked / Issues Presented:
- Lesson / Question: You thought that real estate brokerage / sales agency licensing statutes could not effectively be contested? Yeah, me too.
- Issue: Will this cause similar challenges in other jurisdictions and force State legislators to respond, or risk the possibility that Courts will rewrite their laws?
- Issue: Does this kick open the door to other ‘niche’ limited real estate service providers that now require licensure? Apartment locators? Short-term leasing? Property management without property sales, purchases, or leases?
Stuart A. Lautin, Esq.*
* Board Certified, Commercial (1989) and Residential (1988) Real Estate Law,
Texas Board of Legal Specialization
Licensed in the States of Texas and New York
Higier Allen & Lautin, PC
2711 N. Haskell Avenue, Suite 2400
Dallas Texas 75204