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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
P:
972.716.1888
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