To Be or Not Be a Licensed Real Estate Broker Under CO Law?

A real estate brokerage license is required in Colorado to carry out the functions of a “real estate broker” as defined by C.R.S. § 12-10-201(6) (a). It may seem simple on its face, but the statute defining what constitutes real estate brokerage is broad, and the exceptions are numerous. There are various instances in which an individual or entity is either inadvertently acting as a real estate broker without a license or carrying out real estate activities with a license where one is, in fact, not needed. This article discusses the applicable statutes and regulations governing when a license is and is not required.

The broad definition of “real estate broker.” The starting point for determining whether a real estate license is necessary is C.R.S. § 12-10-201(6)(a), which contains a laundry list of activities that are deemed to be those of a “real estate broker” and therefore require a license. Traditional real estate activities, such as listing a property for sale or lease, of course, are included in the definition. However, the statute also includes activities that traditionally may not be deemed to require a real estate license.

For instance, as one of many examples, a real estate license is required to negotiate the sale of a business in exchange for compensation, where the transaction also involves the transfer of an interest in real estate. Such business brokerage activities require a real estate license unless the activities are carried out by a licensed securities broker-dealer. A prior Colorado Supreme Court decision holding that a real estate license is only required in connection with the sale of a business if real estate is a dominant feature of the transaction prompted the legislature to amend the statute. The Legislature’s amendments “… greatly expanded the circumstances under which a real estate license is required. The new language was intended to enlarge and extend the definition of real estate broker to include the full spectrum of activities related to the sale of real estate.” Thus, a real estate license has been required where, in exchange for a commission, a business broker negotiated the sale of a business with a leasehold interest. Although the seller’s lease was terminated at closing, and the buyer entered into a new lease for the same premises, this was deemed to be at least an indirect transfer of a real estate interest necessitating a license.

A real estate license also has been required where a business broker, in exchange for a fee, introduced the buyer and seller of stock in a corporation that owned an interest in real estate, even though the broker did not participate in negotiations, prepare documents or attend closing. Likewise, a real estate brokerage license was required where a business consultant, in exchange for a finder’s fee, introduced a real estate developer to potential investors in a real estate development project. The court refused to make a distinction between “a business consultant who merely introduces prospective buyers and sellers and a real estate broker who participates in the details of the transaction.”

The numerous exceptions to the licensure requirement. While the statute defining what constitutes real estate brokerage is broad, the exceptions are numerous. A few key exceptions are discussed below.

First, several exceptions allow an entity to carry out the activities of a real estate broker on its own behalf without a license. While it is not possible to list every exception, following are certain scenarios in which a license is not required: the sale or lease of property owned by a partnership or LLC, by a natural person who is the general partner of the partnership, manager of the LLC, or owner of 20% or more of the partnership or LLC; and an entity acting through its officers, partners, managers or regularly salaried employees with respect to a shopping center, office building or industrial park in Colorado owned by the entity when such property is sold or leased in the ordinary course of the entity’s business. Care must be taken to ensure that an entity wishing to fall within any of these exceptions satisfies all relevant criteria.

While not addressed in the statute, an exception exists for property managers of short-term vacation rentals. This exception is addressed in the Colorado Real Estate Commission’s Position Statement on Short Term Occupancy Agreements (CP-19), which states in part, “A short-term occupancy can be distinguished from a lease in that it is in the nature of a hotel reservation and a license to use. Short-term occupancy agreements, if properly treated, are not considered lease agreements. Activities relating to these agreements are exempt from the definition of real estate brokerage.”

In order to ensure the applicability of this exception, attention should be paid to the term and nature of the occupancy agreement. To the extent the occupancy agreement is more reflective of a lease than a license, this exception may not apply.

Conclusion. The definition of real estate brokerage activities requiring a license is broad, and the exceptions to the real estate brokerage licensure requirement are numerous. It can be a complicated maze to determine whether a real estate brokerage license is required outside of the traditional brokerage activities, and it can be easy to run afoul of the licensure requirement if care is not taken to ensure compliance.

This article was originally published in the Colorado Real Estate Journal.