January 5, 2011

California Real Estate Licensing Cases -- 2010

In California, a person acting as a real estate broker without a license cannot recover for services for which a license is required. For example, if a CPA acts as a property manager without a real estate license and collects rents, he may be required to disgorge his management fees even if his services were impeccable. Likewise, a company that arranges financing for real estate is normally required to have a real estate broker's license. But in two cases reported in 2010, the California Court of Appeal held that a person could recover for property management and services to arrange a credit facility for a "bridge" lender to the extent a license is not required to perform the services for which they sought compensation.

In MKB Management, Inc. v. Melikian (2010) 184 CA 4th 796, the plaintiff entered into a property management agreement with the owner of several apartment buildings. The Court of Appeal held that the trial court erred in finding that a property management agreement that called on plaintiff to perform multiple services, some of which required a broker’s license and some of which did not, could not be severed as a matter of law. Even if entire contract was illegal and unenforceable, plaintiff could still recover the reasonable value of services rendered provided that those particular services were not legally prohibited. Similarly, plaintiff’s lack of a contractor’s license would preclude recovery of compensation for acts that require license but not for those actions for which such a license was not required.

In Greenlake Capital, LLC v. Bingo Investments, LLC (2010) 185 CA 4th 731, the Court of Appeal relied on MKB Management, Inc. v. Melikian in holding that a finance company's lack of a real estate broker's license did not bar the company from recovering compensation for indentifying and procuring a credit facility for a lender under a contract to assist in obtaining financing. The contract did not have as a central purpose the provision of illegal services and the parties do not intend at the outset that the financing would take a form that would necessarily violate the license requirement.

So what is the moral to the story of these cases? Get a real estate broker's license (or another appropriate license) if you will be performing services for which a license may be required. But if you don't have a license, read the two cases cited above and argue that some or all of the services for which compensation is sought do not require a license.

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