Court Says Real Estate License Not Required to Manage Short-Term Rentals
By Hank Lerner, Esq. | Nov. 3, 2022 | 4 min. read
Editor’s Note: This article was updated to reflect that the court’s decision was not appealed and has now taken effect, along with additional text edits for clarity.
In October of 2022, the Pennsylvania Commonwealth Court issued a decision essentially ruling that a real estate license is not required for individuals who are engaged in short-term vacation property management services.
This case has been bouncing around the courts since 2017. You can read up on some of the details and prior rulings if you’d like, but we’re just going to skip ahead to the basics of this latest decision.
Sally Ladd owned a couple of vacation properties in the Poconos area that she made available as short-term rentals, and over the course of a few years, she helped about a half-dozen other property owners with their own rentals. Some of her work was more administrative (maintaining the listings on vacation rental websites, scheduling cleanings), while other work was more like traditional property management (suggesting and negotiating rental rates, signing the rental contracts). Almost all of it was done remotely from her home in New Jersey, without a bricks-and-mortar office in Pennsylvania.
Under the Real Estate Licensing and Registration Act, a person running their own property management business would have to be a licensed real estate broker. Ladd was unlicensed and sued the state under the theory that RELRA, as applied to her specific business, violated her right to pursue her chosen occupation under Article I of the Pennsylvania Constitution.
After two days of hearings about how the licensing process works and how Ladd’s business was conducted, the court determined that “RELRA’s licensing requirements are unreasonable, unduly oppressive and patently beyond” what is necessary to provide public protection as it relates to “Ladd’s short-term vacation property management services,” and declared that she did not need a license for her business.
Looking through the evidence from this hearing and prior stages of the case, the court found that while the RELRA license requirements do provide a level of consumer protection, there was little or no connection between those requirements and the specifics of Ladd’s business that focused only on short-term rentals. For example, an earlier decision noted that less than half of the 315 pre-license hours for a broker license (75 for salesperson; 240 for broker) were “arguably related” to short-term rental services and this judge found “far less” than that were relevant. And the court went to great lengths to point out that there are a number of “specialty” licenses, such as builder-owner salesperson and timeshare salesperson, with different license requirements that are more specific to those areas of practice.
In addition, the testimony here and in prior cases showed that the State Real Estate Commission has never counted short-term rental transactions towards the experience points necessary to get a broker license. This means that someone seeking a broker’s license to run a short-term rental business would have to spend at least three years doing other types of transactions just to build up those points. (There’s far more detail and some other reasoning in the full decision, but we don’t have room to put it all here.)
So what does this mean now?
At this point, the best advice for those readers who are already real estate licensees is to just keep doing what you’re doing.
If your brokerage isn’t doing, and doesn’t want to do, short-term rentals, then this case doesn’t matter to you at all. If you are doing short-term rentals through your current brokerage business then you are free to keep doing them. Nothing about this case says a licensee can’t do short-term rentals – just that a brokerage license isn’t necessary for that limited line of business.
Anyone trying to open some sort of unlicensed short-term rental business will no longer be in violation of the licensing act, but still has a host of other legal and regulatory concerns to address. For example, they might be engaged in the unlicensed practice of law if they try to write up rental agreements from scratch. And it could be quite easy to cross the line into real estate practice if they are not careful. Always talk to your personal/brokerage attorney for any specific legal advice along these lines.
Finally, if you’re a current licensee hoping to run an unlicensed short-term rental business while maintaining your licensed real estate activity through a brokerage (e.g., selling through a brokerage while renting on the side), be sure to check with your broker about their willingness to allow that and/or any restrictions they might establish to ensure that you’re not commingling those businesses in a way that makes it look like the brokerage and non-brokerage businesses are related (and therefore increasing the odds of your broker being sued for your rental business).
Subscribe To JustListed Daily Emails
You’ll be the first to know about real estate trends and various legal happenings. Stay up-to-date by subscribing to JustListed.