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Court Says Real Estate License Not Required to Manage Short-Term Rentals

by Hank Lerner, Esq. on

The Pennsylvania Commonwealth Court issued a decision this week 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 time share 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?

Great question.

At this point, the state has the option to appeal the decision to the Supreme Court. If the appeal is taken, it’s likely to be at least several months, and it will be likely longer until the appeal is heard and the case is finalized. Until we see if there is an appeal (and how it turns out), the best advice for those readers who are already real estate licensees is to just keep doing what you’re doing.

If you aren’t doing and don’t want to do short-term rentals, then this doesn’t matter. If you are doing them through your current brokerage business, then keep doing them that way. Anyone trying to open some sort of unlicensed short-term rental business runs the risk of having to shut down or change the business if this decision is overturned or modified. But, of course, always talk to your personal/brokerage attorney for any specific legal advice along these lines.

PAR will, of course, continue to monitor the case and let you know of any future developments.

Topics

Short-term rentals Ladd v. State Real Estate Commission
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