Real Estate Brokerage Laws and Customs: Vermont

Transcription

1 View the online version at Real Estate Brokerage Laws and Customs: Vermont R. PRESCOTT JAUNICH AND KANE H. SMART, DOWNS RACHLIN MARTIN PLLC, WITH PRACTICAL LAW REAL ESTATE A Q&A guide to state laws and customs on brokerage laws relating to commercial real estate transactions in Vermont. This Q&A addresses the state-specific guidance on several questions relating to brokerage laws and customs, including, licensing requirements, legal restrictions on a broker's role in a real estate transaction, brokerage agreements, commission payments and brokers' lien rights. This Q&A guide also provides guidance on any licensing requirements for managing commercial real estate. Answers to questions can be compared across a number of jurisdictions (see Real Estate Brokerage Laws and Customs: State Q&A Tool ( LICENSING LAWS AND REQUIREMENTS 1. Does your state regulate real estate brokers? If so: What statutes or laws regulate licensing requirements for brokers? What department oversees the licensing and regulation of brokers? Are different types of brokers or other roles recognized by the regulations? If so, specify the scope of responsibilities of these different roles. In Vermont, there is no distinction between residential and commercial real estate brokerage laws. LICENSING LAWS Chapter 41 of Title 26 of the Vermont Statutes regulates real estate brokers and salespersons (Vt. Stat. Ann. tit to 2301). REGULATOR The Vermont Real Estate Commission enforces the licensure and regulation of real estate brokers and salespersons. TYPES OF BROKERS AND THEIR ROLES Real Estate Broker In Vermont, a real estate broker is any person that does any of the following on behalf of another in exchange for a salary, fee, commission or other consideration: Lists or offers, attempts, or agrees to list real estate or an interest in real estate. Sells, exchanges or purchases real estate or an interest in real estate. Offers to sell, exchange or purchase real estate or an interest in real estate. Negotiates or offers, attempts, or agrees to negotiate the sale, exchange, or purchase of real estate or an interest in real estate. Buys, sells, or offers to buy or sell, or otherwise deals in options in real estate or an interest real estate. Advertises or holds himself out as being engaged in the business of buying, selling or exchanging real estate or any interest in real estate. Assists or directs in procuring prospects intended to result in the sale or exchange of real estate or any interest in real estate. (Vt. Stat. Ann. tit (a)(4).) Real Estate Salesperson A salesperson is anyone who for a fee, compensation, salary or other consideration is employed by or associated with a licensed broker to perform any act or deal for or on behalf of the broker (Vt. Stat. Ann. tit (a)(5)). Nonlicensed Employee A nonlicensed employee of a broker or salesperson (licensee) can respond to inquiries from members of the public so long as the employee clearly states that he is not licensed and any information provided is confirmed by a licensed person (Vt. Stat. Ann. tit (a)(4)(G)).

2 2 2. What are the licensing requirements for brokers and other roles listed in Question 1? In Vermont, a person, firm, partnership association or corporation must obtain a license to engage in the business or act as real estate broker or salesperson (Vt. Stat. Ann. tit ). The following exemptions apply: Offering property for lease. Offering mobile homes or businesses for sale or lease without also offering real property. (Vt. Stat. Ann. tit (b).) REAL ESTATE BROKER To obtain a broker's license, a real estate broker must: Pass the examination required by the Vermont Real Estate Commission (Commission). Have at least two years' satisfactory experience as a licensed salesperson, including at least eight separate and unrelated closed transactions. Complete at least a 40-hour approved course of instruction. (Vt. Stat. Ann. tit (a).) REAL ESTATE SALESPERSON A real estate salesperson must: Pass an examination as required by the Commission. Be at least 18 years old. Either be employed by or become associated with a brokerage firm and that firm's principal broker. Complete at least a 40-hour approved course of instruction. (Vt. Stat. Ann. tit (b).) The Commission may waive all or part of the examination requirements if the applicant is a broker or salesperson: Regulated under the laws of another jurisdiction. In good standing to practice in the other jurisdiction, and in the opinion of the Commission, that jurisdiction's examination is substantially equal to that required by Vermont law. (Vt. Stat. Ann. tit (c).) 3. What are the on-going requirements for maintaining a license for brokers and other roles listed in Question 1? BROKER Real estate brokers must renew their licenses every two years on payment of the required fees provided that the applicant for renewal completes both: 16 hours of approved instruction during the preceding two-year period. Four hours of the continuing education addresses legislation and other topics specified by the Vermont Real Estate Commission (the Commission).. (Vt. Stat. Ann. tit (a).) SALESPERSON Real estate salespersons must renew their licenses every two years on payment of the required fees provided that the applicant for renewal completes both: 16 hours of approved instruction during the preceding two year period. Four hours of the continuing education addresses legislation and other topics specified by the Commission. (Vt. Stat. Ann. tit (a).) No examination is required to renew a broker or salesperson's license. 4. What is the best way to determine if a real estate professional is duly licensed? A real estate broker or salesperson's license can be verified by visiting the Vermont Secretary of State's Office of Professional Regulation's database of licensees. 5. What is the best way to file a complaint against a real estate professional for fraud, material misrepresentations, negligent acts or intentional misconduct? Complaint forms are available the Vermont Secretary of State's Office of Professional Regulation website. Complaint forms should be mailed to: Vermont Secretary of State Office of Professional Regulation Attn: Carla Preston 89 Main Street, 3rd Floor Montpelier, Vermont (802) [email protected] CUSTOMS IN PRACTICE FOR BROKERS 6. With regard to brokers in your jurisdiction, please briefly describe: The broker's customary involvement in a transaction. Whether there are any restrictions on the broker's role. BROKER'S INVOLVEMENT A broker's role varies depending on the type of transaction: Transfer of commercial real property. Brokers are typically involved in the preparation and negotiation of the offer letter, which is usually expressly non-binding. Depending on the transaction, real estate attorneys are often involved in the offer letter stage. Brokers often stay involved throughout the contract period and may help to facilitate due diligence or inspection contingencies. Transfer of residential real property. Brokers for residential properties customarily prepare offers on a widely used Vermont Realtor's Form of Contract. Acceptance of these offers may be conditioned on attorney review and approval. Although preferable, in practice it is less common for attorneys to be involved in the preparation and presentation of the offering contract in residential transactions. Real

3 estate brokers may stay actively involved during the contract period to help facilitate inspections and satisfaction of contingencies. Leasing of commercial real property. The real estate broker is often involved in the preparation and negotiation of the term sheet, which is usually expressly non-binding. Depending on the transaction, real estate attorneys are often involved in the term sheet stage. Brokers stay actively involved in the lease negotiations with the attorneys. Leasing of residential real property. A real estate broker may prepare a lease agreement on a residential lease form that has been prepared by the brokerage. Real estate attorneys are not often used for these types of transactions. RESTRICTIONS ON BROKER'S INVOLVEMENT Vermont does not have an unauthorized practice of law statute. However, case law indicates that deed preparation constitutes the practice of law (In re Welch, 185 A.2d 458 (Vt. 1962)). CUSTOMS IN PRACTICE FOR ATTORNEYS 7. With regard to real estate attorneys in your jurisdiction, please briefly describe: When an attorney becomes involved in the transaction, if at all. If an attorney can receive commission without a real estate broker license? Whether the attorney is exempt from the licensing regulations in Question 1. Whether an attorney can act as broker and legal counsel in the same transaction. If so, are any disclosures required? The role of an attorney is similar across residential leases and sales, and commercial leases and sales. INVOLVEMENT In the usual course of business, Vermont attorneys or qualified paralegals supervised by a Vermont attorney: Prepare and review contracts. Conduct the search and examination of title. Conduct the closing. If provided, Vermont attorneys execute the legal opinion of title. In Vermont, many real estate attorneys also: Serve as title agents. Issue title policies. A paralegal may conduct a loan closing on behalf of a lender client where that paralegal's role is limited to preparation of the Settlement Statement and supervising the execution of documents, if an attorney is available for questions (Vermont Bar Association Advisory Ethics Opinion (99-03)). In commercial leasing transactions, the attorney: Is often involved in completing the term sheet. Usually negotiates and drafts the final binding lease agreement and any ancillary instruments. COMMISSIONS In Vermont, a person listing, offering, selling or negotiating real estate or interests therein "for a salary, fee, commission or other consideration" requires a license (see Question 1: Real Estate Broker). Vermont law does not regulate commissions separately from other manners of payment. Attorneys handling transactions subject to court approval or sales arising in the usual practice of law are exempt from licensure. Payment to an attorney, including payment by a fee or commission, is not prohibited. EXEMPTION FROM LICENSING REGULATIONS Attorneys admitted to practice in Vermont are exempt from the real estate license process when handling real estate sales in the course of either: An estate or guardianship administration; a trust administration; a bankruptcy proceeding; receiverships; or similar actions subject to approval by a court. Sales of real estate arise in the usual course of the practice of law. (Vt. Stat. Ann. tit (b)(2).) ACTING AS BROKER AND LEGAL COUNSEL Under the Vermont Bar Association Advisory Ethics Opinion 81-09, an attorney may engage in the practice of law while also acting as a real estate broker, as long as he observes the restraints on dual professions under DR 2-102(E) of the American Bar Association's Model Code of Professional Responsibility. However, an attorney cannot act as an attorney in a transaction initiated while acting as a broker. For ethical reasons, an attorney should hesitate before acting as a lawyer for any person he first met while serving as a real estate broker. BROKERAGE AGREEMENTS 8. Please describe different brokerage agreements commonly used in your jurisdiction between individuals selling or leasing their property and the brokers. Before rendering any brokerage services, a brokerage firm must execute a written: Seller service agreement. Buyer service agreement. Cooperation agreement between brokerage firms. Copies of all executed agreements for brokerage services must be given to all parties to the agreements at the time of execution or as soon as possible. Each type of seller service agreement must be on a separate form and identified with only one of the following titles below in boldface type at the top of the agreement: NONEXCLUSIVE (Open) AGENCY MARKETING AGREEMENT. EXCLUSIVE AGENCY MARKETING AGREEMENT. 3

4 EXCLUSIVE RIGHT TO MARKET AGREEMENT. Agreements for brokerage services: Must contain a specific expiration date not to exceed one year from the effective date of the agreement. Must not contain any provision for automatic extension or renewal. Must contain current information as of the date signed and must be current as of the date of the most recent extension or renewal. (Vt. Admin. Code :4.8.) Generally, exclusive and non-exclusive brokerage agreements may be used for both commercial and residential transactions. These agreements may not be longer than one year. In the commercial context, these agreements more commonly contain terms ranging from six to nine months. The types of listings commonly used in Vermont are: Nonexclusive open agency marketing agreement. This is where the broker has the right to bring prospective buyers to see the property. If the buyer purchases the property, the broker earns a commission. Open listings can be given to several brokers. However, this arrangement is not popular with brokers because they cannot effectively market the property. Exclusive agency marketing agreement. This is a seller service agreement which grants the brokerage firm the right to market the property, and expressly reserves the owner's right to sell or market the property himself without liability to the brokerage for a commission or fee. The owner cannot list the property with another brokerage for the term of the agreement. Exclusive buyer agency agreement. This is where a single brokerage firm is hired to provide brokerage services and the buyer agrees not to obtain services from any other broker. However, the buyer may purchase property himself without liability to the broker for any commission or fee. Exclusive right to market agreement. This is where one broker exclusively markets the property and receives a commission even if the broker did not find the buyer or tenant. Exclusive right to represent buyer agreement. This grants the broker the exclusive right to act on behalf of the buyer and recognizes liability on the part of the buyer for a commission or fee even if property is purchased without assistance by the brokerage. Vermont prohibits net listing agreements (Vt. Admin. Code :4.8(c)) Is there a customary tail period for exclusive brokerage agreements? The practice and customs regarding tail periods for exclusive brokerage agreements vary based on the type of transaction and the market conditions. In a commercial real estate acquisition or lease transaction, exclusive broker agreements typically include a one-year tail period starting after the expiration of the brokerage agreement. In both commercial and residential exclusive brokerage agreements, it is customary that brokerage agreements require the broker to submit to their principal a list of all interested parties captured by the tail period. The tail period, as with all the terms of the brokerage agreement, is negotiable depending on: The specifics of each transaction. Each party's leverage. Market conditions. COMMISSION PAYMENTS 10. With regard to commissions in your jurisdiction: Does a broker need a written brokerage agreement to claim its commission? When is a broker entitled to its commission? May a commission be earned if the closing does not occur? Are there any statutory restrictions on commission rates? If the parties are permitted to negotiate a commission, what is the customary range for commission rates? WRITTEN BROKERAGE AGREEMENT Before rendering any brokerage services, a brokerage firm must execute either: A written seller service agreement. A written buyer service agreement. A written cooperation agreement between brokerage firms. A brokerage firm may only receive the compensation provided in: A written brokerage service agreement signed by the brokerage firm and the client. In the case of a brokerage firm acting as a limited agent under Rule 4.4(c), a written agreement signed by the brokerage firm, the buyer and the seller. An agency agreement with a brokerage firm that has one of the above written agreements. (Vt. Admin. Code :4.13(c).) TIMING OF COMMISSION PAYMENT The commission is typically payable at the closing of the transaction. Under Vermont law, to be entitled to a commission, "a broker must show that he procured a purchaser ready, willing and able to purchase at the price and on the terms prescribed by the seller" (Osler v. Landis, 415 A.2d 1316, 1318 (Vt. 1980)). Additionally, the broker must be the "procuring cause" of the transaction. The agent must "dominate the transaction and amount to something more than an incidental or contributing influence" (M.E. Walbridge Agency. Inc. v. Rutland Hospital, Inc., 186 A.2d 179, 182 (Vt. 1962)). The agent must demonstrate that he: Was the dominant agent in the transaction. Assisted the buyer in more than just seeing the property. Advised and assisted the buyer throughout the transaction until the purchase was complete.

5 The agent claiming to be procuring cause must also show both: Continuity. No break in the chain of events. (Osler, 415 A.2d at 1313; M.E.Walbridge Agency, 186 A.2d at 182.) COMMISSION PAYMENT WITHOUT CLOSING Commission can be earned without a closing. In a standard listing agreement, the seller agrees to pay the listing agency its commission if, during the term of the agreement, either: The property is sold. The seller enters into an agreement for the sale of the property and the purchaser satisfies all closing contingencies that must be performed under the agreement. (M.E. Walbridge Agency, 186 A.2d at 183.) In addition, the owner must pay a full commission to the listing agency if the agency presents an offer before the end of the agreement: At or above the property's listed price. With no closing contingencies. That provides for a closing within a reasonable period of time from the date of the offer. The seller must pay the full commission whether or not he accepts the offer. (Ellis Gould Corp. v. Kelly, 356 A.2d 497, 498 (Vt. 1976).) 11. Is it customary for the seller or the landlord to pay the commission? If so, how is payment to the purchaser's or tenant's broker usually ensured? Generally, the seller or landlord pays the real estate commission. COMMERCIAL ACQUISITIONS In most commercial acquisitions the seller pays the real estate commission, though this may be negotiated. The payment may also be: Shared between the purchaser and the seller. Paid entirely by the purchaser. The commission is usually paid at closing. The seller's broker usually enters into a co-broker agreement with the purchaser's broker. The seller's broker provides the purchaser's broker with its commission payment. COMMERCIAL LEASES The landlord typically pays the commission for a commercial lease, though this may be negotiated so that the payment is shared between the tenant and the landlord. The commission is usually paid over a period of time outlined in a schedule attached to the commission agreement. If there is a free rent period, the commission may not be paid until the tenant's rent payments begin. The landlord's broker usually enters into a co-broker agreement with the tenant's broker and the landlord's broker provides the tenant's broker with its commission payment. RESIDENTIAL ACQUISITIONS The seller typically pays the commission in the sale of residential real estate. The seller's broker pays the buyer's broker its portion of the commission payment at the closing. 12. Is fee splitting permitted or customary in your state? If so, are there any restrictions? Fee splitting is permitted and customary in Vermont in the following situations: A brokerage firm representing a seller may compensate a brokerage firm representing a buyer out of the brokerage fee without creating an agency relationship. A brokerage firm representing a buyer may compensate a brokerage firm representing a seller out of the brokerage fee without creating an agency relationship. Consent of the principal is not required in either case. (Vt. Admin. Code :4.13.) 13. When real property is sold, is the grantor deemed released from any deferred commission payment obligations that are scheduled to come due after the transfer of fee title to the grantee or must there be an express release? Are deferred commission payments automatically assumed by the grantee or must the assumption be express? GRANTOR RELEASE FROM DEFERRED COMMISSION A brokerage firm is the agent of each person with whom it enters into a brokerage service agreement and the agreement controls the terms of compensation. A grantor is not released from its obligations merely by the act of sale. GRANTEE'S ASSUMPTION OF DEFERRED COMMISSION A brokerage firm is the agent of each person with whom it enters into a brokerage service agreement and the agreement controls the terms of compensation. Any post-sale assumption of compensation obligations by a grantee should be set out in a separate and express agreement. However, this assumption would be unusual in Vermont practice. COSTS 14. With regard to the marketing and advertising costs associated with the listing: Does a broker typically pass on these costs to the seller or the landlord? Are provisions dealing with these costs usually found in exclusive or non-exclusive agreements, or both? REIMBURSEMENT OF COSTS Local customs and market conditions govern the negotiations regarding the reimbursement of costs. Commercial Real Estate 5

6 Generally, in commercial transactions where the broker has an exclusive agreement, the seller or landlord reimburses the broker for its marketing and advertising costs. However, this is negotiable and may be capped at a specific amount. Residential Real Estate Generally, in a residential acquisition or lease transaction, there is no reimbursement of marketing and advertising costs. However, this is negotiable on a case-by-case basis. COST PROVISIONS Provisions dealing with marketing and advertising costs are more likely to be found in exclusive brokerage agreements. However, these provisions are usually negotiable. DISCLOSURE LAWS 15. Describe any disclosure laws affecting real estate brokers or salespersons. Is a broker required to disclose its dual agency? GENERAL DISCLOSURE LAWS In Vermont, a licensee working for a brokerage firm employed by a seller must disclose all known material facts about the property. This obligation continues until the sale is either closed or cancelled. (Vt. Admin. Code :4.5.) A material fact is any fact that could either: Cause either party to make a different decision concerning entering into, or remaining in, a contract. Affect the price of the property. (Vt. Admin. Code :1.8(n).) Some examples of material facts include, but are not limited to: A defect that could significantly diminish the value of the land, structures or structural components such as the: roof; wiring; plumbing; heating system; water system; or sewage disposal system. A limitation in the deed that could substantially affect the marketability or use of the property. A recognized or generally accepted hazard to health or safety. Any fact that may directly impact the future use or value of the property. (Vt. Admin. Code :4.5(a).) Before showing real property, a broker or salesperson (licensee) must disclose any known significant limitations on the seller's ability to convey a fee simple interest in the property, such as: Options. Rights of first refusal. The sale being subject to previous closings. (Vt. Admin. Code :4.5(c).) If the seller does not consent to disclosure after the agent informs the seller of the necessary disclosures, then the agent must withdraw from the agency relationship (Vt. Admin. Code :4.5(b)). A licensee must give either an oral or written disclosure informing individuals that there is no confidentiality between the licensee and that person until there is a signed brokerage service agreement at the first contact with a anyone expressing an interest in buying or selling real property (Vt. Admin. Code :4.6(a)). A brokerage firm and its licensees must provide a written consumer disclosure form that includes the content established by the Vermont Real Estate Commission (Commission) to any unrepresented person they have substantial contact with. The disclosure must happen: At the first reasonable opportunity. Before: entering into a brokerage service agreement; showing a property; or requesting information regarding a consumer's buying or selling requirements about real property. (Vt. Admin. Code :4.6(b).) New consumer disclosure form must be given every 12 months (Vt. Admin. Code :4.6(c)). An example of a consumer disclosure form adopted by the Commission is available on the Commission's website. A licensee buying or selling on his own account must disclose: The existence of the real estate license. That the property either: belongs to the licensee; or will be purchased for the licensee's use. The licensed real estate broker or salesperson must make these disclosures on initial contact with the seller, buyer or their representatives. (Vt. Admin. Code :4.5(d).) DUAL AGENCY DISCLOSURE The Commission prohibits dual agency (Vt. Admin. Code :4.4(a)). A brokerage firm cannot act as an agent for both a buyer and a seller in the same transaction, except as a limited agent. A brokerage firm may act as a limited agent when: The brokerage firm already represents both the seller and a buyer under separate brokerage service agreements. The seller and buyer later want to participate in the same real estate transaction. Each party gives informed consent. (Vt. Admin. Code :4.4(b), (c).) 6

7 Infrastructure Investment Act: New York's Design Build Law Real Estate Brokerage Laws and Customs: Vermont This consent must contain the information prescribed by the Commission in Rule 4.4(c) of the Administrative Rules of the Vermont Real Estate Commission. BROKER'S LIENS 16. Can a broker file a lien against real property if it has a claim for its commission? Is a broker's lien an inchoate lien? FILING A LIEN Vermont law does not provide for a broker's lien against real property based on unpaid commissions. Brokers with unpaid commission claims may pursue an action for a breach of contract claim. BROKERS' LIENS AS INCHOATE LIENS Vermont law does not provide for a broker's lien against real property based on unpaid commissions. 17. How can a real property owner remove a broker's lien? Vermont law does not provide for a broker's lien against real property based on unpaid commissions. MANAGING REAL ESTATE 18. Is a broker's license required to manage real estate and collect rents on behalf of a landlord? If so, what are the statutes regulating the licensing requirements? A broker's license is not required to manage leased real estate and collect rents. The definition of a broker or salesperson expressly excludes any person who: Leases real estate. Offers to lease real estate. Negotiates the lease of real estate. Advertises as being in the business of leasing real estate. (Vt. Stat. Ann. tit (b)(8).) ABOUT PRACTICAL LAW Practical Law provides legal know-how that gives lawyers a better starting point. Our expert team of attorney editors creates and maintains thousands of up-to-date, practical resources across all major practice areas. We go beyond primary law and traditional legal research to give you the resources needed to practice more efficiently, improve client service and add more value. If you are not currently a subscriber, we invite you to take a trial of our online services at practicallaw.com. For more information or to schedule training, call or [email protected] Use of Practical Law websites and services is subject to the Terms of Use ( and Privacy Policy ( 7