Do’s and don’ts of working with out-of-state commercial REALTORS

downtown skyline illustration

By Peg Ritenour, OAR Vice President of Legal Services/Administration

Ohio REALTORS are being contacted more and more by out-of-state agents with a client interested in buying or leasing commercial real estate located in Ohio. Obviously this could be a referral situation, but could the out-of state REALTOR actually represent the buyer or tenant — showing property and negotiating a lease or purchase contract — if he’s not licensed in Ohio? The answer is yes, but specific requirements have to be followed so you and the out-of-state REALTOR don’t find yourself in hot water with the Division of Real Estate.

Legislation permitting such out-of state licensees to practice commercial real estate in Ohio was spearheaded by OAR and became effective in 2002. Commercial real estate is defined as any property other than real estate with one to four family units. Thus, this legislation applies to unimproved land or property with five units or more. If a property has 1-4 residential units, an Ohio license is required to participate in the transaction beyond a referral.

To make sure that the out-of-state broker followed Ohio law and that Ohio brokers and consumers weren’t put at risk, certain requirements were included in the legislation. Under Ohio’s law a broker licensed in another state is permitted to fully represent a client in an Ohio commercial/industrial transaction as long as several requirements are met. The out-of-state broker must:

  • Work in cooperation with an Ohio real estate broker
  • Enter into a written agreement with the Ohio broker that includes the terms of cooperation and compensation and a statement that the out-of-state commercial broker and its agents will agree to adhere to the laws of Ohio
  • Furnish the Ohio broker with a current certificate of good standing from any jurisdiction where the out-of-state commercial broker maintains an active real estate license
  • Sign an irrevocable written consent that legal actions arising out of their conduct may be commenced against them in Ohio
  • Include the name of the Ohio broker on all advertising
  • Deposit all escrow funds, security deposits, and other money received by either the out-of-state commercial broker or the Ohio broker in the trust or special accounts maintained by the Ohio broker
  • Deposit records and documents related to the transaction with the Ohio broker

To assist our members who want to work with an out-of-state broker under this law, OAR has prepared sample cooperative agreements and a “Consent to Jurisdiction” form.

It is important for Ohio REALTORS to recognize that the above provisions apply when an out-of-state broker agent seeks to participate in the sale of commercial property located in Ohio beyond a mere referral. If an Ohio  licensee wishes to sell or lease real estate located outside of Ohio, it is necessary that they contact the Real Estate Commission of the state where the property is located to determine what requirements must be met in order to do so.

 

Legal articles provided in the OAR Daily Buzz are intended to provide broad, general information about the law and is not intended to be legal advice. Before applying this information to a specific legal problem, readers are urged to seek advice from an attorney. 

Tags: Commercial, legal

Ohio Safety Series: Safety matters for commercial professionals

think safety

By Philip McGinnis, ACoM, ALC, CCIM

While the most publicized physical attacks on real estate agents have involved residential agents, commercial agents are equally at risk. Additionally, it’s important to remember that not all safety and security risks are external.

Currently, many markets are faced with a high office and industrial vacancy rate. These properties present huge risks to REALTORS because they are typically isolated from populated areas, and are often difficult to access. Many of the same safety tips employed by residential agents are relevant for commercial practitioners including care with personal information, verifying customer information, announcing your showings, scouting locations early, and keeping phone in hand. Many office, multifamily and industrial properties have security cameras and security systems, which will not be very helpful if nobody knows you’re there. Finding the criminal after the crime is committed is not as beneficial as thwarting the criminal before or during the crime by having the appropriate maintenance and risk management processes in place. IREM offers a number of forms and checklists for both residential and commercial properties for this purpose.

Vacant land listings present unique challenges to safety and security because large parcels with woodlands offer obstructions to view of passersby. Vacant land parcels also contain ditches and low spots that present accident hazards. It is not uncommon for farmers to bury tree stumps, pesticides, construction debris, used tractor batteries, and other such materials in their properties, which create obvious safety risks. Prepare in advance by following the advice of REALTORS Land Institute’s 2015 President Terri Jensen, who published a useful article on how to stay safe in rural environments.

New construction sites for multi-family, self-storage, or any other large commercial property present hazards due to the overall size of some projects, and obstructions like fencing often prevent full views to the backs of the properties. Personal safety basics like wearing appropriate gear (e.g., hard hats, sturdy shoes) and making sure the property has adequate lighting are easy ways to protect yourself. The International Association of Certified Home Inspectors and Insurance Institute for Business & Home Safety have both published articles with additional safety tips relevant for commercial professionals who work with varying property types.

Smart phone apps and other safety products enable agents to send alert signals via phone, text, social networks and email to your emergency contacts along with a GPS location; a list of expert resources is available on the NAR website. Preparing a prospect form, an agent form, and an itinerary form, among others, will allow your co-workers and family members to know where you are, and who you are with. Developing a distress code will likewise allow you to alert others to send help.

Not all risks to real estate agents are external. Commercial property brokerage is a high-stress profession, and the threat of heart attack or stroke is ever present; for instance, if an agent goes into cardiac crisis, every moment is crucial. Being able to quickly contact emergency responders is critical to survival. Adding ICE (In Case of Emergency) entries into your smart phone’s contact list enables any prospect or client to be able to dial directly to someone who can send immediate assistance. Dialing 9-1-1 is not always reliable on a cell phone, as some calls are directed to towers outside of the service area where the casualty actually occurs.

These tips are simple enough to incorporate into your business right away. The only thing more tragic than a REALTOR being harmed while doing their job is knowing that the harm may well have been prevented with some simple best practices.

Philip McGinnis, ACoM, ALC, CCIM, of Dover, Delaware, brokers, manages, and appraises commercial properties, and has been active in REALTOR Association activities for more than 35 years.

Republished from the National Association of REALTORS, July 2015

Tags: Commercial, Ohio Safety Series, safety

OAR President-elect Greg Hrabcak talks about the keys to success in the profession

Greg Hrabcak - 2014 Official PhotoOAR President-elect Greg Hrabcak was a recent featured guest of Justin Lamontagne’s Commercial Real Estate Elite: Broker to Brokers podcast.

Hrabcak reviewed his entry into the world of real estate following his graduation from The Ohio State University and key moments in his development as a successful commercial real estate practitioner — from the benefits of ongoing educational development to fostering collaborative relationships with his peers in the commercial and residential sector. He also addressed the relevancy of the REALTOR organization in protecting the interest of the profession and property owners.

A sampling of Hrabcak’s advice:

  • Get involved early on with educational opportunities
  • “The people in my industry are not my competitors but my contemporaries
  • “The highs are very high and the lows are very low” – have a short memory and always move forward
  • “Persistence pays off”

 

Commercial Real Estate Elite: Broker to Brokers podcast offers state-by-state interviews, bringing you real life brokerage strategies and resources used by America’s top commercial real estate agents. Each week Justin Lamontagne helps uncover tools, tips and techniques straight from top performing commercial agents to help you stand out in this highly-competitive field. By a broker. With brokers. For brokers. Click here for a complete list of episodes, including an opportunity for a free subscription.

Tags: Association news, Commercial

#1 way to lose your Ohio real estate license: Property management mistakes

 

By Peg Ritenour, OAR Vice President of Legal Services/Administration

Over the last few years, the area of property management has been the top source of license law violations found by the Ohio Real Estate Commission. This is largely due to a lack of awareness of the license law requirements in this area. Foremost among these is the misconception that agents can manage property for others in their own name or that it can be conducted through a separate entity.

To help REALTORS comply with the license law requirements in this area, OAR developed a White Paper on this topic several years ago. Whether you are thinking about getting into this field or have been doing property management for a while, this is a must read for all REALTORS to make sure it is being done correctly. The following are samples of the types of questions answered in the White Paper on Property Management

Q: As a broker, can I conduct property management in a different business name than the listing and sales portion of my brokerage?

A: No. A brokerage is only authorized to conduct real estate business in one name — the name that appears on its license. All of the business of the brokerage, including property management must be done in that one name.

Q: One of my sales agents wants to handle the rental of a duplex his father owns. My brokerage doesn’t do property management. Can he do this on his own?

A: The leasing or managing of real estate for a fee, commission or anything of value, is activity that requires a real estate license. Therefore if the agent is being compensated for leasing or managing this duplex, this activity must be done in the name of his broker. The fact that the property is owned by a relative does not matter.

Q: Do real estate agents licensed with my brokerage have to lease their own rental properties through my company?

A: There is no legal requirement that agents purchase, sell or lease their own property through the broker with whom they are licensed. However, a broker can require this as a condition of working for the brokerage. If a broker wants to impose this requirement upon his agents, it is advised that this be set forth in the independent contractor agreement with the agent and/or in the broker’s policy manual.

Q: When do you need a property management trust account? What if I am only managing one property?

A: A broker who engages in the management of any property must have a property management trust account. All rents, security deposits, and other monies received by the broker in connection with the management of that property must be deposited in that trust account, unless otherwise agreed.

Q: I have had a property listed for several months with little activity. The seller wants me to find a tenant and lease it. Do I have to have a property management trust account?

A: No. If you are only leasing the property for the owner, you are not required to have a property management trust account. Such an account is only required if you are going to be managing the rental for the owner, i.e., collect rents, pay bills for the owner, etc.

Q: Can a broker have more than one property management trust account, for example one for each owner?

A: Yes. Each account must contain the broker’s name as it appears on his/her license and must be designated as a “property management trust account.” Additional descriptive terms can be added to distinguish the accounts from one another (i.e. Breckenridge Apartment, John Jones Properties).

Tags: Commercial, legal

Ohio Court ruling clarifies “fixture vs. trade fixture” in commercial leases

The following is republished, with permission, from The Ohio Real Estate Law Blog. Kohrman Jackson & Krantz PLL is a Cleveland-based law firm representing individuals and companies throughout Northeast Ohio and the United States.

By Connie S. Carr, Senior Counsel, Kohrman Jackson & Krantz PLL

In the context of commercial leasing, what fixtures get removed when a tenant vacates the premises, and what fixtures become part of and remains in the building, can be a contentious issue. For example, a tenant may install certain pieces of machinery and equipment that are bolted in place when installed. If the landlord demanded that the items remain as part of the real estate when the tenant leaves and the tenant disagreed, half the courts would side with the landlord and half would side with the tenant.

An appellate decision was issued this past year in Ohio’s 9th District Court of Appeals that provides some guidance on this issue, at least for those of us located in Ohio’s 9th Appellate District. The case is Perez Bar & Grill vs. Schneider, 2012-Ohio-5820, which was decided on Dec. 10, 2012.

Perez Bar & Grill (“Perez”) was a tenant in a building that Schneider acquired through a foreclosure sale. Perez had various pieces of bar and restaurant equipment and decorations still located in the building, including a wooden bar and back bar, a ventilation hood, sinks and an exterior awning. After the sale, Perez contacted Schneider demanding a return of these items based on their being trade fixtures and did not pass with the real estate when Schneider purchased the building. Schneider refused.

Perez then brought an action against Schneider alleging conversion, among other claims that Perez later dismissed. A conversion is when one party takes action with property that legal belongs to another and is addressed in a civil court action. For example, when someone finds property that belongs to another person and decides to keep it for him or herself, or a property owner cuts down a tree and hauls away the lumber when it’s unclear that property owner had ownership rights over the tree. This differs from theft, which is a criminal act, where the thief intended to steal the property knowing it belonged to another.

Schneider tried to defend the action claiming to be an innocent third party purchaser but the court rejected it. A key factor in rejecting Schneider’s defense was the fact that Perez attempted to retrieve the fixtures from Schneider first without resorting to litigation and Schneider refused to allow it. That action negated any ability of Schneider to be considered “innocent.”

The court cited three elements that must be present to classify an item as a “fixture” to passes with the real estate: (1) actual attachment to the realty, (2) appropriation to the use or purposes of that part of the realty with which it is attached, and (3) the intention of the party who attached the fixture to the realty to make the fixture a permanent attachment. Per prior decisions by the Ohio Supreme Court, these latter two elements are the primary focus when analyzing a fixture to determine whether or not it is fixture or trade fixture.

The general rule that the court followed in its analysis to distinguish a fixture from a trade fixture was whether or not the trade fixture could be removed by the tenant because it was placed there exclusively for business purposes and not with the intention to make them a permanent addition to the real property.

As a result of its analysis, the court upheld the lower court judgment in favor of the tenant, Perez, holding that the items listed above were trade fixtures. There was an A/C unit installed on the roof by Perez that the court held was not a trade fixture, as it served to benefit the entire property and not just the specific needs of Perez’s bar and restaurant business.

As a practice, when negotiating a commercial lease, tenants and landlords are wise to document what will be considered a trade fixture as opposed to a fixture remaining with the property after the lease terminates. It can save a lot of headache and legal fees later. Even if the landlord loses title through foreclosure, and a new property owner takes control, the tenant will be in a better position for arguing later that certain items are trade fixtures and remain the tenant’s property.

Tags: Commercial, legal

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