Development Law Group Update: Do You Need a Real Estate License to Rent or Sell Your LLC's Real Estate

You are a member of a limited liability company that owns Oregon real estate and have found a tenant or buyer who would like to lease or purchase the property. Even though you might not have a real estate license, you can negotiate the lease or sale in Oregon without hiring a real estate broker because you are an owner of the property, right? Not necessarily. Read on.

In Oregon, a person who engages in "professional real estate activity" must have a real estate license unless exempted from the requirement. ORS ch 696. "Professional real estate activity" includes procuring prospects, negotiating, offering, selling, renting, or assisting or directing such activities "for another" and for compensation. ORS 696.010(15). Obviously, if the person owns legal title to the property, such activities would not be "for another."

Historically, officers of corporations were considered as the owners of corporate real estate, and partners of general partnerships were considered owners because legal title was vested in the partners, not the partnership. In addition, the exemptions contained in ORS 696.030 provided exceptions for certain employees of corporations and general partners of limited partnerships.

When limited liability companies were created in Oregon, no one thought to amend the licensing statute to exempt members of limited liability companies from the licensing requirement with respect to real property owned by the limited liability company. Also, when the partnership law was amended to provide that title to real property was vested in the partnership instead of the partners, no exemption from licensing was made for the partners of general partnerships. Nevertheless, for years the general assumption has been that officers and members of limited liability companies and partners of partnerships did not need a real estate license to deal with limited liability company or partnership property.

All that changed in the spring of 2008 when the Real Estate Agency took a closer look at the statute. After review, the Real Estate Commissioner decided that unlicensed officers or members of a limited liability company could not engage in professional real estate activity on behalf of the limited liability company. Thus, unless an officer or member held a real estate license, limited liability company property could not be leased or sold without hiring a licensed broker.

When word of this position got out, the Oregon State Bar sprang into action and prepared a bill to introduce to the 2009 Oregon legislature. That bill, HB 2418, as originally drafted by the Oregon State Bar, would have exempted members, managers and officers of limited liability companies and employees engaged in rental or management, but not sale, of limited liability company property.

When HB 2418 was reviewed by the Real Estate Agency, however, the Agency objected to the broad scope of the exemption, insisting that the exemption should apply only to persons who have an ownership interest in the limited liability company and who are active in the management of the company.

After negotiations with the Real Estate Agency, the bill was amended to address the concerns of the Agency and was passed by the Oregon legislature and signed by the Governor. The bill as enacted now exempts:

• Employees of limited liability companies who are engaged in the rental or management, but not the sale, exchange, lease option or purchase, of real property of the limited liability company.
• An individual who is either the sole member or a "managing member" of the limited liability company and who is engaged in the sale, exchange, lease option or purchase of the real property of the limited liability company.
• An individual who is a partner in a partnership and who is engaged in the sale, exchange, lease option or purchase of the real property of the partnership.
• An individual who is an officer or director of a corporation and who is engaged in the sale, exchange, lease option or purchase of the real property of the corporation.

Thus, sole members and "managing members" of limited liability companies are exempt. While the Oregon Limited Liability Company Act (ORS ch 63) defines "managers" and "member managed limited liability companies," it does not expressly define a "member manager." For a member to qualify for the exemption, the operating agreement of the limited liability company will need to either expressly designate the member as a manager or state that the limited liability company is "member managed." In some cases it may be necessary to amend the operating agreement to make this clear.

Significantly, the bill does not exempt the following:

• Members of limited liability companies who do not have management authority.
• Nonmember managers of limited liability companies.
• "Officers" of limited liability companies, although "employees" are exempt with respect to rental and management activities, but not sales.
• Members of limited liability companies that are entities, not individuals.

Thus, the exemption does not extend to tiers of ownership. If the member or partner is itself a limited liability company, partnership, corporation or other entity, none of the members, partners or officers of that entity will be exempt.

HB 2418 will not become effective until January 1, 2010. Until that time no one can act on behalf of a limited liability company without a real estate license.