Law Reduces the Consumer Notice Burden in Commercial Transactions
By Ray J. Michalowski, Esquire
Act 125 of 2006, a legislative priority of the PA Association of REALTORS®, will become effective on January 25, 2007.
Act 125 modifies the Real Estate Licensing and Registration Act (RELRA) to significantly reduce the number of commercial transactions where the Consumer Notice requirement applies.
The changes include adding a definition of “commercial property” to RELRA and concurrently creating an exception to the Consumer Notice requirement for commercial property sale or lease transactions.
How does the exception work? To see if the exception applies there is a two-part test.
The first part looks to the new definition of commercial property:
(1) Any property, or portion thereof, which is used, occupied or is intended, arranged or designed to be used or occupied for the purpose of operating a business, an office, a manufacturing facility or any public accommodation. This paragraph does not include property that consists of fewer than five residential dwelling units.
(2) Any vacant land offered for sale or lease or held for the purpose of constructing or locating thereon a building, structure or facility, or portion thereof, that is intended, arranged or designed to be used or occupied for the purpose of operating a business, an office, a manufacturing facility or any public accommodation. This paragraph does not include vacant land suitable only for construction or location of fewer than five residential dwelling units.
If the property that the consumer is looking to sell, lease, buy or rent fits this definition, then the exception applies to the property.
Part two of the test determines if the exception applies to the prospective client. The exception has one clear and well-intended limitation. To protect potentially less sophisticated consumers, Act 125 maintains the requirement of giving a Consumer Notice whenever the prospective client is an “individual.” This means that if the prospective transaction involves commercial property and the prospective client that will eventually be named on contracts involving the property of interest is a partnership, corporation, limited liability company (LLC) or other valid business entity, then the exception applies and a Consumer Notice is not required.
You will discover the information needed to answer this test at the “initial interview.” This is defined in RELRA as when the consumer first discusses his real estate related needs with you. The initial interview is when the Consumer Notice is normally given and is therefore the appropriate time to determine if it is needed. If at the initial interview you determine either the property does not meet the definition of commercial property (e.g., a three-unit apartment building) or that the consumer is not a representative of a business entity that will be the actual client, then the exception does not apply and you should provide a Consumer Notice to the individual. If you determine at this interview that the exception applies and a Consumer Notice is not given, then be sure to take and keep accurate notes of the interview to support your decision if it is questioned later.
Mr. Michalowski is an attorney with Caldwell & Kearns and serves as associate general counsel to PAR. A substantial portion of his practice is dedicated to providing licensure compliance services to real estate licensees and representing and defending real estate salespersons and brokers in civil lawsuits and licensing claims across the Commonwealth. He is also one of the voices of the PAR Legal Hotline.