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From the Bench: The Importance of Proper Licensing and Agency Disclosure for Real Estate LLCs

by MAR Legal Team | Mar 01, 2019
In 2014, the Board of Registration of Real Estate Brokers and Salesmen (the Board) initiated proceedings against real estate licensee Michael Thomann. The Board alleged that Thomann had bought and sold real estate on behalf of clients through an unlicensed limited liability company (LLC), in violation of two sections of the Massachusetts Code of Regulations (CMR).* The Board also alleged that he violated a third section of the CMR by failing to provide a proper notice of agency disclosure to the seller.

Michael Thomann v. Board of Registration of Real Estate Brokers and Salesmen highlights the importance of proper licensing and agency disclosure for Realtors® that operate their business through an LLC or other corporate entity. 

The Law 

Massachusetts regulations provides that licensees may not engage in the business of real estate brokering in an LLC or other corporate entity unless the entity is licensed by the Board. To gain and maintain its license, the LLC must always have at least one officer with a current broker’s license. A broker who engages in the business of real estate brokering through an unlicensed LLC would violate another regulation that bars brokers or salespersons from assuming duties and responsibilities beyond those for which they have adequate preparation and for which competency has been acquired and maintained.    

In addition, Massachusetts regulations require real estate brokers or salespersons to provide an agency disclosure form to prospective purchasers or sellers at the first meeting for the purpose of discussing a specific property.   

The Case 

Thomann was the sole manager of Boston International Group, an LLC with a certificate of organization that stated it would engage in business including “commercial real estate.” However, the LLC, did not have its own real estate broker’s license. Despite this oversight, the Board found that the LLC was both a party to the listing agreement of a commercial property and that the entity was actively engaged in real estate brokering activities. 

Thomann denied the allegations and asserted that he had conducted his real estate brokering activities through a properly registered business or trade name. Thomann argued that he conducted all of the brokering activity under his individual real estate broker’s license and not through the LLC. (The facts strongly suggest that this is not true as he used the unlicensed LLC’s name on paperwork and even ended up suing the client for broker’s fees under the name of the LLC). He also stated that it was his routine business practice to provide his clients with the agency disclosure form.  

The Decision 

The Board suspended Thomann’s license to practice real estate for 10 days. Thomann appealed the decision. Ultimately, the SJC agreed with the Board that Thomann had violated the CMR by engaging in the business of real estate brokering through the unlicensed LLC. 

The SJC also upheld the Board’s determination that Thomann violated the agency disclosure requirements by not providing the seller the agency disclosure form as approved by the Board. Although, it may be industry practice for real estate brokers to forgo the use of the agency disclosure form in commercial real estate transactions, the Board and the SJC found that Thomann’s failure to use the form was a violation of the regulations.  

What This Means for Realtors® 

Michael Thomann v. Board of Registration of Real Estate Brokers and Salesmen highlights the importance of Realtors® ensuring that if they are operating their business through an LLC or other corporate entity, that the entity is properly licensed under the Massachusetts Code of Regulations. This case also emphasizes the importance of using and maintaining a proper record of the agency disclosure form—even when dealing in commercial real estate.  

*CMR sections violated: 254 CMR 2.00(11) and254 CMR 3.00(14)(e) for engaging in the business of real estate brokering through an unlicensed LLC; and section 254 CMR 3.00(13)(a) for failure to provide proper notice of agency disclosure to the seller.