Commercial Real Estate and the Agency Disclosure Form

March 2, 2020

- By Paul Yorkis & Catherine Taylor

From time to time in discussions with experienced as well as newer REALTORS® I talk about when the Massachusetts Mandatory Real Estate Licensee-Consumer Relationship Disclosure Form (Agency Disclosure Form) must be used.

Some fellow REALTORS® have indicated that they always provide the agency form to residential consumers but don’t ever give the form out when listing or showing commercial real estate.

I have discussed this issue with MAR’s Associate Counsel, Catherine Taylor on more than one occasion, so we thought it would be a good idea to share with members of the Massachusetts Association of REALTORS® when the agency form is required to be presented to a consumer.

Paul:

Catherine, under the licensing regulations pertaining to agency, is there a difference between residential consumers and commercial consumers?

Catherine:

Yes, there are specific scenarios where the licensing regulations distinguish residential and commercial real estate. 254 CMR 3.13(a) discusses agency in a general sense and is applicable to all real estate relationships – commercial and residential. When you get to sections (b) and (c), the regulations specify the requirements for dual and designated agency depending on the type of property involved in the transaction, but neither of these sections eliminates the need for the underlying Agency Disclosure at the inception of the relationship with a prospective buyer or seller.

Paul:

When showing a commercial space to a client are REALTORS® and other licensees required to provide them with a signed copy of the agency form?

Catherine:

Based upon a recent decision by the Massachusetts Supreme Judicial Court (SJC), which is the highest court in Massachusetts, our recommendation is that an Agency Disclosure Form be provided to a prospective purchaser or seller in a commercial transaction at the time of the first in-person meeting to discuss a specific property. In Michael Thomann v. Board of Registration of Real Estate Brokers and Salesmen, the Board alleged that Thomann had bought and sold real estate on behalf of clients through an unlicensed limited liability company (LLC) and that he violated the Regulations by failing to provide a proper notice of agency disclosure to the seller in a commercial transaction. Thomann’s 10-day license suspension was upheld by the SJC for both the unlicensed LLC and the failure to provide the agency disclosure.

The Agency Disclosure must be signed by the broker or salesperson, but the prospective purchaser or seller may decline to sign the form, in which case the broker or salesperson must check the appropriate box at the bottom of the form indicating the refusal to sign. The only exception to this is for open houses in which a placard may be displayed in lieu of providing the Agency Disclosure to each prospective purchaser.

Paul:

When showing land to a developer client, should a REALTOR® provide an agency form?

Catherine:

Yes, I think the Thomann case underscores the importance of providing an appropriately completed Agency Disclosure to prospective purchasers and sellers in every type of real estate transaction.

Paul:

When showing an apartment building to three buyers/investors do all three need to sign the agency form or just one in their capacity as a corporate officer?

Catherine:

Details are particularly important in these types of situations. The Agency Disclosure only needs to be provided to prospective purchasers, so any person present who is not a prospective purchaser does not need to be provided with the Agency Disclosure. As the agent in the transaction, it is important to be clear as to who actually has the authority to enter into a contract to purchase or sell the property. This information would likely be contained in the Articles of Incorporation for a corporate entity.

Paul:

Catherine, is there any time, other than an open house, that an agency form is not required?

Catherine:

As noted previously, the open house exception is very narrow and does not fully eliminate the need for an Agency Disclosure. This exception simplifies the process by which prospective purchasers must be made aware of the capacity in which the licensee is working with the buyer, but that disclosure must still be made.

Keep in mind that the Mandatory Agency disclosure only applies to purchase transactions. If a rental is involved – commercial or residential – the agency disclosure form is not required.