The Oregon Court of Appeals recently issued a decision that may impact property management professionals.
In December 2019, the Oregon Court of Appeals in Berrey v. Real Estate Agency, 301 Or App 613 (2019), held that Berrey engaged in unlicensed professional real estate activities by managing properties without a license for compensation despite his partial ownership interest in the properties. Berrey had tried to renew his principal broker’s license online but later realized the application had not processed and his license had expired. While his licensed was expired, he continued to manage properties for compensation.
Berrey is a reminder that even if you have an ownership interest in a property, you may still need a real estate license if you manage that property on behalf of other owners for compensation.
The Court of Appeals made a detailed analysis of the Oregon rules that apply as well as Berrey’s ownership interests in the properties he was managing.
ORS 696.020(2) requires individuals to have an active license before engaging in “professional real estate activity,” which includes managing real estate (1) for another and (2) for compensation (or with the intention to receive compensation). ORS 696.030 enumerates exemptions to the license requirement, including being a member or managing member of the LLC that owns the managed property.
Berrey argued he did not need a license because his partial ownership of the property meant he was not managing that property “for another.” Berrey, as an individual, was a member of Berrey Family, LLC. Berrey Family, LLC was a member of 340 Vista, LLC, which owned several of the properties at issue. Berrey owned other properties as a trustee in tenancy-in-common with other owners. In one situation, Berrey, as trustee, was the managing member of the LLC that owned the property. CPM, Berrey’s property management company, managed each of these properties for a fee but did not own any of the properties itself.
The Court of Appeals rejected Berrey’s argument. Although the statute does not define “for another,” the court looked at the plain meaning of the words to reason that “for another” includes managing property on behalf of or for the benefit of someone other than the individual, such as other owners of the property. Simply claiming some indirect ownership in the property did not exempt Berrey, who was managing these properties on behalf of the other owners as well as himself and collecting a fee.
To support their conclusion, the court analyzed each of the properties’ ownership structures to determine whether Berrey was acting solely on his own behalf and not for anyone else when managing these properties. In no situation did the court find that Berrey was a member or managing member of the LLC that owned the property. Rather, a “chain of ownership” linked Berrey to the properties because he was a member of a third-party LLC, Berrey Family, LLC, that owned an interest in the 340 Vista, LLC, which actually owned the properties. Even where Berrey was the managing member of the LLC that owned the property, the court determined he did not meet the managing member exemption because he was instead acting as an employee of CPM and not as managing member when managing the property.
Berrey was also not exempt as trustee owning property in tenancy-in-common because he was still managing the property for the other owners rather than managing the property solely for the trust.
Others analyzing the impact of this case doubt whether the REA will actually pursue all unlicensed individuals with this “chain of ownership” structure who manage their properties for a fee unless complaints are brought or other violations come to light, but the Berrey case may motivate some to check in with their real estate or estate planning lawyers to make sure their ownership structure complies with ORS chapter 696.