Does My Client Need a License to Broker a Business Sale?

Co-author: Zakary A. Kessler

The question of whether certain behavior requires a real estate license is not only a logical place to begin a presentation on real estate license law, it is an important topic for general real estate practitioners. Business brokerage is an area that frequently raises the issue of whether activity requires a real estate brokerage license. This article explains the general concepts shaping and defining the answer to this question, and then it concludes by exploring the business brokerage context.

General Background

C.R.S. § 12-61-102 provides the general statement that “it is unlawful for any person, firm, partnership, limited liability company, association, or corporation to engage in the business or capacity of real estate broker in this state without first having obtained a license from the Real Estate Commission.” C.R.S. § 12-61-101(2)(a) in turn defines the term “real estate broker” as follows:(E1)

(2)(a) “Real estate broker” or “broker” means any person, firm, partnership, limited liability company, association, or corporation who, in consideration of compensation by fee, commission, salary, or anything of value or with the intention of receiving or collecting such compensation,engages in or offers or attempts to engage in, either directly or indirectly, by a continuing course of conduct or by any single act or transaction, any of the following acts:

(I) Selling, exchanging, buying, renting, or leasing real estate, or interest therein, or improvements affixed thereon;

(II) Offering to sell, exchange, buy, rent, or lease real estate, or interest therein, or improvements affixed thereon;

(III) Selling or offering to sell or exchange an existing lease of real estate, or interest therein, or improvements affixed thereon;

(IV) Negotiating the purchase, sale, or exchange of real estate, or interest therein, or improvements affixed thereon;

(V) Listing, offering, attempting, or agreeing to list real estate, or interest therein, or improvements affixed thereon for sale, exchange, rent, or lease;

(VI) Auctioning or offering, attempting, or agreeing to auction real estate, or interest therein, or improvements affixed thereon;

(VII) Buying, selling, offering to buy or sell, or otherwise dealing in options on real estate, or interest therein, or improvements affixed thereon or acting as an “option dealer”;

(VIII) Performing any of the foregoing acts as an employee of, or in behalf of, the owner of real estate, or interest therein, or improvements affixed thereon at a salary or for a fee, commission, or other consideration;

(IX) Negotiating or attempting or offering to negotiate the listing, sale, purchase, exchange, or lease of a business or business opportunity or the goodwill thereof or any interest therein when such act or transaction involves, directly or indirectly, any change in the ownership or interest in real estate, or in a leasehold interest or estate, or in a business or business opportunity which owns an interest in real estate or in a leasehold unless such act is performed by any broker-dealer licensed under the provisions of article 51 of title 11, C.R.S., who is actually engaged generally in the business of offering, selling, purchasing, or trading in securities or any officer, partner, salesperson, employee, or other authorized representative or agent thereof;

(X) Soliciting a fee or valuable consideration from a prospective tenant for furnishing information concerning the availability of real property, including apartment housing which may be leased or rented as a private dwelling, abode, or place of residence. Any person, firm, partnership, limited liability company, association, or corporation or any employee or authorized agent thereof engaged in the act of soliciting a fee or valuable consideration from any person other than a prospective tenant for furnishing information concerning the availability of real property, including apartment housing which may be leased or rented as a private dwelling, abode, or place of residence, is exempt from this definition of “real estate broker” or “broker”. This exemption applies only in respect to the furnishing of information concerning the availability of real property.

The phrasing “…engages in or offers or attempts to engage in, either directly or indirectly, by a continuing course of conduct or by any single act or transaction, any of the following acts:…”(E2) is extraordinarily broad. Like many statutes, the general rule is so broad that the challenging analysis comes not from scrutinizing the general rule, but from analyzing the exceptions.(E3) C.R.S. § 12-61-101(b) identifies the exceptions to the general rule. While some of the exceptions might incidentally apply to business brokerage, there is no targeted exception encompassing business brokerage.

Behavior not fitting clearly within an exception, is likely swept up within the very broad meaning of “negotiate” contained in C.R.S. § 12-61-101(2)(a).(E4) When a person “negotiates” a real estate transaction, the statute designates that person as a “broker” who, therefore, needs a license. InBrakhage v. Georgetown Assocs. Inc., the Colorado Court of Appeals further explained that “negotiate,” in the context of conduct requiring a real estate broker’s license, “includes the act of bringing two parties together for the purpose of consummating a real estate transaction.”(E5) The court was explicit in explaining that “negotiate” included as little as introducing the buyer to the seller or vice versa, and it concluded that there was no distinction between that minimal level of interaction with the transaction and active participation in the intimate details of the sale.(E6) Both actions are “negotiating,” and both actors are deemed “brokers.”(E7) In spite of doing “nothing more than introduce the parties who later consummated the transaction,” the court in Brakhage nonetheless “deemed” him a real estate broker.(E8) The court refused to recognize “a distinction between a finder who merely introduces prospective buyers and sellers and a broker who participates in the details of the transaction.”(E9) The Brakhagecourt determined that the man who introduced the buyer to the seller “negotiated” the transaction, “deemed” him a broker, and refused to award him the disputed commission because he acted as a broker without first obtaining a license. The court there specifically noted that the statute was revised by the legislature with the “intent to enlarge and extend the definition of the term ‘real estate broker’ to include the full spectrum of activities related to the sale of real estate.(E10) As this decision pointedly indicates, negotiating encompasses almost any match-making activity touching a real estate transaction. Such a broad definition of “negotiate” fails to limit the broker concept in any meaningful way. As a result, in order to determine whether an activity that touches real estate requires a license, the activity must be examined within the context of facts and circumstances of each situation.

The Issue in the Business Brokerage Context

Business brokerage consists of assisting in the purchase or sale of the ownership interest in a business. In the context of business brokerage, real estate license law becomes important because a person who engages in business brokerage involving a business that owns any interest in real estate must comply with Colorado real estate license law. In addition to the broad definition of “negotiate” in C.R.S § 12-61-101(2)(a),(E11) that section of the statute also broadly defines the sale of real estate to include the sale of the ownership interest in a business that “directly or indirectly”(E12) effectuates the transfer of ownership of real property.

The Colorado Supreme Court concluded that when the legislature adopted the “broad language” of the statute, it intended to “require[ ] a finder or business broker to have a real estate broker’s license if the sale of the business includes a transfer of any interest in real estate.”(E13) Applying that definition to the sale of a radio station, the court there found that the transfer of the leasehold interest in the station’s building as a part of the sale of the business fell within the statute; therefore, the business broker needed a real estate broker’s license to be compensated for work on the transaction.(E14) Even if the transaction only involves the sale of the stock of a business, an actor negotiating the sale is defined as a broker when that sale of the business involves the “change in ownership or interes…in a business which owns an interest in real estate.”(E15) Additionally, the act of “offering to negotiate” the sale of a business with assets that include a leasehold interest in real estate brings the actor within the definition of a person requiring a real estate broker’s license.(E16) As this analysis by Colorado courts demonstrates, any person performing business brokerage that is in some way related to a change in ownership of an interest in real estate requires a real estate broker’s license.

Endnotes:
(E1)Emphasis added by author.
(E2)COLO. REV. STAT. § 12-61-101(2)(a) (2011).
(E3)One exception to this premise is the general rule’s requirement of “compensation by fee, commission, salary, or anything of value.”
(E4)COLO. REV. STAT. § 12-61-101(2)(a)(IV), (IX) (2011).
(E5)523 P.2d 145, 147 (1974).
(E6)Id.
(E7)Id. at 146-47.
(E8)Id. at 146.
(E9)Id.
(E10)Id. at 147.
(E11)COLO. REV. STAT. § 12-61-101(2)(a)(IV), (IX) (2011). See the General Information section (above) for further discussion of these sections of the statute.
(E12)Id. § 12-61-101(2)(a)(IX).
(E13)Broughall v. Black Forest Dev. Co. 593 P.2d 314, 315-16 (1978).
(E14)Id.
(E15)Brakhage, 525 P.2d at 146-47.
(E16)Barton v. Sittner, 723 P.2d 153, 154 (Colo. App. 1986).

Author: Jonathan A. Goodman is a shareholder in Frascona, Joiner, Goodman and Greenstein, P.C., a Colorado law firm.

Jon Goodman is a shareholder with Frascona, Joiner, Goodman and Greenstein, P.C., a Colorado law firm. His practice areas include Real Estate,Brokerage Law, Contracts, Land Use, Leasing, Real Estate Title, Association Law, Business Law, and Finance. Contact Jon Goodman.

Disclaimer — Content is general information only. Information is not provided as advice for a specific matter, nor does its publication create an attorney-client relationship. Laws vary from one state to another. For legal advice on a specific matter, consult an attorney.

JONATHAN A. GOODMAN