New Forms and Rules Affect Commercial Real Estate

Co-Author: Richard Byron Peddie, Esq.

The Colorado Real Estate Commission has revised the Exclusive Right to Lease listing agreement (ERL). There are four new engagement forms for leasing. New Rule (E-40) regulates the preparation of market analyses by brokers. The Commission has also altered the Licensee Buy-Out Agreement, utilizing an addendum which can be attached to the standard buy-sell forms.

I.   ERL/ETC Forms

The new ERL forms avoid the pitfalls of the old ERL. One deficiency with the old ERL was that, unlike the sales-oriented forms, no provision was made for addressing the relationship between the broker and the principal. The sales-oriented forms explicitly establish the broker’s role either as agent or transaction broker. They also contain the legally-required legend notifying the seller of the variety of available brokerage relationships. In addition, the sales-oriented forms make the disclosures required by Colorado law. These disclosures address the duties and responsibilities of the broker. The agency forms also notify the client of potential vicarious liability for the acts of the broker-agent and subagents. They also address whether the broker may seek assistance from and offer compensation to subagents.The predecessor ERL contained none of the required language. This gave rise to various problems. The Commission has resolved these problems and has done so while retaining much of the simplicity of the old ERL. This will benefit commercial real estate brokers and owners.Tenant FormsThere are now two ERL forms: the “Exclusive Right-to-Lease Listing Contract” (Agency) [LC15-7-96] and the “Exclusive Right-to-Lease Listing Contract” (Transaction-Broker) [LC35-7-96].The Commission has also approved symmetrical forms designed for brokers representing tenants: theExclusive Tenant Contract (Tenant Agency) [ETC9-7-96] and the Exclusive Tenant Contract (Transaction-Broker) [ETC39-7-96]. The new tenant forms (“ETCs”) mirror the Exclusive Right to Buyengagement forms. Like the new ERLs, these forms address those aspects unique to leasing engagements.The new forms clearly identify the brokerage relationship. They contain, at the top of the first page, the required legend describing the various types of brokerage relationships. Each form contains the special language required by statute for each type of brokerage relationship. They list the duties and responsibilities of the broker. The agency forms also disclose the landlord’s or tenant’s potential for vicarious liability for the acts of the broker and/or the subagents.The agency forms (ETC and ERL) contain a section addressing whether the broker may make offers of subagency. The transaction-broker forms specify that the broker is not acting as the landlord’s or tenant’s agent.

In-Company Transactions

One problem with the previous ERL form was that it made no provision whatsoever for the in-company lease. In sales-oriented situations, brokers make use of either the Dual Agency Addendum, or theTransaction Broker Addendum. These problems have been addressed. The new agency forms provide that if a written Dual Agency or Transaction-Broker Addendum is signed by the client, the broker may transact in-company.The ETC transaction-broker form, on the other hand, provides that the “[b]roker shall not participate in any transaction in which the Broker is an agent of the landlord or acts as a Transaction-broker if Broker has any ownership interest in the Premises.” The ERL transaction-broker form is silent as to in-company transactions.The new forms are simple, easy to use, and address the regulatory problems associated with the predecessor ERL.

II.   Licensee Buy-Out Addendum

The Commission has changed this form from a separate, stand-alone agreement between sellers and licensees into an addendum to be attached to the principal buy-sell contracts. Commercial licensees should make note of the new form: Although it serves its purpose and facilitates these transactions, the form is seller-oriented and seller-protective.

Paragraph three provides that the seller can demand specific performance of the buy-out. The seller can terminate the Contract at any time under paragraph four. Although there is provision for reimbursement of the licensee/buyer’s expenses where seller terminates the contract, this amount is capped.

While this new form will facilitate commercial buy-out transactions, the form is seller-oriented and may not be useful in all situations. Where use of this form is undesirable, licensees should consult their attorneys for an agreement that will suit the particular needs of a given situation.

III.   Rule E-40

The Real Estate Commission has also adopted a variety of rule amendments and new rules. Perhaps the most significant addition for commercial property owners and their real estate brokers is new Rule E-40, which clarifies how real estate brokers can prepare market analyses. It is common for property owners, holders of leasehold interests, or tenants to ask a broker to opine on the value of property. Rule E-40 provides:

        When a real estate licensee prepares a competitive market analysis (cma) for any reason other than the anticipated sale or purchase of the property, the licensee must include a notice stating:

“The preparer of this evaluation is not registered, licensed or certified as a real estate appraiser by the state of Colorado.”

Because of the “safehaven” created by Rule E-40, brokers should insert the disclaimer into any written document in which the broker provides a value opinion, including a valuation of a leasehold interest.

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