Property Management Agreement Addendum

Question:   I am a licensed real estate broker. In addition to helping owners lease property, I help my owner clients manage their portfolio. I understand that the Colorado Real Estate Commission has created a form called “Brokerage Duties Addendum to Property Management Agreement.” What is this form for and when am I required to use it? When do I use the “Brokerage Duties Disclosure to Seller (REO and Non-CREC Approved Listing Agreements)” form?

Response:  Colorado statutes require brokers to make disclosures to the public addressing the nature of the relationship between the broker and the assisted person. Brokers are experienced at making these disclosures to buyers and tenants as brokers frequently interact with buyers and tenants with whom the broker has no established relationship. For example, a listing agent might field a call from a prospective tenant for office space in a building listed by the broker. The leasing agent might make an appointment to show the space to the prospect. After preliminary conversations or small talk concerning price range and other factual questions from the potential tenant, the broker is supposed to make the brokerage relationship disclosures to the prospect. Brokers are used to making those disclosures using the Colorado Real Estate Commission form called “Broker Disclosure to Buyer,” having form number BD24-05-04.

There has not been a culture of making such disclosures to sellers or landlords. This is because Brokers generally do not invest significant amounts of time with sellers or landlords without obtaining a listing agreement. The Colorado Real Estate Commission has built all the required disclosures into the Real Estate Commission’s seller and landlord listing agreements. As long as a listing broker is using a Colorado Real Estate Commission approved right-to-sell or right-to-lease listing agreement, the broker generally does not need to make additional relationship disclosures to a seller or landlord.

However, the Real Estate Commission has not created a property management agreement as there is tremendous variety in the documentation of the relationships between property managers and their clients. The Commission created the “Brokerage Duties Addendum to Property Management Agreement” (having form number BDA55-04-05) so that brokers had a form to attach to any property management agreement to satisfy the broker’s statutory disclosure obligations. The Commission is not creating any new disclosure obligations; it is attempting to help brokers make the disclosures that they were already required to make.

Many real estate brokers want to have a single property management form for owners to sign; they do not want to have addendums attached to the property management contract. As long as the broker incorporates all of the statutorily required disclosures into the manager’s property management contract, the broker does not need to use the separate addendum. A property manager should not use the Commission’s form to document the whole arrangement between the manager and landlord as the addendum is mostly a disclosure form. It does not address the financial and other terms of the relationship between the manager and the landlord client.

This new form contains many provisions that are important for parties to discuss when entering into a property management arrangement. The Addendum distinguishes between landlord agency and transaction brokerage. It lists the duties common to both agents and transaction brokers in the Uniform Duties found in Section 3.a. It identifies the extra duties of an agent in Section 4. The form forces the broker and landlord to think out the relationships should the brokerage firm have a relationship with both the landlord and the prospective tenant. It also requires the broker and landlord to think out the consequences should the landlord and the prospect work with the same person-an In-Company Transaction with One Broker.

There is a similar new form for sales of real estate owned (“REO”) by institutions called “Brokerage Duties Disclosure to Seller (REO and Non-CREC Approved Listing Agreements).” While this form was primarily intended to be used by brokers who list properties acquired by financial institutions after a foreclosure, the disclosure is useful any time a broker lists property for an owner using a form that is not approved by the Colorado Real Estate Commission. This new form is especially useful for commercial brokers because commercial property owners have little enthusiasm for the nuances of Colorado license law. These institutions tend to want to use their own listing forms that do not have the required disclosures. Part of the wisdom of the REO form is that the Commission knows that brokers can’t force owners to sign disclosures. Using the Broker Acknowledgement at the end of the form, or by sending the form to clients using some means that leaves a paper trail (such as fax or e-mail), brokers can easily satisfy their statutory disclosure obligations.

A version of this article appeared in the Colorado REALTOR® News, the monthly publication of the Colorado Association of REALTORS®.