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Case Update
In May of 2020, the Supreme Court of Pennsylvania reversed the Commonwealth Court and found that the Challenger alleged sufficient facts to raise a possible claim that Pennsylvania’s Real Estate Licensing and Registration Act’s (RELRA) broker licensing requirements are unconstitutional.
Applying the Challenger’s business model to RELRA’s requirements of 315 coursework hours, apprenticeship, and brick-and-mortar office location, the Supreme Court deemed RELRA’s requirements as an unreasonable and unduly oppressive means to achieve its statutory objectives of protecting consumers. The Supreme Court was persuaded by the disproportionate number of hours pertaining to areas concerning traditional real estate brokers and how managers of rentals in apartment complexes, duplexes and hotels are exempt from the broker licensing requirements.
The court remanded the case back to the Commonwealth Court of Pennsylvania for further proceedings. Following an evidentiary hearing to determine the applicability of Challenger’s business to the Supreme Court’s analysis, on October 31, 2022, the Commonwealth Court declared the state’s real estate licensing scheme unconstitutional as applied to short-term rental management services. The court’s decision followed the Supreme Court of Pennsylvania’s May 2020 opinion that RELRA’s licensure requirements were “all minimally related, at best” to Challenger’s short-term rental management business. As a result, the Real Estate Commission of Pennsylvania is prohibited from enforcing licensure provisions of RELRA with respect to providers whose services are limited to managing short-term rentals of residential real estate.
Supreme Court (May 2020): Ladd v. Real Est. Commn., 230 A.3d 1096 (Pa. 2020)
Commonwealth Court (October 2022): Ladd v. Real Est. Commn., 288 A.3d 145 (Pa. Cmmw. 2022)
Read the full decision: Ladd v. Real Estate Comm'n of Commonwealth
Pennsylvania court rules that state’s real estate licensing scheme is constitutional and so dismisses challenge brought by part-time property manager who claimed the licensing requirements were overly burdensome.
An individual (“Challenger”) began renting two vacation cottages that she owned in 2013. Seeing the success that the Challenger was having in renting her cottages, other owners requested that she help them manage their rentals as well. She formed an LLC and created a website that listed the properties that were available for vacation rentals. She also managed the billing, arranged for cleaning services, and informed owners about their tax obligations.
In 2017, the Pennsylvania Bureau of Professional and Occupational Affairs (“Bureau”) contacted the Challenger and told her that she had been reported for conducting unlicensed activity. Upon reviewing the state’s license law (“License Law”), the Challenger learned that she would need a broker’s license to continue her activities. After examining the requirements for obtaining a broker’s license (work for three years under another broker, pass two exams, and setup a physical office in the state), she determined that the requirements were too burdensome and so closed her business. The Challenger filed a lawsuit seeking a declaratory judgment the License Law as implemented by the Bureau imposed an unconstitutional burden on the Challenger’s ability to work as a part-time property manager. The Bureau filed a motion to dismiss the lawsuit.
The Commonwealth Court of Pennsylvania rejected the Challenger’s arguments and dismissed her lawsuit. The Bureau argued that the Challenger had failed to plead an actual controversy, since she was never disciplined by the Bureau for License Law violations. The Challenger responded that denying review of the Challenger’s petition would impose substantial hardships upon her, and cases in the state had created an exception to the rule requiring an actual controversy between the parties before a court would consider the matter. The court ruled that there was a justiciable controversy between the parties because the Challenger would face substantial costs and a lengthy administrative process for her noncompliance with the License Law. Therefore, the court considered her challenge to the constitutionality of the License Law.
The court found the License Law requirements to be constitutional. The court stated that the License Law exists to protect buyers and sellers during the most expensive transaction in a person’s lifetime. The court indicated that it would not change the requirement for real estate licensing in the same way it would not change the licensing requirement for other professions, such as for attorneys, merely because the individual has limited clients. License laws exist to assure competence within a profession, regardless of whether the individual is only part-time practioneer. The state constitution does not require a tiered system for professions and so the court upheld the state’s License Law. Thus, the court dismissed the Challenger’s lawsuit.
Ladd v. Real Estate Comm'n of Commonwealth , No. 321 M.D. 2017, 2018 WL 2465787 (Pa. Commw. Ct. June 4, 2018). [This is a citation to a Westlaw document. Westlaw is a subscription, online legal research service. If an official reporter citation should become available for this case, the citation will be updated to reflect this information.]
Editor’s Note: Special thanks to Hank Lerner of the Pennsylvania Association of REALTORS ® for alerting NAR Legal Affairs to this decision.