In a recent case, the U.S. District Court for the Southern District of Ohio ruled that a joint venture agreement between a Michigan entity and an Ohio corporation which was intended to satisfy Ohio real estate brokerage licensing requirements failed to do so. Professional Property Management Services, Inc. v. Agler Green Townhouses, Inc.
Agler Green Townhouses, Inc. (“Agler Green”) owns a multifamily housing development in Columbus, Ohio, which is insured by the FHA. To comply with the FHA mortgage guarantee, Agler Green entered into a Regulatory Agreement with the Department of Housing and Urban Development (“HUD”) outlining HUD’s rights and monitoring obligations (the “Regulatory Agreement”).
Agler Green wished to contract with Professional Property Services, Inc. (“PPS”) for property management services in connection with the property. Agler Green was aware that PPS, a Michigan corporation, was not licensed to manage real property in Ohio. In an attempt to remedy this, PPS entered into a joint venture agreement with Sales Plus Management, Inc., an Ohio corporation which was licensed to perform property management services in Ohio. Under the PPS/Sales Plus Joint Venture, PPS was responsible for the property management functions of the property and Sales Plus was to maintain a valid Ohio broker’s license. PPS and Agler Green then entered into a Housing Management Agreement for the property (the “Management Agreement.”). HUD was not a signatory to the Management Agreement, but it addressed various rights of HUD and obligations of the parties to HUD.
Several years later, the Real Estate Division of the Ohio Department of Commerce instructed PPS to cease and desist all real estate management activities in the state or obtain an Ohio broker’s license. Soon thereafter, Agler Green informed PPS that it was in breach of the Management Agreement. That same day, the license of an Ohio broker was transferred to PPS and PPS terminated the PPS/Sales Plus Joint Venture.
Not satisfied that PPS had corrected its licensing problems, HUD terminated the Management Agreement with PPS. Pursuant to the Regulatory Agreement with HUD, Agler Green also terminated the Management Agreement with PPS. In response, PPS sued Agler Green, claiming breach of contract, and Agler Green moved for summary judgment. Agler Green argued that PPS did not have a cause of action against it since PPS was not properly licensed in Ohio and therefore, the Management Agreement was void and unenforceable.
The U.S. District Court first determined that the PPS/Sales Plus Joint Venture did not satisfy Ohio real estate licensing requirements. Under that arrangement, PPS was acting as a real estate broker as defined by Ohio law. It was Sales Plus, however, which maintained a valid Ohio broker’s license and therefore was authorized to provide these services. The lending of one’s license for the benefit of another, as intended and carried out under the PPS/Sales Plus Joint Venture, is prohibited by Ohio law, so the court found that agreement to be void and unenforceable. Therefore, the Management Agreement between PPS and Agler Green also was in violation of Ohio law, and the court also deemed it void and unenforceable, with PPS having no right to recover from Agler Green for an alleged breach of the Management Agreement.
Professional Property Management Services, Inc. v. Agler Green Townhouses, Inc., 998 F. Supp. 831 (S.D. Ohio 1998).