Ladd v. Real Estate Comm'n of Pa.

• Decision Date: 19 May 2020
• Docket Number: No. 33 MAP 2018,33 MAP 2018
• Citation: 230 A.3d 1096
• Parties: Sara LADD, Samantha Harris, and Pocono Mountain Vacation Properties, LLC, Appellants v. REAL ESTATE COMMISSION of the Commonwealth of Pennsylvania and Department of State (Bureau of Professional and Occupational Affairs) of the Commonwealth of Pennsylvania, Appellees
• Court: Pennsylvania Supreme Court

230 A.3d 1096

Sara LADD, Samantha Harris, and Pocono Mountain Vacation Properties, LLC, Appellants

v.REAL ESTATE COMMISSION of the Commonwealth of Pennsylvania and Department of State (Bureau of Professional and Occupational Affairs) of the Commonwealth of Pennsylvania, Appellees

No. 33 MAP 2018

Supreme Court of Pennsylvania.

Argued: September 11, 2019

Decided: May 19, 2020

OPINION

JUSTICE DOUGHERTY

We consider the Commonwealth Court's holding that the broker licensing requirements codified in the Real Estate Licensing and Registration Act, 63 P.S. §§ 455.101 - 455.902 (RELRA), satisfy the heightened rational basis test articulated in Gambone v. Commonwealth , 375 Pa. 547, 101 A.2d 634 (1954), and thus do not violate Article I, Section 1 of the Pennsylvania Constitution when applied to a self-described "short-term vacation property manager."¹ We conclude the Commonwealth Court erred in so holding, and therefore reverse and remand for further proceedings pursuant to this opinion.

I. Background

We begin by describing the relevant provisions of RELRA, which set forth the statutory licensing requirements for real estate brokers in Pennsylvania. Specifically, RELRA requires that any person engaged in the business of real estate, including those persons "acting in the capacity of a broker or salesperson," be "licensed or registered as provided in this act[.]" 63 P.S. § 455.301. The statute defines a "broker" as:

Any person who, for another and for a fee, commission or other valuable consideration:

(1) negotiates with or aids any person in locating or obtaining for purchase, lease or an acquisition of interest in any real estate;

(2) negotiates the listing, sale, purchase, exchange, lease, time share and similarly designated interests, financing or option for any real estate;

(3) manages any real estate;

(4) represents himself to be a real estate consultant, counsellor, agent or finder;

(5) undertakes to promote the sale, exchange, purchase or rental of real estate: Provided, however, That this provision shall not include any person whose main business is that of advertising, promotion or public relations;

(5.1) undertakes to perform a comparative market analysis; or

(6) attempts to perform any of the above acts.

63 P.S. § 455.201. RELRA expressly exempts from this statutory definition of "broker" certain individuals who engage in the activities described in Section 455.201 and are therefore not required to obtain a broker license before providing the listed services. Notably, the statute exempts, inter alia , "[a]ny person employed by an owner of real estate for the purpose of managing or maintaining multifamily residential property[.]" 63 P.S. § 455.304(10).²

RELRA requires real estate "brokers" to take an examination before becoming "licensed" to engage in any of the above-described activities in Pennsylvania. To be eligible to sit for the "broker's license examination," an individual is required to: (1) be 21 years-old; (2) have a high school degree or its equivalent; (3) "have completed 240 hours in real estate instruction in areas of study prescribed by the rules of the commission, which [ ] shall require instruction in the areas of fair housing and professional ethics[;]"³ and (4) "have been engaged as a licensed real estate salesperson for at least three years or possess educational or experience qualifications which the commission deems to be the equivalent thereof." 63 P.S. § 455.511(1) - (4). A real estate "salesperson" is separately defined as:

Any person employed by a licensed real estate broker to perform comparative market analyses or to list for sale, sell or offer for sale, to buy or offer to buy or to negotiate the purchase or sale or exchange of real estate or to negotiate a loan on real estate or to lease or rent or offer to lease, rent or place for rent any real estate or collect or offer or attempt to collect rent for the use of real estate for or in [sic] behalf of such real estate broker.

63 P.S. § 455.201. In addition, before becoming a real estate "salesperson" one must sit for an examination after satisfying these additional requirements: (1) be at least 18 years-old; (2) "complete[ ] 75 hours in real estate instruction in areas of study prescribed by the rules of the commission, which [ ] shall require instruction in the areas of fair housing and professional ethics[;]"⁴ and (3) have a high school degree or its equivalent. 63 P.S. § 455.521(1) - (3). After passing the salesperson examination an individual must apply to the Real Estate Commission (Commission) for a license and "submit a sworn statement by the broker with whom [the salesperson] desires to be affiliated certifying that the broker will actively supervise and train the applicant." 63 P.S. § 455.522(a) - (b).

Only upon completion of the requisite three years as a real estate salesperson, and assuming the other three criteria in Section 455.511 are satisfied, may an individual sit for the broker's license examination. See 63 P.S. § 455.511(1) - (4). Upon passing the examination, the individual must submit an application to the Commission indicating his or her place of business, 63 P.S. § 455.512(a) - (b), and the newly licensed broker must thereafter "maintain a fixed office within this Commonwealth."

63 P.S. § 455.601(a). Failure to comply with these licensing requirements before performing the services of a "broker" results in a summary offense and upon conviction a "fine not exceeding $500 or [ ] imprisonment, not exceeding three months, or both[.]" 63 P.S. § 455.303. Moreover, a person who commits any "subsequent offense shall be guilty of a felony of the third degree and upon conviction [ ], shall be sentenced to pay a fine of not less than $2,000 but not more than $5,000 or to imprisonment for not less than one year but not more than two years, or both." Id . Finally, the Commission is authorized to "levy a civil penalty [ ] up to $1,000" for practicing real estate without a license. 63 P.S. § 455.305.

We now turn to the facts of the present case. Appellant Sara Ladd, a New Jersey resident, owns two vacation properties on Arrowhead Lake in Monroe County, Pennsylvania, an area commonly known as the Pocono Mountains. Petition for Review in the Nature of a Complaint for Declaratory and Injunctive Relief, 7/18/2017 at ¶¶15-18. Ladd started renting one of these properties in 2009 and the other in 2013 to supplement her income after being laid off from her job as a digital marketer. Id . at ¶¶17, 19. She used her digital marketing experience to establish an online system for booking the rentals. Id . at ¶20. Eventually, some of her Arrowhead Lake neighbors learned of her success and asked her to manage rental of their own properties. Id . at ¶21. By late 2013, Ladd formed a New Jersey limited liability company, Pocono Mountain Vacation Properties, LLC (PMVP), and in 2016, launched a corresponding website. Id . at ¶¶22-23. Her objective was to "take the hassle out of short-term vacation rentals by handling all of the marketing and logistics that property owners would otherwise have to coordinate themselves[.]" Id . at ¶25. Ladd considered "short-term" vacation rentals to be rentals for fewer than thirty days, and limited her services to such transactions only. Id . at ¶2 n.1.

Ladd acted as an "independent contractor" for her "clients" and entered into written agreements with them related to her services. Id . at ¶¶26-27. In these contracts, Ladd agreed to market her clients' properties on the internet;⁵ respond to inquiries and coordinate bookings according to a list of pre-approved dates; manage all billing including accepting rental payments and security deposits, subtracting her own commission, and remitting payments to her clients; and ensure the properties were cleaned between renters. Id . at ¶27. Her clients agreed to: execute a contract between themselves and the tenant; provide a list of available dates; work with Ladd to establish a rental rate; certify the property complied with all applicable laws; pay all applicable taxes;⁶ maintain short-term rental liability insurance; provide a list of household rules and instructions; and ensure the property was stocked with necessary supplies and items in accordance with the website listing. Id . at ¶28. However, Ladd herself was never a party to the contracts between her clients and their renters. Cf . id . at ¶27.

Ladd managed PMVP alone and operated a majority of its business from her home in New Jersey. Id . at ¶40. According to Ladd, this limited overhead allowed her to provide low-cost services to her clients. Id . Her services involved rentals lasting only a few days at a time for just a few hundred dollars. Id . at ¶¶31-32. She never managed more than five clients' properties at one time and never managed a property outside of the Pocono Mountains. Id . at ¶33. She distinguishes her services from those of traditional real estate brokers who engage in "complex, months- or year-long transactions involving the transfer of permanent or long-term interests in real property" and generally "buy and sell houses worth tens or hundreds of thousands of dollars." Id . at ¶¶36-37. Ladd's services did not include buying or selling real property on behalf of her clients. Id . at ¶30.

In January 2017, the Commonwealth's Bureau of Occupational and Professional Affairs (the Bureau), charged with overseeing the Commission's enforcement of RELRA, called Ladd to inform her she had been reported for the "unlicensed practice of real estate." Id . at ¶60. Ladd reviewed RELRA and concluded her short-term vacation property management services were covered by the statute, and she would have to obtain a real estate broker license to continue operating PMVP. Id . at ¶¶61-62. As Ladd was sixty-one years old and unwilling to meet RELRA's licensing requirements, she shuttered PMVP to avoid the civil and criminal sanctions described in the statute. Id . at ¶67; see also 63 P.S. §§ 455.303, 455.305.

Ladd filed a...