Top 10 topics from the IAR Legal Hotline

Illinois REALTOR® Magazine | January 2013

Legal Hotline Top 10

Leasing Activities Top the 2012 Legal Hotline Chart

By Elizabeth A. Urbance  |  IAR Legal Hotline Attorney; Associate, Sorling Northrup Attorneys

Questions on leasing topped the list of topics for the IAR Legal Hotline, according to data collected in 2012. Here’s a list of the highlights, presented in a Q&A format.

#1 - License Act: Scope

Must I have a real estate license to engage in property management activities?

Yes, to the extent that those activities are included in the Illinois Real Estate License Act of 2000 (the Act) at Section 1-10 under the definition of “Broker,” and you are doing the activities for another and for compensation, you will be working within the scope of your real estate license. The list of activities is taken from the definition of Broker under the Act:

(1)    …rents, or leases real estate.
(2)    Offers to…rent, or lease real estate.
(3)    Negotiates, offers, attempts or agrees to negotiate the …rental, or leasing of real estate.
(4)    Lists, offers, attempts, or agrees to list real estate for
(6)    Supervises the collection, offer, attempt, or agreement to collect rent for the use of real estate.
(7)    Advertises or represents himself or herself as being engaged in the business of …renting, or leasing real estate.
(8)    Assists or directs in procuring or referring of leads or prospects, intended to result in the, or rental of real estate.
(9)    Assists or directs in the negotiation of any transaction intended to result in the, or rental of real estate.
(10)    Opens real estate to the public for marketing purposes.
(11)    ...leases, or offers real estate at auction.

#2 - Contracts to Purchase

Is it acceptable to use electronic signatures and documents for real estate-related contracts?

Yes, if the parties to the contract agree electronic signatures/documents will be used, then they are allowable. You do need to be sure there is not a statutory requirement to provide disclosures or notice in writing, in which case, the electronic signatures/documents would not be acceptable without  the written consent of the person to whom written notice is required to be given. An example of this would be where a purchase contract is entered and before becoming bound, the buyer has a right to receive the Illinois Residential Real Property Disclosure Form. The buyer would need to consent to receiving this form electronically if that is how this form will be provided when the entire transaction takes place on an electronic platform. If consent is not given, the disclosure form would need to be provided in hard copy. Also, keep in mind that the evidence for proving signatures or the content of contractual provisions if there is denial or disagreement by one of the parties will be different than evidence that might be used to prove a “wet” signature or agreements made “on paper.”

#3 - Agency

Do agency duties and disclosure requirements apply in leasing/rental transactions too?

Yes. See the first topic above.  Keep in mind that those licensees who represent landlords in leasing transactions, need to operate as disclosed dual agents with written disclosure and informed consent secured if they are representing both the landlord and tenants. An alternative is the tenant will be treated as a customer and must be given Notice of No Agency, which is more often the case when a licensee is representing the landlord. These are just two examples to make the point that the statutory duties of agency apply in leasing/rental transactions. This is true for both residential and commercial brokerage transactions.

#4 - Escrow

If a prospective tenant makes out the security deposit check to the listing brokerage company, could this check be used to pay the listing brokerage company’s commission?  If not, what must be done with this check?

No, you could not use the check to pay the listing brokerage company’s commission. If it is made out to the listing brokerage company, it is, by definition, escrow money, and would need to be deposited to the brokerage company’s escrow account by the next business day after the written lease is executed (signed by landlord and tenant). The security deposit could then be released to the landlord upon joint written direction by the parties once the check has cleared the bank.  As you can see, if the landlord will be holding the security deposit, it might be best to have the security deposit check made payable directly to the landlord in a lease transaction where the listing brokerage company is only listing the property for rent and will not continue as the property manager for the property.

#5 - Disclosure of Defects

What property disclosures are required for residential lease transactions?

The lead-based paint disclosure form and pamphlet would be required for those residential units built before 1978 each time there is a new tenant in the unit. A radon disclosure form would only be required in situations where someone has conducted a radon test that shows a radon hazard in a unit on the second floor and below and there has been no subsequent test showing no hazard, or there has been no remediation. 

#6 - Listing (Exclusive Marketing) Agreements

Could two sponsoring brokerage companies enter a co-listing arrangement with a seller?

Yes. However, the two sponsoring brokerage companies should consult with their attorneys and should have a written agreement between them that spells out the rights, duties and responsibilities of each company. If the companies have an agreement like this, then both companies could be shown as the “listing broker” in the form listing brokerage agreement.

#7 - Advertising

If I am the managing broker on file with the Illinois Department of Financial and Professional Regulation (IDFPR), as the managing broker for my company must I include this designation in my advertising?

Generally, yes, on these facts you would need to include managing broker when you use your name in your advertising. However, there is now an exception in the Act when your name is on a “for sale” or similar sign (e.g. a “for sale” sign name rider). In that case you do not have to include managing broker on the sign.

If you are a managing broker licensee, but not designated with IDFPR as a managing broker for your company, you must not use the term managing broker in your advertising. IDFPR says you can use the term “broker” with a modifier that is truthful, not deceptive in any way, and otherwise meets the advertising guidelines of the Act.

#7 - License Act: Business Practices

How long must I keep transaction records?

Generally, for purposes of the Act, you must keep transaction records for five years. See Section 1450.755 of the Rules under the Act for guidance as to what records must be kept and how they might be stored.

Also, keep in mind that other time limits might affect a transaction file which might mean a broker will keep some records longer. Also check your office policy for a record retention and destruction schedule.

#9 - License Act: Corporate Structure

A licensee is sponsored by ABC Realty, Inc. but the licensee operates and works for his own property management company “on the side.” Is this appropriate?

No, if the property management company is engaged in licensed activities this would not be allowed under the Act. See #1 above. Licensees must only perform licensed activities for one sponsoring broker. The licensee might own or have an ownership interest in a properly licensed management company but would need to hire a managing broker to oversee the property management business.

#10 - Leases

In a residential lease transaction, is it appropriate for a landlord to refuse to rent to tenants who are recipients of the federal Section 8 voucher program?

Landlord participation in the federal Section 8 voucher program is still voluntary UNLESS there is a local ordinance that protects source of income and the source of income class includes the Section 8 voucher. It is extremely important for licensees to be aware of local ordinances like this that are often stricter than federal or state laws.

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