Illinois REALTOR® Magazine | July 2012
Be aware of the rules before branching off into rentals
By Elizabeth A. Urbance | IAR Legal Hotline Attorney; Associate, Sorling & Northrup, Ltd.
Given current market conditions, one topic that has been high on the hit parade involves the practice of real estate brokerage with regard to rental properties. We have written on the topic in prior issues of this magazine, we have held two webinars on the subject and we continue to field questions relating to rentals. The information below is to serve as an overview and perhaps some general guidance on some of the recurring issues facing brokers as they deal with rental/leased properties in their brokerage practices.
Scope of the Illinois Real Estate License Act of 2000 (the Act) to Rental/Lease Transactions
- The Act covers licensed activities that you perform relative to residential and commercial lease/rental transactions. The definitional section of licensed activities under the Act includes leasing and renting real estate for others and for compensation. There is an exception if you are dealing with rental property where you are the sole owner which means that you are the 100% owner, you own as a joint tenant or as tenants by the entirety, or you are a 100% beneficial interest owner in a land trust.
- The Act requires licensees to work for only one sponsoring real estate broker. See Section 10-20(a). Therefore, if you work as a licensee for ABC Realty, Inc., you cannot work for XYZ Property Management, Inc. as a rental/property management licensee also. Although you can be an owner or shareholder in more than one licensed real estate brokerage company, you can only be sponsored by and work for one sponsoring real estate brokerage company at any one time.
Agency Disclosures Required
- The Act requires licensees to make disclosures to clients and customers with regard to agency including when dealing with rental/lease properties.
- When representing landlords, be sure the name of the landlord’s designated agent is included in any written brokerage agreement (either a listing or a property management agreement) and a copy is retained in the sponsoring broker’s files.
- When representing tenants, the tenant’s agent must give the tenant a written designated agent disclosure form.(IAR’s form is #349T and it is available at www.illinoisrealtor.org/downloads)
- If you do not represent the tenant, you should give an unrepresented tenant a Notice of No Agency. (IAR’s form is #350T, also available at www.illinoisrealtor.org/downloads)
- Finally, if you represent both the landlord and the tenant, you must act in a limited role as a disclosed dual agent giving the written disclosures and obtaining both landlord’s and tenant’s informed consents as you would when you act as a disclosed dual agent in a sales transaction.
Property Disclosures Needed
- Sometimes Radon disclosure will be needed under amendments to the Radon Awareness Act.
- You should provide a new tenant with a radon disclosure form for rentals if there has been a radon test performed that shows a radon hazard and the landlord has not conducted a subsequent test showing no hazard, nor has the landlord remediated using an IL Emergency Management Agency-certified contractor. (IAR form # 422 at www.illinoisrealtor.org/downloads)
- If the property was built prior to 1978, landlords need to provide Lead Based Paint disclosure forms along with the Federal lead based paint brochures to new tenants.
- Check for local ordinances that might require other disclosures.
- As always fair housing concerns apply when renting/leasing real property, especially with regard to residential properties. You need to be aware of federally protected classes, state protected classes and those protected by any local fair housing ordinances.
- “Source of Income” is not a protected class on the federal or state levels but it is included in some local fair housing ordinances, including Chicago’s local fair housing ordinance. So, with regard to rental properties located in Chicago or another location where source of income is a protected class, landlords cannot refuse to consider applications from tenants who take part in the “Section 8” subsidy program on the basis that their “income” comes from or is supplemented by that program.
- Make sure your company has a formal application process and that all agents apply the same standards and are consistent in application of the company policies.
Fair Credit Reporting Act (FCRA)
- Make sure your company is aware that FCRA may impact your practice if you request credit reports and/or conduct background checks.
- Be aware of the requirement that you provide a written “adverse action notice” to those applicants whose applications are denied or whose terms of lease are adversely affected due to a negative credit report and/or a negative reference.
Find IAR webinars on rental brokerage and property management at www.illinoisrealtor.org/webinars