BARRISTER'S BRIEFING: A Refresher on State Regulations Governing Teams

The New York Department of State Regulation Section 175.25 (a)(2) defines a real estate team in this way: “ ‘Team’ means two or more persons, one of whom must be an associate real estate broker or real estate salesperson, associated with the same real estate brokerage who holds themselves out or operate as a team.” The real estate industry roughly defines teams as a brokerage business model that serves to benefit consumers through “service in numbers.” 

The Principal Broker must approve the creation of any team. Teams are prohibited from the use of any names that sound like a standalone brokerage e.g. “associates,” “realty,” or “group” should all be avoided. In addition, there should never be any corporate identity in a team name such as “Inc.” or “LLC,” for the same reason. Moreover, if any unlicensed individuals are named or depicted in advertising for a team, the advertisement must clearly state which individuals are licensees and which are not.

Teams may create an LLC for the collection of commissions from its broker, but may not use the creation of the LLC for any other purpose. A team is not a licensed entity recognized by the Department of State, whereas a brokerage is. Except for advertising materials, teams should not be providing any documentation with the team name on it. Therefore, a team may not, under its team name, provide any statutorily authorized disclosure to a client or customer (e.g. Agency Disclosure) or enter into any employment contract (e.g. Listing Agreement, Exclusive Right to Represent).

Moreover, a team may not refer to any member of the team as a corporate officer unless that individual is an officer of the presiding brokerage. Pursuant to a Department of State opinion from August 20, 2013, “Any title which implies that an associate broker or real estate salesperson is involved in the management, supervision and control of the brokerage company would be prohibited.”

In addition, the following are additional caveats; a team may not engage in:

• Collecting fees or commission from any individual or entity but the broker;

• Commencing litigation or arbitration against any individual or entity;

• Providing team specific affiliated business disclosures;

• Maintaining an escrow account; and

• Having all transactions appear in the team leader’s name, unless that team leader performed substantive work with respect to each file.

A team may also solely occupy a branch office of the brokerage exclusively. The broker is prohibited, however, from charging the team for branch office overhead. Phone and voicemail greetings must identify the presiding brokerage. The team name may appear on the outdoor signage as long as the signage otherwise complies with Real Property Law § 441(a)-3 that states:

“Each real estate broker…shall conspicuously post on the outside of the building in which said office is conducted a sign of a sufficient size to be readable from the sidewalk indicating the name and the business of the applicant as a licensed real estate broker, unless said office shall be located in an office, apartment or hotel building, in which event the name and the words “licensed real estate broker” shall be posted in the space provided for posting of names of occupants of the building, other than the mail box.”

Another common issue teams deal with is record retention. 19 NYCRR §175.23 requires records of transactions to be maintained for three years after the closing of said transaction by each licensed broker. Unless, the team leader also happens to be the principal broker, he or she should not be maintaining records. With identity theft unfortunately becoming part of the status quo, the less hands that have access to confidential information the better.

One other common misconception is that team leaders are permitted to issue independent contractor agreements to team members—they are not. Those agreements may only be made between the broker and associated licensees. Teams are furthermore prohibited from paying members directly unless all are members or shareholders of an LLC or Corporation made for the express purpose of collecting commissions.

Likewise, unlicensed personal assistants may not be paid based on commissions received or the success of a transaction and must be paid as an employee, either hourly or by salary. In order to avoid the misclassification of independent contractors and the financial perils therein (e.g. unemployment insurance payments, back payroll taxes, etc.) all policies and procedures created for the team must have broker approval.

Editor’s Note: The foregoing is for informational purposes only. For a legal opinion specific to your situation, please consult with an attorney-at-law in your jurisdiction.

Leon Cameron, Esq.
Leon Cameron, Esq., is Director of Legal Services & Professional Standards Administrator for the Hudson Gateway Association of Realtors.