Business Law by Tom Ramsey

The Need For A Real Estate LicenseTom Ramsey - Business Law

October 11 – Past installments have involved the review of cases illustrating the draconian penalty against those unlicensed persons who perform services for which a contractor’s license is required. The work may be complete. The work may be perfect. Too bad – the unlicensed person performing such services is entitled to no compensation.

Andre Melikian and some related companies own several apartment buildings. They hired MKB Management, Inc., to rent, lease, operate and manage the buildings. Melikian had very broad powers, including the authority to advertise rentals; sign, renew and cancel leases; collect rents; terminate tenancies; prosecute unlawful detainer actions; maintain and repair the units; contract with others for services on behalf of the owners. MKB would be reimbursed for its expenses and receive a management fee equal to the greater between $2,000 per month or 4 percent of the gross monthly rents.

MKB believed it was not paid what was due. It sued Melikian for $37,919.63. MKB’s first try at a complaint was flawed in that it did not allege that it possessed a real estate broker’s license. On its second try, it alleged that a license was not required for the tasks that would otherwise require a license. MKB alleged this was because it performed such tasks under the supervision and control of Melikian, a licensed real estate broker. MKB also claimed some of the work performed by it did not require a license.

MKB did not fare well in the trial court.

The trial court found that the principal object of the agreement called for MKB to perform those services for which a real estate broker’s license was required. The trial court refused to separate the good (work performed for which no license was required) from the bad (work performed for which a license was needed) and to award damages to MKB accordingly. It ruled against MKB and awarded it no damages.

Of course, MKB appealed.

The Court of Appeal first stated the obvious: “A plaintiff seeking to recover compensation for acts for which a real estate license was required must allege that he or she possessed the required license at the time the cause of action arose.” Of course, that is only the first step. At trial, the plaintiff must prove that he or she has the license. The court continued, stating that this requirement, “however, does not prevent a plaintiff from seeking compensation for acts for which no real estate license was required. Some of the services provided under the property management agreement required a real estate broker’s license, but others did not.”

The Court of Appeal next looked at the agreement to determine whether it could be severed between good and bad. The court concluded that the real estate licensing statutes do not prevent an unlicensed real estate broker from maintaining an action to recover compensation for acts for which no license was required. There is no indication that the legislature intended to preclude the recovery of compensation for such services or to repudiate the generally applicable doctrine allowing the severability in a contract between good and bad. The court gratuitously added that the same rule applies to work involving a contractor’s license: Work not requiring such a license must be compensated.

The judgment of the trial court was reversed. Everyone will return to the trial court to weed out the bad from the good.

The case is entitled MKB Management, Inc. v. Melikian. It was decided in 2010.

(Tom Ramsey is a Long Beach attorney who has specialized in business law for more than 40 years. He may be reached at bizlawwiz@aol.com.)