Expert: Phil Nicols - 6/11/2008

Question
Good day,
Do I need a business license to own multi family properties via LLC? If yes do you know what it {or they} are called and where to find them?


Answer
Jafo

I don't know where you are calling from. I'm in Ontario Canada and here, there are no such licenses necessary to own / manage your own income properties.

Where it becomes gray is, here in Ontario, we have an act called the Real Estate Business Brokers Act (2002).

The act states that "if you are trading in real estate you need to be licensed".

I have never heard of the license required to own your own properties (in Canada or US)

However, the question comes up when you hire somebody to manage your properties for you.

Again here in Ontario, this is a common practice and those management companies are never licensed.

But I spoke to RECO about this (Real Estate Council of Ontario)

And their position was that if you hired somebody to manager properties, then they would be a third-party.

Since they don't have direct ownership over the property, they could be construed as "trading in real estate" which is what a real estate brokerage is for.

We are licensed in the province of Ontario to sell or lease properties or businesses on a third-party basis.

This has always been an gray area to me because there are many large corporations that own millions of square feet of real estate.  Sometimes they own it, sometimes they manage it on a third-party basis and even if they own it, sometimes there are shareholders involved which would mean that they are actually in third-party position.

RECO told me and I quote, "those companies have been advised to conform and are taking steps to do so"

I think this is totally bogus because there is no way on our green little planet that the Real Estate Council of Ontario is going to get huge corporations like Cadillac Fairview and the like to conform to their laws.

Not that large corporations would want to break the law, but there are so many other gray areas surrounding it.

I'm not a lawyer but I would think that such corporations could argue that in fact their shareholder base is held worldwide and that an Ontario law could not be enforceable on their entire company because of the scope of their holdings, and their shareholder base.

In law nothing is black and white only gray at best.

I'm going to give you an example of a situation which is really not related to your question;

In the summer of 2003 I was asked by a vendor to sell his restaurant.

It was a fairly new restaurant and he did not want it publicize that it would be for sale (for example not on MLS) because he said it would be bad for business.  I agreed to this we did not make up an MLS agreement, rather we made a one-page listing agreement between the vendor and myself which stated that if I sold the business I would be paid 10% commission.

The agreement had all the key points you need in any contract; e.g. names and dates, proposed action, proposed remuneration, beginning date and end date.  This agreement was signed by both the vendor and myself on behalf of the real estate company I was working for at the time.

Within a couple of days I had a few prospects but I had to be careful about how I divulged the information about the restaurant being as I couldn't simply broadcast it anywhere but the restaurant was for sale.

So before saying anything about where the restaurant was or any information thereof, I had the buyers signed a confidentiality agreement stating that he would not communicate with the van door nor his staff in any way.  The prospect willingly signed that document.

After disclosure of the information, the prospect stopped communicating with me.  He would not return my phone calls and he stopped phoning me every morning at 8 a.m. like he did so regularly up until that time.

I assume that the prospect was no longer interested after finding out about the restaurant, and sent him many other prospective restaurants (he didn't reply to any of them) the lines of communication had been silenced from that point on.

Meanwhile I was dealing with some other prospects, bringing offers to the vendor like nothing had happened -- just doing my job.

But one offer after the next was not being accepted by the vendor.  I couldn't understand why because all of the offers were very reasonable -- in fact the last potential buyer actually bid over the asking price yet in spite of this, the vendor it kept signing the offers back with more ridiculous demands!  I couldn't understand it.

Finally I found out the hard way that the vendor and the first party I had introduced to the restaurant made a deal themselves behind my back!

Since I had everything in writing I thought it would be no problem for me to sue them for the commission, as well as damages. The restaurant was listed for $168,000.00.  At 10% commission, that would have been $16,800.00.

I called a local lawyer but they told me that it would take years and litigation court even as straightforward as it was, and I would likely have to pay more than that upfront by the time we won anything (if we won).  Then the lawyer also told me that even if we won, there were a lot of ways the vendor could still get out of paying by moving assets around, saying that he doesn't have the ability to pay etc. the lawyer himself advised me to go to small claims court and do the job myself.

Small claims court in our area only goes up to $10,000.00 so already, win or lose, the "defendant" had already won at least $6,800.00

I finally got my day in court.  I even had a lawyer right up the paperwork for me to make sure that they couldn't get off on some small technicality.  I thought I was very well prepared.

Long story short, the judge heard both arguments -- they basically didn't have any arguments -- they actually went to court with the intent to pay a lesser amount -- they were already happy that they had won a $6,800 windfall for nothing and were actually prepared to pay $5,000 each (between the buyer and seller) but still felt they had nothing to lose by going to court anyway.

The judge a battered my one-page agreement!  The only thing he had to go on!  He told me that it was not a proper Ontario real estate agreement!  Of course I came back with that it's a simple matter of contract law!  Regardless if it was real estate or selling cars or selling fruits on the sidewalk -- a contract is still supposed to be a contract!  It was signed properly well documented, it was all within the confines of the dates but no matter what I said, the judge just kept telling me that I would have to use better real estate agreements!  He said quote, "it's not the first real estate agreement I've seen and it won't be the last"

And as he was saying this to me, he was closing up his briefcase and left the courtroom!

I was left absolutely flabbergasted!  Jaw dropped wide open!  I had to ask one of the girls what just happened.

I couldn't believe he sided with those people even after I explained to them that they did everything possible to cover their tracks!  They registered the new business sale in the wife's name (whom I also had to drag into court) they registered four days after my agreement had expired (even though the new buyers were working there well before that date!)

Since that day I lost total faith in the legal system!  That's supposed to be justice!?

The only thing I could see was that possibly the judge was upset that I didn't have a lawyer and yet I dragged for people into court and they had a lawyer to defend them -- but as you can see from the beginning of this argument I did speak to a lawyer and that lawyer advised me to go to small claims court!  And the small claims court is supposed to be for the people -- without lawyers!

Nonetheless I'm out the pocket $16,800 and the justice was for the defendants!

I explained to the judge in front of those people that I get paid 100% by commissions only! I do not get paid by the hour and I rely on those commissions to feed my family!  Obviously the judge didn't see it the same way.

Now you ask me should I look for a license to own my own properties?  N.F.W!  Personally, I wouldn't even look in that direction.

Thanks for your question.

Best, Phil