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The Reason Why Brokers Recommend Review by Legal Counsel.

It’s the law.  Broker are  selected by clients due to their competence and familiarity with the leasing process.  Brokers often feel, probably correctly, that the client want their broker to negotiate the transaction on the client’s behalf.  The broker carries this responsibility.  They are careful to protect their client from overzealous lawyers that attempt to negotiation terms without good reason or cost a small fortune.  However, brokers should think twice when providing advice on the lease document. 

The Colorado Supreme Court recognized in Conway-Bogues[1] that brokers do practice law in a limited capacity during their duties.   This is allowed to facilitate transactions and reduces costs.  However, a broker’s allowed actions are very narrow[2].  Brokers may complete "standard" forms, including those promulgated by the Colorado real estate commission[3] and advising the parties as to effects thereof.   To be clear, even those brokers that take shelter under Colorado statutes, these same statutes require brokers to “advise the parties that the forms have important legal consequences and that the parties should consult legal counsel before signing such forms.”[4]

There are a few problems with brokers advising on non-standard lease agreement forms.  First and most significantly, any broker completing or advising on non-standard or approved forms violates Colorado law.  Unfortunately for brokers, at this time there is not is not a definition of “standard”.   Tenant brokers are presented with a special problem.   Normally a lease agreement form is prepared by landlord or landlord’s attorney.   It is never a standard form for tenant's broker.  It is unique to the transaction and the tenant’s broker.  The tenant’s broker does not know whether the lease agreement presented by landlord was prepared as a template or for some other transaction involving a separate project.  This means that there may be a variety of missing and inapplicable provision that might lurk in the proposed draft.  This is not the sort of review brokers are retained to perform.   Second, a broker that violates C.R.S. 12-61-803(4) may be subject to an investigation and administrative action against the broker.[5]   Finally, violation of Colorado law may also impact a broker’s insurance coverage.  All active brokers are required to maintain errors and omission insurance coverage.[6] However, the errors and omission policies cover the broker’s licensed activities.  The broker’s activities may not extend the scope of coverage in the event the broker activities exceed the limits of C.R.S. 12-61-803(4).   To avoid this problem, a tenant broker should have available for its clients an attorney that can provide legal advice that fits that broker’s s client’s need for a comprehensive review and knowledgeable advice.

 


[1] Conway-Bogue Realty Inc. Co. v. Denver Bar Ass’n., 312 P.2d 998 (Colo. 1957)
[2] Revised Statue 12-61-803(4)
[3] The Real Estate Commission adopted Rule F-1 through Rule F-7 concerning the use, including permitted and prohibited modification, of Commission approved forms.
[4] C.R.S. 12-61-803(4)

[5] C.R.S. 12-61-811: The violation of any provision of this part 8 by a broker constitutes an act pursuant to section 12-61-113 (1) (k) for which the real estate commission may investigate and take administrative action against any such broker pursuant to sections 12-61-113 and 12-61-114.  C.R.S. 12-61-113(k) Disregarding or violating any provision of this part 1 or part 8 of this article, violating any reasonable rule or regulation promulgated by the commission in the interests of the public and in conformance with the provisions of this part 1 or part 8 of this article; violating any lawful commission orders; or aiding and abetting a violation of any rule, regulation, commission order, or provision of this part 1 or part 8 of this article;

[6] 12-61-103.6: (1) Every licensee under this part 1, except an inactive broker or an attorney licensee who maintains a policy of professional malpractice insurance that provides coverage for errors and omissions for their activities as a licensee under this part 1, shall maintain errors and omissions insurance to cover all activities contemplated under parts 1 to 8 of this article. 

 

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