The “Medium-Term” Housing Rental Business in California - Who Needs a Real Estate License in Connection with this Business?

The answer to the question presented in the title to this article is provided by section 10131(b) of the California Business and Professions Code.

It requires that any person who does any of the following (relative to housing rentals for periods of greater than 30 days - i.e., which is where medium-term or mid-term housing rentals start and can last from 31 days and up to one year) on behalf of another or others, and for compensation or with the expectation of compensation, is required to have a real estate license: leases or rents, or offers to lease or rent, or places for rent, or solicits listings of places for rent, or solicits for prospective tenants, or collects rents from real property or improvements (i.e., houses, condominiums, accessory dwelling units, and other habitable structures).

This piece has been written as a warning to unlicensed persons (individuals and entities) who act as “hosts” or “co-hosts” - or some other title - on behalf of residential property owners (in connection with medium-term rentals of over one month and up to one year) and do one or more of those items set out in the law. Namely, they perform certain property management-type activities and place, offer, or list the property for rent, collect the rents, etc.

Please note that the license requirement does not apply if and when the term of the housing “rental” occupancy is thirty (30) days or less. These shorter term (up to one month) tenancies are usually known and referred to as short-term rentals or vacation rentals. The carve out for short-term or vacation rentals from the license requirement of the California Real Estate Law is set out in section 10131.01 (a) of the Business and Professions Code and the 30 day limit is drawn from section 1940 (b) of the Civil Code and section 7280 of the Revenue and Taxation Code pertaining to transient occupancy taxes.

It cannot be emphasized enough that the license carve out only applies to short-term and vacation rentals (occupancies) where the maximum time period of such rentals does not exceed 30 days.

It follows, and it is the law, that the real estate related activities (listed above) that do not require a license with respect to “short-term” occupancies do require a California real estate license when the rental period exceeds 30 days (medium-term or long term rentals - long term meaning for one year of more).

For a more comprehensive analysis, I would urge those who are interested to read some guidance I previously wrote as California Real Estate Commissioner with the title: Alert to Real Estate Licensees and Others Who Solicit, Offer, and Manage “Short-Term” Residential Rentals as Agents for Another or Third Parties. It can be accessed on the website of the California Department of Real Estate or by clicking on the following link:

https://www.dre.ca.gov/files/pdf/adv/2015_2019/Advisory2016LicenseeAlert2016shorttermrentals.pdf

??????????At this juncture, a couple of points are in order:

1. The real estate licensure requirement in the law is strictly construed, and where an unlicensed party plays fast and loose with the rules and does those activities set forth in section 10131(b) of the California Business and Professions Code with regard to medium-term rentals, that would be evidence of a knowing and intentional effort to skirt the real estate license law. And the unlicensed activity is a crime under California law, which can result in a fine and imprisonment.

It is also important to note that the Real Estate Law provides vital protections for persons represented by real estate licensees in connection with property rentals performed as licensed activity. The monies collected for rents must be placed in an escrow account or broker trust account, and the Department of Real Estate has a Consumer Recovery Account that can pay monies - up to statutory maximums - where trust funds have been converted by a real estate licensee in a matter requiring such a license. Also, real estate licensees have a fiduciary duty to put their client’s interests first, and to properly hold and handle their client’s funds, among other things.

2.There are some entities that provide rental booking services via online platforms which look to some like they may require a real estate license, yet they do not. The key question is whether those entities perform licensed activities (please again see the discussion above regarding section 10131(b) of the Business and Professions Code) or whether they simply provide information, information sharing, and a site to help facilitate the renting of properties. Factors which would be considered in examining whether a license is required are (i) does the entity determine, set, or negotiate the rental price charged for the property, (ii) does the rental customer choose which property to rent, (iii) does the entity have any influence over the accommodations offered for rent, and (iv) does the entity primarily act as a platform to let the housing owners and potential renters interact with each other. A careful examination of relevant facts would be necessary to reach a determination relative to the need for a real estate license.

Returning now to the question presented at the outset, those acting on behalf of others to lease or rent, solicit tenants for, manage - and handle monies attendant to, and/or do the other above-identified activities with regard to “medium-term” rentals (31 or more days and up to a year) do need a California real estate license (unless a specific legal exemption exists and applies).