Buying, Selling and Leasing Commercial Real Estate
Because the holding of land is important to people and society,
the State of Colorado established the Real Estate Commission to
license and monitor those who practice in the industry. The Commission
operates as one of the ten divisions of the Department of Regulatory
Agencies. The practice of real estate therefore is subject to the
laws, rules and regulations of the State of Colorado. Understanding
these rules can greatly affect the relationship of the parties
to a real estate transaction and the outcome of that transaction.
The general public is most aware of the real estate industry when
they become buyers and sellers of residential real estate. However,
tenants and landlords of commercial real estate can be unfamiliar
with the regulations and the fact that the laws established by
the state regulatory agency apply to the selling and leasing of
office, industrial and retail space as well.
The E series of rules are specific to a broker’s daily business
such as the disposal of deposits, advertising, referrals, broker
supervision, disclosures and closings. These rules directly impact
the brokerage community in its dealings with the public. In addition
these rules cover the relationships between brokers, both within
and between firms, as well as the handling of offers and office
policies. Of particular concern for the purposes of this article
is the practice of the profession and the adherence to these rules
as it relates to tenants and buyers of commercial real estate.
Rule E-13: Sign Crossing: This may be the most misunderstood and
most unknown rule. A broker may acknowledge that they are aware
that “sign crossing” is ethically wrong. However both
the broker and the public may not be aware that a listing broker’s
negotiation with a tenant or buyer who has entered into an exclusive
right to buy or lease contract with another broker is in violation
of this particular Rule, and, if practiced can be subject to a
tort action as well. Specifically the rule states that a broker
may not enter into discussions or negotiations regarding a purchase,
an exchange, a lease or an exclusive right to buy or lease agreement
if it is known that the tenant or buyer is under contract with
another broker on an exclusive basis. In other words if a tenant
is represented by a buyer’s broker and the landlord’s
broker is aware of that agreement, the landlord’s broker
cannot negotiate with that tenant but must honor the right to buy
contract and the broker who represents that tenant. The landlord’s
broker can, if he or she chooses, stipulate that there will be
no cooperating brokerage fee paid to the tenant’s broker.
In that case it is up to the tenant’s broker to work out
a fee agreement with the client.
Rule E-34: Handling of offers: This instructs all licensees to
submit the client’s offer to the listing broker if there
is an exclusive right to sell or lease agreement with the landlord
or seller. Additionally, under Statute 12-61-804 all listing brokers
are required to submit all offers in a timely manner to the landlord
or seller. Disregard or violation of this rule and statute can,
upon the determination of the Commission, result in a twenty five
hundred dollar fine, licensee probation or a permanent revocation
the practioner’s license.
Rule E-38 Designated Brokerage: This rule, new to the industry
within the past two years, is specific to the handling of relationships
within one brokerage firm. This rule does not extend to a sole
practitioner or a single individually owned brokerage company with
only one licensee. Designation of the brokerage relationship now
belongs to the employing broker who states in writing that the
client relationship is with a specified broker or team of brokers.
Before the designated broker rule, the client relationship belonged
to the employing broker or company and the individual broker was
acting as an agent of that broker. Now the designated broker owes
his/her fiduciary obligation to the client and all confidential
matters are no longer shared with other brokers in house. For example
a broker in a multiple person brokerage firm who is designated
to represent a landlord can no longer discuss confidential matters
pertaining to that landlord with another broker in the same brokerage
firm who may be designated to represent a specific tenant. A specific
case comes to mind when a landlord’s broker receives an offer
from two different prospective tenants. One offer is from a broker
from another company. The second offer is from a broker within
the listing broker’s company. The landlord’s broker
must use utmost caution to treat all parties judiciously and avoid
any discussion regarding the landlord’s intent except as
it applies to each individual offer. This would also apply when
there may be two offers from two different brokers within the same
Rule E-40 Double-ended brokerage relationships: Whether in a multiple
person firm or as a sole practitioner, a broker is no longer allowed
to act as a dual agent. If a broker is working with both the landlord
and the tenant that broker must declare whether they are a transaction-broker
for both parties, a single agent for the seller or a single agent
for the buyer in which case the other party becomes a customer.
For example, if a broker has a listing to lease an office building
and a prospective tenant calls on the sign or advertisement, the
listing broker must treat the prospect as a customer because there
is no letter of engagement or employment between the prospect and
the listing broker.
A tenant or buyer who wishes to retain the services of a buyer’s
broker (a broker who represents the tenant or buyer only) is wise
to ask for a letter of engagement or exclusive right to buy contract.
This agreement outlines the relationship between the client and
the broker as well as outlining the duties of the broker. For example
the agreement must have defined terms such as a beginning date
and ending date to the agreement. The duties are to include those
actions which promote the interests of the tenant or buyer with “good
faith, loyalty and fidelity”. Additionally, the motivating
factors of the client, such as what the tenant or buyer is willing
to pay or finance, are not to be disclosed.
What if the broker has a listing agreement with a landlord and
also an exclusive agreement to represent a tenant and that tenant
wants to lease space in the listed property? The broker’s
agreement with the landlord must state whether the broker continues
as the seller’s agent only (in which case he/she cannot represent
the tenant at that property), the buyer’s agent (in which
case he/she cannot represent the landlord), or a transaction broker
who is allowed to assist both parties only as a facilitator but
not as an advocate of either party.
Additionally it must be made clear to tenants who have entered
into an agreement with a tenant/buyer broker that there is case
law prohibiting the broker from the practice of law. Often times
a tenant may ask the broker to review and comment on a lease document.
The law to be applied states clearly that brokers are permitted
to “fill in the blanks” on commission approved forms
only. Real estate brokers are well beyond their license to create
or write their own legal documents pertaining to the transaction
of real estate. Rule F designates the forms which the Commission
has approved as standard and include listing contracts, sales contracts,
and settlement sheets.
Because the buying, selling and leasing of commercial real estate
has become more sophisticated and advanced through technology and
training, the public has come to demand a more professional and
knowledgeable practitioner beyond just “knowing the market”.
Brokers are far more independent and thus must be held to a greater
degree of responsibility. The state licensing laws are in place
to protect the public and hold the industry to a standard. In the
end this results in a truly worthwhile and rewarding profession
for the broker and a more confident public.
PAULETTE WRAY is principal of Wray & Associates, a Denver-based
tenant representation firm. She can be reached at firstname.lastname@example.org