Suppose you operate a real estate business in New South Wales. In that case, the law views your business as managing property on behalf of the property owner or assisting with real estate transactions, such as the sale of real estate. The law requires such businesses to acquire a licence. If you are the principal licensee in charge, it is your responsibility to ensure that no part of the business is left unsupervised. This article will discuss the licence obligations for real estate business owners.
What is a Real Estate Business?
In New South Wales, you need a real estate licence to manage, sell or lease real estate on behalf of clients. Generally, this includes:
- acting as an agent for a prospective purchaser, seller, landlord or tenant;
- negotiating transactions, like buying, selling, exchanging or leasing property;
- collecting rent for a lease and providing property management services; and
- acting as an auctioneer provided you also hold auctioneer accreditation.
What are the Different Types of Licences That Real Estate Agents Can Apply For?
There are two types of real estate licences.
Class 1
If you hold a Class 1 licence, you can:
- act as a licensee in charge and open and authorise trust account transactions for the business;
- work independently as a sole trader;
- act as an agent for owners or buyers to assist with the sale, purchase or exchange of property or businesses;
- assist with negotiations between buyers and sellers, or landlords and tenants; and
- collect deposits, bonds, rent or other fees related to a lease, licence or land sale contract.
Class 2
If you hold a Class 2 licence, you can only:
- act as an agent for owners or buyers to assist with the sale, purchase or exchange of property or businesses;
- assist with negotiations between buyers and sellers, or landlords and tenants; and
- collect deposits, bonds, rent or other fees related to a lease, licence or land sale contract.
You need to hold your Class 2 licence for at least two years before you can apply for a Class 1 licence. Additionally, if you hold a Class 2 licence, you cannot work as a sole trader and must work in an existing real estate business.
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What Obligations Does a Licensee in Charge Have Under a Class 1 Licence?
If you are the principal licensee in charge (‘Licensee in Charge’), it is your responsibility to ensure that no part of the business is left unsupervised. Licensees in Charge are responsible for the proper supervision of the real estate business. You must prepare and maintain operational procedures that identify you as the Licensee in Charge and the dates you manage each aspect of the business. You can appoint another Licensee in Charge for a different area of the business or a different location. However, there must be a clear record of this.
Licensees in Charge will also have trust account obligations. When operating a real estate business, a trust account will need to be established. All withdrawals from the trust account must be authorised or approved by a Class 1 licence holder who is the currently appointed Licensee in Charge. In practice, this means, as Licensee in Charge, you will need to provide and record your express authorisation for the release of any money held in the trust account. You cannot delegate this authority to any other team member.
If the real estate business has multiple trust accounts for different branches of the business, it may appoint separate Licensees in Charge to manage the trust account withdrawals. However, for each trust account, there must only be one Licensee in Charge.
Key Takeaways
To operate a real estate business, you or your employees will need to:
- hold Class 1 or Class 2 licences; and
- appoint at least one Class 1 licence holder as the Licensee in Charge for the business.
It is essential to understand your obligations operating a real estate licence and as a licence holder.
If you require assistance with any real estate business queries, our experienced real estate lawyers can assist as part of our LegalVision membership. You will have unlimited access to lawyers to answer your questions and draft and review your documents for a low monthly fee. Call us today on 1300 544 755 or visit our membership page.
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