Does an Arkansas behavioral-health nonprofit need a real-estate license to manage its own residential properties?

Plain-English summary

Representative Lanny Fite asked whether Birch Tree Communities' staff residential managers need Arkansas real-estate licenses and whether Birch Tree must also pay a licensed agent or broker to manage HUD properties. The AG answered that the managers are most likely exempt under state law. He said the licensing determination is fact intensive and described two possible exemptions.

A Real Estate Commission rule exempts employees of a residential property management program when the program is regulated by state or federal authorities with substantially equivalent or greater recordkeeping requirements. The AG said Birch Tree would likely qualify. A.C.A. § 17-42-104(a)(10) also exempts an employee leasing a business entity's property when the employee earns no commission, the entity's main business is not real estate, and the employee does not provide real-estate services to others. The AG assumed, from the request, that Birch Tree's staff managers met the employee conditions.

If the managers are exempt, Arkansas law does not require a separate licensed agent or broker for Birch Tree's residential services. The AG declined to decide whether federal law requires one for HUD properties.

What this means for you

Birch Tree and other residential programs

The opinion says Birch Tree's managers most likely qualify for state-law exemption under the facts described. It leaves the final fact-dependent determination open. It gives no answer about federal licensing or management requirements for HUD properties.

Real-estate professionals and property owners

The cited employee exemption depends on the worker's compensation, the entity's primary business, and whether the worker provides services to outsiders. The opinion does not say every nonprofit or every residential manager is exempt.

Common questions

Do Birch Tree's staff managers need Arkansas real-estate licenses? The AG answered “most likely” no, based on the described facts and possible exemptions.

Does Arkansas law require Birch Tree to hire a separate licensed broker? If its staff managers are exempt, the AG said Arkansas law does not require an agent or broker for its residential services.

Did the AG decide whether federal HUD rules require one?
No. He expressly declined to opine on that federal-law question.

Background and statutory framework

A.C.A. § 17-42-103(13) sets out the covered rental or leasing activity. The opinion examines the Real Estate Commission's Rule 10.18(e) for regulated residential programs and the employee exemption in § 17-42-104(a)(10). Footnote 5 says an employee may be paid by salary or hourly. Footnote 6 cites earlier opinions on the office's limited treatment of federal-law questions.

Citations

• A.C.A. § 17-42-103(13); § 17-42-104(a)(10)
• Ark. Real Estate Comm’n Rule 10.18(e)
• Ark. Att’y Gen. Ops. 2010-036, 2009-089, 2005-261

Source

• Landing page: https://arkansasag.gov/divisions/opinions-foia/attorney-general-opinions-search/

Original opinion text

Opinion No. 2023-070

October 16, 2023

The Honorable Lanny Fite
State Representative
3324 Highway 5
Benton, Arkansas 72019

Dear Representative Fite:

You have requested my opinion regarding real-estate licenses for the residential managers of Birch Tree Communities, Inc. (“Birch Tree”). You report that Birch Tree is a statewide, nonprofit, behavioral-health program that also provides residential services for its patients with serious mental illness. On its website, Birch Tree states that it offers “intensive, highly structured, secure facilit[ies]” and “community-integrated housing opportunities, ranging from staff supported living, group home living that provides small, home-like environments, to completely independent living situations.” 1 You report that, in addition to two employees on staff who manage Birch Tree’s residential services, Birch Tree also pays a licensed real-estate agent and a licensed real-estate broker to “manage its United States Department of Housing and Urban Development (HUD) properties.” With this background, you ask the following questions:

1. Are Birch Tree’s staff residential managers exempt from being required to obtain a real-estate license pursuant to A.C.A. § 17-42-104(a)(10)? 2 Brief response: Yes, most likely.

2. If Birch Tree’s staff residential managers are exempt, should Birch Tree be required to have a licensed real estate agent or separate broker to manage these HUD properties and potentially be subject to paying additional fees and commissions to any third-party agents and/or brokers?
Brief response: While Arkansas law does not require Birch Tree to use a licensed real estate agent or broker to manage its residential services, I cannot opine on whether federal law would require Birch Tree to use them to manage HUD properties.

1
BIRCH TREE COMMUNITIES, INC., https://www.birchtree.org/birch-tree-services/ (last visited Aug. 31, 2023).
2
This provision exempts individuals only, so I have paraphrased your questions to reflect that.
The Honorable Lanny Fite
State Representative
Opinion No. 2023-070
Page 2

DISCUSSION

Question 1: Are Birch Tree’s staff residential managers exempt pursuant to A.C.A.
§ 17-42-104(a)(10)?

Most likely. The determination of whether an individual needs a real-estate license is fact intensive, and I am not a factfinder when issuing opinions. But I can provide the legal framework the Arkansas Real Estate Commission would use to make that determination. Under A.C.A.
§ 17-42-103(13), any individual (1) acting for another 3 (2) for payment (3) to rent or lease real estate must be licensed through the Commission.

But the Commission exempts an employee of “any residential property management program” from the requirement to have a real-estate license if the program (1) is regulated by state or federal authorities with (2) recordkeeping requirements that are “substantially equivalent to or greater than” those required by the Commission.4 Like all medical providers, Birch Tree is heavily regulated by both state and federal agencies. If Birch Tree manages low-income housing through the HUD program, that activity is also heavily regulated. As such, Birch Tree would likely qualify for this exemption.

Under A.C.A. § 17-42-104(a)(10), an employee 5 may rent or lease real estate owned by a business entity without a license when (1) the employee does not earn a commission for the rental or lease, (2) the business entity’s primary business activity is not ownership or acquisition of real estate, and (3) the employee does not provide real estate services to anyone else. Here, you have described Birch Tree’s staff residential managers as employees on staff, so I assume they do not earn commissions or provide real estate services outside of their work with Birch Tree. Finally, because its primary business activity is delivering behavioral health services, Birch Tree’s staff residential managers would be exempt from the licensure requirement.

Question 2: If Birch Tree’s staff residential managers are exempt, should Birch Tree be required to have a licensed real estate agent or separate broker to manage these HUD properties and potentially be subject to paying additional fees and commissions to any third-party agents and/or brokers?

If Birch Tree’s staff residential managers are exempt, Arkansas law does not require Birch Tree to use a licensed real-estate agent or broker to manage its residential services. I cannot opine,

3
The individual can be an employee or an independent contractor. A.C.A. § 17-42-103(10)(L).
4
Ark. Real Estate Comm’n, Real Estate Regulations, Time-Share Regulations, and Federal Fair Housing Summary, Rule 10.18(e), https://arec.arkansas.gov/wp-content/uploads/2022-Commission-Regulations-08102023.pdf. 5 The employee can be paid by salary or hourly. A.C.A. § 17-42-104(a)(10).
The Honorable Lanny Fite
State Representative
Opinion No. 2023-070
Page 3

however, on whether federal law would require Birch Tree to use them to manage HUD properties. 6

Assistant Attorney General Jodie Keener prepared this opinion, which I hereby approve.

Sincerely,

TIM GRIFFIN
Attorney General

6
The opinion function of this office does not ordinarily extend to questions of federal law, except to the degree those questions are incorporated into state law or govern the conduct of public officials. Ark. Att’y Gen. Ops. 2010-036, 2009-089, 2005-261.