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 (a statewide nonprofit behavioral-health provider that also runs residential services for patients with serious mental illness) needs to put its in-house residential managers through Arkansas real-estate licensing. The complicating factor: Birch Tree was already paying a licensed agent and broker separately to handle HUD properties, and Fite wanted to know whether that was statutorily required or just elective.
The AG's answer has two parts. State law: probably no license required. Federal law: the AG cannot opine.
State law analysis. Arkansas requires a real-estate license for any individual who, for compensation and acting for another, rents or leases real estate (A.C.A. § 17-42-103(13)). Two exemptions cover Birch Tree's situation:
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Residential property management program exemption (Rule 10.18(e)). The Real Estate Commission exempts employees of any "residential property management program" that is regulated by state or federal authorities with recordkeeping requirements substantially equivalent to or greater than the Commission's. Birch Tree is heavily regulated as a behavioral-health provider and (if it manages HUD low-income housing) is also under federal program oversight. Both regulators require detailed recordkeeping. So Birch Tree probably qualifies for this exemption.
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In-house employee exemption (A.C.A. § 17-42-104(a)(10)). An employee can rent or lease real estate owned by a business entity without a license when (a) the employee does not earn a commission for the rental or lease, (b) the business entity's primary business is not ownership or acquisition of real estate, and (c) the employee does not provide real estate services to anyone else. Birch Tree's residential managers are salaried staff of a behavioral-health nonprofit whose primary business is mental-health services. Both conditions appear satisfied.
So under Arkansas law, Birch Tree is not required to use a licensed real-estate agent or broker to manage its residential services.
Federal law analysis. The HUD program may have its own requirements about who can manage HUD-assisted properties. The AG declined to opine on federal law because the AG opinion function does not ordinarily extend to questions of federal law except when incorporated into state law or when governing the conduct of public officials.
What this means for you
Birch Tree and similar behavioral-health nonprofits
Your in-house residential managers are likely exempt from Arkansas real-estate licensing under either Rule 10.18(e) or A.C.A. § 17-42-104(a)(10). You do not need to put them through licensing or maintain a separate licensed agent for state-law purposes.
For HUD properties, consult HUD-program counsel on whether federal rules require a separately licensed agent or broker. The AG opinion does not address that question.
Other nonprofit residential property managers
The same two exemptions are likely available to your in-house staff if you meet the conditions. Document that:
- Your primary business is not real estate (you are a healthcare provider, social services agency, etc.).
- Your staff are paid by salary, not commission on rentals.
- They do not manage outside properties for other parties.
Confirm with the Real Estate Commission if the exemption status is contested.
HUD property owners
The Arkansas exemption applies to state-law licensing. HUD has its own rules about property management, accountability, and qualifications. Verify federal compliance separately.
Real estate licensees
The exemptions in § 17-42-104(a)(10) and Rule 10.18(e) carve out specific categories of in-house management from your regulated practice. They do not affect your work for fee-for-service property management or real-estate sales.
Common questions
What is "residential property management"?
The day-to-day work of operating a residential property: collecting rent, handling tenant issues, coordinating maintenance, complying with housing rules. The Real Estate Commission exempts employees of programs that do this work as part of a broader, regulated mission.
What's the in-house employee exemption?
A.C.A. § 17-42-104(a)(10) exempts an employee of a business entity from the licensing requirement when (1) no commission, (2) the business's primary activity is not real estate, and (3) the employee does not work for outside parties.
Do these exemptions apply to all nonprofits?
No. The nonprofit must meet the specific conditions. A nonprofit whose primary activity is real estate (such as a community land trust focused on real estate) might not qualify under § 17-42-104(a)(10).
What is HUD's role?
The U.S. Department of Housing and Urban Development administers federal housing programs. Properties receiving HUD assistance are subject to federal regulations on management, eligibility, and reporting. The AG opinion does not address what HUD requires.
Why are AG opinions limited on federal law?
The opinion function generally addresses Arkansas law and the conduct of Arkansas public officials. Federal law questions go to federal agencies and federal courts. (See Op. 2010-036, 2009-089, 2005-261.)
Background and statutory framework
A.C.A. § 17-42-103(13). Definition of activities requiring a real-estate license: acting for another for compensation to rent or lease real estate.
A.C.A. § 17-42-103(10)(L). Includes both employees and independent contractors in the definition of those who must be licensed.
A.C.A. § 17-42-104(a)(10). In-house employee exemption when no commission, business's primary activity is not real estate, and employee does not provide services to outside parties.
Real Estate Commission Rule 10.18(e). Residential-property-management-program exemption when the program is regulated by state or federal authorities with substantially equivalent recordkeeping requirements.
Citations
- A.C.A. § 17-42-103(10)(L) (definition of "individual" requiring license)
- A.C.A. § 17-42-103(13) (definition of activities requiring license)
- A.C.A. § 17-42-104(a)(10) (in-house employee exemption)
- Ark. Real Estate Comm'n Rule 10.18(e) (residential property management program exemption)
- Ark. Att'y Gen. Op. 2005-261, 2009-089, 2010-036 (limits on AG opinions on federal law)
Source
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." 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:
- 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)? (This provision exempts individuals only, so I have paraphrased your questions to reflect that.)
Brief response: Yes, most likely.
- 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.
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 (the individual can be an employee or an independent contractor; A.C.A. § 17-42-103(10)(L)) (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. (Ark. Real Estate Comm'n, Real Estate Regulations, Time-Share Regulations, and Federal Fair Housing Summary, Rule 10.18(e).) 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 (the employee can be paid by salary or hourly) 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, however, on whether federal law would require Birch Tree to use them to manage HUD properties. (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. See Ark. Att'y Gen. Ops. 2010-036, 2009-089, 2005-261.)
Assistant Attorney General Jodie Keener prepared this opinion, which I hereby approve.
Sincerely,
TIM GRIFFIN
Attorney General