Does a company that leases cars with a purchase option, or a broker who arranges vehicle leases, need a Maryland motor vehicle dealer or salesman license?

Plain-English summary

The Administrator of Maryland's Motor Vehicle Administration asked the Attorney General two related questions prompted by the growth of vehicle leasing: whether a company that leases vehicles, where the lessee can end up buying the car at the end of the lease, needs a vehicle dealer's license, and whether a "vehicle lease broker," someone who shops dealerships for a customer and then lines up a bank to buy the car and lease it back to that customer, needs a vehicle salesman's license.

The Attorney General concluded the answer to both questions turns on a legal distinction borrowed from the Uniform Commercial Code: whether a lease is a "true lease" or is actually "intended as security," meaning it functions as a disguised installment sale. Under Maryland case law, a lease is treated as intended for security, and the lessee treated as the vehicle's owner, if the lessee can buy the car at the end of the lease for no additional money or for a "nominal" amount, generally understood as an option price under roughly 25% of the vehicle's value. If a lessor's leases work that way and the lessor leases enough vehicles to meet the statutory volume threshold, the lessor is functionally selling cars on an installment plan and must be licensed as a dealer, just like an ordinary car dealer. As for lease brokers, the opinion concluded they need a salesman's license if a dealer compensates them under any arrangement, or if they induce a bank to buy the vehicle and get paid by that bank, and, when the underlying lease is itself intended as security, if they get paid by the ultimate customer, since in that scenario the broker has effectively brokered a car sale, not just a lease.

Currency note

This opinion was issued in 1986. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here. The opinion's own editor's note flags that the General Assembly later enacted a comprehensive Motor Vehicle Leasing Regulatory Act, Chapter 577, Laws of Maryland 1987, addressing dealer and salesman licensing for leasing directly.

Common questions

If a car leasing company lets customers buy the car for $1 at the end of the lease, does that company need a Maryland vehicle dealer's license?
Under this 1986 opinion's reasoning, likely yes. A purchase option priced at little or nothing above the lease payments is treated as "nominal consideration," which under Maryland case law makes the arrangement a disguised sale requiring dealer licensing if volume thresholds are met.

Does every company that leases cars in Maryland need a dealer's license?
No. The opinion concluded that a "true lease," one not intended as security under the Uniform Commercial Code test (for example, where any end-of-lease purchase option is priced near real market value), does not require the lessor to be licensed as a dealer.

Does a broker who arranges vehicle leases between customers and banks need a salesman's license?
It depends on how the broker gets paid, according to the opinion. A broker compensated by a dealer under any arrangement needs a license, as does a broker who induces a bank to buy the car and is compensated by that bank, or by the customer when the lease itself is intended as security.

Background and statutory framework

Maryland's Vehicle Laws require anyone "in the business of buying, selling, or exchanging vehicles," including anyone who sells five or more vehicles acquired for resale in a 12-month period, to be licensed as a dealer, and require anyone acting as a "vehicle salesman," broadly defined to include people who negotiate vehicle sales for compensation or who induce someone to buy a vehicle for a fee, to be individually licensed and employed by a licensed dealer. Because the statute is triggered by a "sale," and a lease is not automatically a sale, the opinion had to work out when a lease crosses that line.

The opinion borrowed the Uniform Commercial Code's "lease intended as security" test, under which a lease that lets the lessee become the owner at the end of the term for no additional or only nominal consideration is legally treated as a security interest, meaning the lessee is really buying the vehicle over time rather than renting it. Applying Maryland Court of Appeals precedent (particularly Crest Investment Trust v. Atlantic Mobile Corp.), the opinion identified an option price below roughly 25% of the vehicle's list or purchase price as a strong signal of nominal consideration, alongside other factors like whether the lease payments already track the vehicle's full value or whether the lessee bears the practical risks of ownership like insurance and repairs. Once a lease is intended as security, the opinion reasoned that title actually passes to the lessee at the time the vehicle is identified and delivered under the lease, just as in an ordinary sale under the Commercial Law Article, meaning the lessee must obtain a certificate of title as the vehicle's owner and the lessor is functioning as a dealer financing installment sales. The same logic extended to lease brokers: if the underlying transaction is really a sale in substance, someone who brokers that transaction for pay is a salesman under the statute regardless of whether the paperwork uses the word "lease."

Citations

Statutes:

• TR §15-302 (dealer licensing requirement)
• TR §11-111 (general definition of "dealer")
• TR §15-101(b) (title-specific definition of "dealer")
• TR §13-402 (vehicles required to be registered under Title 13)
• TR §11-143 (definition of "owner")
• TR §11-157 (definition of "security interest")
• TR §13-101.1 (owner's duty to apply for a certificate of title)
• TR §13-106(a)(2) (Administration's duty to issue a certificate of title)
• TR §13-104(a) (application for certificate of title made by the owner)
• TR §13-401 (registration requirement to operate a vehicle)
• TR §13-402(b) (registration conditioned on certificate of title or application)
• TR §13-808 (excise tax due prior to issuance of title)
• TR §27-102 (misdemeanor penalty for unlicensed dealer activity)
• TR §15-402 (vehicle salesman licensing requirement)
• TR §15-101(e)(1) (definition of "vehicle salesman")
• TR §15-404(a) (salesman licensing eligibility: licensed dealer or employed by one)
• CL §2-106(1) (Commercial Law Article definition of "sale")
• CL §1-201(37) (Commercial Law Article definition of "security interest," including lease-intended-as-security)
• CL §2-401 and §2-401(2) (passing of title rules)
• CL §2-501 (identification of goods to the contract)
• Chapter 577, Laws of Maryland 1987 (subsequent Motor Vehicle Leasing Regulatory Act)

Cases:

• In re Tulsa Port Warehouse Co., 690 F.2d 809, 810 n. 1, 811 (10th Cir. 1982)
• United Rental Equipment Co. v. Potts and Callahan Contracting Co., 231 Md. 552, 558, 559 (1963)
• Waldron v. Best T. V. and Stereo Rentals, 485 F. Supp. 718, 720 (D. Md. 1979)
• American Standard Credit v. National Cement Co., 643 F.2d 248, 266 (5th Cir. 1981)
• Crest Investment Trust v. Atlantic Mobile Corp., 252 Md. 286, 289-90, 292 (1969)
• Percival Const. Co. v. Miller & Miller Auctioneers, 532 F.2d 166, 171 (10th Cir. 1976)
• In re Wheatland Elec. Products Co., 237 F.Supp. 820, 822 (W.D. Pa. 1964)
• Crowder v. Allied Investment Co., 209 N.W.2d 141, 143 (Neb. 1973)
• Rebhum v. Executive Equipment Corp., 394 N.Y.S.2d 792, 794 (N.Y. Sup. Ct. 1977)
• FMA Financial Corp. v. Pro-Printers, 590 P.2d 803, 806 (Utah 1979)
• Tom Benson Chevway Rental & Leasing v. Allen, 571 S.W.2d 346, 348 (Tex. Civ. App. 1978)
• Tatum v. Richter, 280 Md. 332 (1977)
• Automobile Trade Ass'n v. Harold Folk Enterprises, 301 Md. 642, 655, 664-65 (1984)

Source

• Landing page: https://oag.maryland.gov/resources-info/Pages/attorney-general%E2%80%99s-opinions.aspx
• Original PDF: https://oag.maryland.gov/resources-info/Documents/pdfs/Opinions/1986/Volume71_1986.pdf

Original opinion text

Best-effort transcription from a scanned PDF. Minor errors may remain, the linked PDF is authoritative.

VEHICLE LAWS

Licensing Of Dealers and Salesmen—Applicability of Licensing Requirements To Vehicle Lessors And Vehicle Lease Brokers.

January 23, 1986

Mr. W. Marshall Rickert, Administrator
Motor Vehicle Administration

You have asked whether a vehicle lessor must obtain a vehicle dealer's license, assuming that the lessor's business involves lease agreements under which the lessee has the option to purchase the vehicle at the end of the lease period. You have also asked whether a "vehicle lease broker" must obtain a vehicle salesman's license.

For the reasons given below, we conclude as follows:

1. If a vehicle lessor uses leases intended as security, and meets the other requirements of the Vehicle Laws, the lessor must obtain a vehicle dealer's license from the Motor Vehicle Administration.

2. If a vehicle lease broker is compensated by (i) a dealer, under any form of agreement or arrangement; (ii) a financial institution that buys a vehicle from the dealer; or (iii) a lessee under a lease intended as security, the broker must obtain a vehicle salesman's license from the Administration.

Such a lease is often termed an open-end lease, as contrasted with a closed-end lease. One court has described the difference as follows: "Under the closed-end lease, the lessee returns the vehicle to the lessor at the end of the lease term and the obligations of both come to an end. Under the open-end lease, however, the relationship between the lessor and lessee does not end. Rather, it involves the sale of the vehicle and an adjustment between the lessor and lessee based on the sales price." In re Tulsa Port Warehouse Co., 690 F.2d 809, 810 n. 1 (10th Cir. 1982).

I
Licensing of Vehicle Lessors

A. Dealer Licensing

The Vehicle Laws do not impose licensing requirements on vehicle lessors as such. Only if a lessor "conduct[s] the business of a dealer" must he or she be licensed by the Motor Vehicle Administration. §15-302 of the Transportation Article ("TR" Article). TR §11-111 generally defines "dealer" as follows:

"'Dealer' means a person who is in the business of buying, selling, or exchanging vehicles including a person who during any 12 month period offers to sell five or more vehicles, the ownership of which was acquired for resale purposes."

For purposes of the licensing title of the Vehicle Laws, TR §15-101(b) further defines "dealer" as follows:

"(1) 'Dealer' means ... a dealer in vehicles of a type required to be registered under Title 13 of this Article.

(2) 'Dealer' includes:

(i) A person who is in the business of buying, selling, or exchanging vehicles, including a person who during any 12-month period offers to sell five or more of these vehicles, the ownership of which was acquired for resale purposes; and

(ii) For the purposes of §§15-301 through 15-315, inclusive, of this title, any person who sells vehicles, whether or not that person acquired the vehicles for personal or business use, if the vehicles are displayed at a fixed location used principally for the purpose of selling vehicles on a regular basis."

Hence, the sale or resale of vehicles is an essential component of the licensing requirement.

B. Sale and Ownership of a Vehicle

The Vehicle Laws do not themselves define "sale." However, the Uniform Commercial Code does: "A 'sale' consists in the passing of title from the seller to the buyer for a price." §2-106(1) of the Commercial Law Article ("CL" Article). The definition of "owner" in the Vehicle Laws, TR §11-143, similarly focuses on the passing of title or property interest:

"'Owner', as used in reference to a vehicle:

(1) Means a person who has the property in or title to the vehicle;

(2) Includes a person who, subject to a security interest in another person, is entitled to the use and possession of the vehicle; and

(3) Does not include a lessee under a lease not intended as security."

If a lessee is a vehicle's "owner" as defined in TR §11-143, he or she could only have become so as a result of a "sale" by the lessor, regardless of how the lessor would wish to characterize the transaction.

A lessee is unquestionably "entitled to the use and possession" of the leased vehicle. Therefore, under TR §11-143(2) and (3), the lessee is the "owner" of the vehicle if the use and possession by the lessee is subject to a security interest, and if the lease itself is intended as that security.

C. Lease Intended as Security

A "security interest" is defined in TR §11-157 as "an interest in a vehicle that is reserved or created by agreement and that secures payment or performance of an obligation ... and ... includes the interest of a lessor under a lease intended as security."

For guidance as to the circumstances under which "a lease [is] intended as security," we turn to the Uniform Commercial Code. "Security interest" is broadly defined as "an interest in personal property or fixtures which secures payment or performance of an obligation." CL §1-201(37). "Unless a lease ... is intended as security," the definition continues, "reservation of title thereunder is not a 'security interest.'" The definition of "security interest" then outlines certain criteria for determining the required intent:

"Whether a lease is intended as security is to be determined by the facts of each case; however (a) the inclusion of an option to purchase does not of itself make the lease one intended for security, and (b) an agreement that upon compliance with the terms of the lease the lessee shall become or has the option to become the owner of the property for no additional consideration or for a nominal consideration does make the lease one intended for security."

The Maryland Court of Appeals has examined the applicability of CL §1-201(37) to leases in two leading cases. United Rental Equipment Co. v. Potts and Callahan Contracting Co., 231 Md. 552 (1963), involved a contest over title to an air compressor. The compressor was leased for a monthly payment of $800. The lease provided for a term of at least one month, with monthly payments to continue until the equipment was returned to the lessor. But the lease also specified that 85% of the rental was to be applied against the purchase price of the compressor, and the lessee agreed to pay all sales and use taxes.

The Court of Appeals found that the parties to the original lease agreement "contemplated the purchase of the compressor by [the lessee] if he continued to pay the specified monthly rental and otherwise complied with the lease." 231 Md. at 559. Therefore, the lease "was a security interest created by contract." 231 Md. at 558. In the terms of CL §1-201(37), the lease was "intended as security," because "upon compliance with the terms of the lease the lessee ... has the option to become the owner of the property for no additional consideration or for a nominal consideration." Although United Rental was an application and interpretation of Pennsylvania law, the provision construed by the Court of Appeals was identical to CL §1-201(37). See Waldron v. Best T. V. and Stereo Rentals, 485 F. Supp. 718, 720 (D. Md. 1979).

Under CL §1-201(37), if no additional consideration beyond the lease payments is needed for the lessee to exercise a purchase option, the lease is unequivocally intended for security and the lessee is the "owner" of the vehicle under TR §11-143. When some additional consideration is required, an important question is whether the consideration is "nominal." If so, the lease is intended for security; if not, the lease might or might not be intended as security, depending upon the totality of circumstances reflecting the intent of the parties. Recitals in the lease itself, like a statement that the lease "'is intended to be a true lease (and not a lease intended as a security or a lease in the nature of a security interest),'" may be taken into account in considering the parties' intent, but they are not conclusive, and "the practical effect of other provisions in the lease [might be] to refute such recitals." American Standard Credit v. National Cement Co., 643 F.2d 248, 266 (5th Cir. 1981).

In Crest Investment Trust v. Atlantic Mobile Corp., 252 Md. 286 (1969), the Court of Appeals included a yardstick for "nominal consideration" among its "considerations and factors" for determining "whether a lease in form is a lease in fact or a security instrument." 252 Md. at 289. These "considerations and factors" are:

"1. The facts in each case control to show intention of the parties to create a security interest.

2. Reservation of title in a lease or option to purchase appurtenant to or included in the lease does not in and of itself make the lease a security agreement.

3. Lease agreement which permits the lessee to become the owner for nominal or for no additional consideration is deemed intended as a security agreement as a matter of law.

4. The percentage that option purchase price bears to the list price, especially if it is less than 25%, is to be considered as showing the intent of the parties to make a lease as security.

5. Where the terms of the lease and option to purchase are such that the only sensible course for the lessee at the end of the lease term is to exercise the option and become the owner of the goods, the lease was intended to create a security interest.

6. The character of a transaction as a true lease is indicated by:

(a) Provision specifying purchase option price which is approximately the market value at the time of the exercise of the option.

(b) Rental charges indicating an intention to compensate lessor for loss of value over the term of the lease due to aging, wear and obsolescence.

(c) Rentals which are not excessive and option purchase price which is not too low.

(d) Facts showing that the lessee is acquiring no equity in leased article during the term of lease." 252 Md. at 289-90 (quoting In re Alpha Creamery Co., 4 U.C.C. Rptg. Serv. 794, 795 (W.D. Mich. 1967)) (emphasis added).

We do not read Crest Investment as intimating that no other factors may be considered. On the contrary, because "'[t]he facts in each case control to show intention of the parties,'" other factors might be pertinent. For example, one court has summarized as follows "a number of significant factors tending to suggest that a sale has occurred: (1) whether the lease creates an equity in the lessee; (2) whether the lessee is obligated to provide comprehensive insurance in favor of the lessor; (3) whether the lessee pays sales tax; (4) whether the lessee pays all taxes, maintenance, and repairs; and (5) whether the lessee holds the lessor harmless or assumes the risk of loss." In re Tulsa Port Warehouse Co., 690 F.2d 809, 811 (10th Cir. 1982) (citations omitted).

As one federal appellate court summarized, when it adopted the Crest Investment test in applying Oklahoma's equivalent of CL §1-201(37):

"The critical elements of that test involve the consideration necessary for lessee to exercise the option to purchase and the percentage that consideration bears to the list price of the items leased. Under [Crest Investment], if that percentage is less than twenty-five per cent, it is considered as showing the intent of the parties to make the lease a security." Percival Const. Co. v. Miller & Miller Auctioneers, 532 F.2d 166, 171 (10th Cir. 1976).

Under the Crest Investment test, consideration is generally to be treated as "nominal" if the option purchase price at the end of the lease period is less than 25% of either the list or purchase price of the vehicle. In Crest Investment itself, the option purchase price was nearly 58% of the list price and therefore could not "in any way be regarded as nominal." 252 Md. at 292. In Crest Investment, a trailer was leased for a minimum of two months at a rental of $160.00 per month. At the end of a 12 month period, the lessee could exercise an option to purchase the trailer "when the amount required to meet the full purchase price of $3,400 was $1,960, or slightly less than 58% of that full purchase price." The lessee could not automatically extend the option. Using its articulated criteria, the Court of Appeals found "little, if any, doubt that the intention of the parties was to execute a lease and not a security instrument." 252 Md. at 292.

Other examples of the application of the "nominal consideration" criterion may be found in out-of-state cases. E.g., Percival Const. Co. v. Miller & Miller Auctioneers, 532 F.2d at 171 (option price of 10.6% of "list price" nominal); In re Wheatland Elec. Products Co., 237 F.Supp. 820, 822 (W.D. Pa. 1964) (option price of 25% of "list price" not nominal); Crowder v. Allied Investment Co., 209 N.W.2d 141, 143 (Neb. 1973) (option price of "4% of the total consideration payable under the agreement" nominal); Rebhum v. Executive Equipment Corp., 394 N.Y.S.2d 792, 794 (N.Y. Sup. Ct. 1977) (option price of 20% of "capital cost of vehicle" not nominal); FMA Financial Corp. v. Pro-Printers, 590 P.2d 803, 806 (Utah 1979) (option price of 10% of lessor's "original cost" and "only 6 percent of the total lease payments" nominal). See generally Annot., 76 A.L.R.3d 11, 85 §19 (1977) (compiling cases on the relationship between consideration and purchase price or total rental, as part of the determination of whether an equipment lease is intended as security). Cf. Tom Benson Chevway Rental & Leasing v. Allen, 571 S.W.2d 346, 348 (Tex. Civ. App. 1978) (lease with total payments equalling or exceeding value of vehicle and with option price of $1 was "credit sale" for purposes of Truth in Lending Act).

D. Title to a Vehicle Acquired Under a Lease Intended as Security

If a lease is in fact a security agreement, then the lessee is the "owner" of the vehicle under TR §11-143. If the lessee is the owner of the vehicle, the lessee "shall apply to the Administration for a certificate of title of the vehicle." TR §13-101.1. The Administration is required to issue a certificate of title if it "finds that the applicant is entitled to a certificate of title" and "has received the required fees." TR §13-106(a)(2).

Indeed, the lessee becomes the title owner prior to the issuance of a certificate of title by the Administration. The Uniform Commercial Code provision on the passing of title, CL §2-401, provides in pertinent part as follows:

"Each provision of this title with regard to the rights, obligations and remedies of the seller, the buyer, purchaser or other third parties applies irrespective of title to the goods except where the provision refers to such title. Insofar as situations are not covered by the other provisions of this title and matters concerning title become material the following rules apply:

(1) Title to goods cannot pass under a contract for sale prior to their identification to the contract (§2-501) and unless otherwise explicitly agreed the buyer acquires by their identification a special property as limited by Titles 1 through 10 of this article. Any retention or reservation by the seller to the title (property) in goods shipped or delivered to the buyer is limited in effect to a reservation of a security interest. Subject to these provisions and to the provisions of the title on secured transactions (Title 9), title to goods passes from the seller to the buyer in any manner and on any conditions explicitly agreed on by the parties.

(2) Unless otherwise explicitly agreed title passes to the buyer at the time and place at which the seller completes his performance with reference to the physical delivery of the goods, despite any reservation of a security interest and even though a document of title is to be delivered at a different time or place; and in particular and despite any reservation of security interest by the bill of lading:

(a) If the contract requires or authorizes the seller to send the goods to the buyer but does not require him to deliver them at destination, title passes to the buyer at the time and place of shipment; but

(b) If the contract requires delivery at destination, title passes on tender there."

If a lessee is considered the "owner" under TR §11-143(2) and (3), in that the lessee has the use and possession of the automobile under a lease intended as security, title would have passed after the automobile was identified in the security agreement and upon delivery of the vehicle. CL §2-401(2). At that point, the "sale" has occurred. CL §2-106(1). Cf. Tatum v. Richter, 280 Md. 332 (1977) (title in an automobile passed to buyer once the goods had been identified in the bill of sale, although the seller retained possession).

Even if a lease intended as security explicitly states that title does not pass until sometime after delivery of the vehicle, the Vehicle Laws do not permit that delay to be given effect. As discussed above, TR §13-101.1 requires the "owner of each vehicle" to apply for a certificate of title, and TR §13-106 requires the Administration to issue a certificate of title to the owner. See also TR §13-104(a) ("The application for a certificate of title of a vehicle shall be made by the owner of the vehicle on the form that the Administration requires."). Cf. Annot., 74 A.L.R.3d 739, 766 §10 (1976) (compiling cases holding that long-term lessees of vehicles are "owners" under statutes making vehicle owner liable for the negligent operation of the vehicle by another). Moreover, a vehicle may not be driven unless it is registered (TR §13-401), and a vehicle may not be registered "unless the Administration has issued to the owner a certificate of title of the vehicle or has received an application for the certificate of title." TR §13-402(b). Thus, if the lessee is the owner of a vehicle, only the lessee may obtain the necessary certificate of title. Therefore, title passes under a lease intended as security when the person possesses and uses the vehicle. Pursuant to TR §13-808, the excise tax must be paid prior to the Administration's issuing title to the owner. The lessee must therefore pay the tax on the fair market value of the vehicle at the time the lease is executed and title is transferred, rather than at the time the purchase option is exercised. Nevertheless, the lessee, as owner, then possesses a title which may be transferred, or used as evidence of collateral, subject, of course, to the security interest of the lessor.

E. Summary

If a lessor is in the business of leasing, or leases five or more vehicles within a 12 month period, and the leases are intended as security, the lessor is acting as a dealer and must be licensed pursuant to TR §15-302. Failure to obtain the license is a misdemeanor. TR §27-102. On the other hand, if the leases are not intended as security, the lessor need not be licensed.

II
Licensing of Vehicle Lease Brokers

Your second question is whether individuals whom you identify as "vehicle lease brokers" must be licensed as salesmen. You describe the activities of these brokers as follows:

"These businesses (or persons) open shop, and solicit individuals interested in leasing. Once contacted, the lease broker shops dealerships for the specified car, and locates a bank or other financial institution interested in buying the car and leasing it to the lease broker's client."

Ultimately, a lease is executed between the financial institution and the lessee.

A person who "act[s] as a vehicle salesman" must be licensed. TR §15-402. The term "vehicle salesman" is defined in TR §15-101(e)(1) as follows:

"'Vehicle salesman' means ... any individual who:

(i) For a commission or other compensation, under any form of agreement or arrangement with a dealer, buys, sells, or exchanges or negotiates or attempts to negotiate a sale or exchange of an interest in a vehicle of a type required to be registered under Title 13 of this article; or

(ii) Induces or attempts to induce any other person to buy or exchange an interest in a vehicle or a type required to be registered under Title 13 of this article and receives or expects to receive a commission or other compensation from either the seller or the buyer of the vehicle."

Thus, a broker would be a "vehicle salesman" under TR §15-101(e)(1)(i) if there is "any form of agreement or arrangement" with a dealer "[f]or a commission or other compensation." Alternatively, a broker would come within the definition in TR §15-101(e)(1)(ii) if there is inducement coupled with compensation "from either the buyer or the seller."

You state that the lease broker "shops dealerships for the specified car." After locating the car, the broker then finds a financial institution, typically a bank, interested in purchasing the car in order to lease it to the broker's customer. If the broker is paid by the dealer pursuant to "any form of agreement or arrangement" as a result of this sale, the broker is a "vehicle salesman" under TR §15-101(e)(1)(i).

Regardless of whether such an agreement or arrangement exists, the broker certainly "[i]nduces or attempts to induce" the lessor-bank to purchase the vehicle. "Induce" has been defined by the Court of Appeals, in the context of a vehicle sales broker, as "the act of referring a customer to a specific vehicle dealer or dealers." Automobile Trade Ass'n v. Harold Folk Enterprises, 301 Md. 642, 655 (1984) (referral agents for a consumer buying service were "vehicle salesmen"). In vehicle lease brokerage, the broker's inducement to the lessor-bank is the speed with which the vehicle can be purchased and the profit realized once the vehicle is leased. Cf. Harold Folk Enterprises, 301 Md. at 655 ("The customer expects to receive a lower purchase price and a faster transaction as the result of the referral made by the [buying service] agent."). Hence, the broker is acting as a "vehicle salesman" under TR §15-101(e)(1)(ii) if, having induced the lessor-bank to purchase the vehicle, the broker receives compensation from either the dealer or the lessor-bank.

Moreover, if the broker does not receive compensation from the dealer or lessor-bank, he or she logically must receive it from the ultimate user of the vehicle, the lessee. For the reasons stated in Part I, under a lease intended as a security interest, the lessee is actually a buyer and the broker has induced a sale. Accordingly, if the lease is one intended for security and either the lessor-bank or the lessee compensates the broker, the broker is acting as a "vehicle salesman" under TR §15-101(e)(1)(ii). However, if the lease is not one intended as security, and if neither the dealer nor the lessor-bank compensates the broker, he or she is not acting as a salesman.

A person who acts as a "vehicle salesman" in performing the brokerage services that you describe must satisfy the requirements for licensure in TR §15-404(a):

"A person may not be licensed [as a vehicle salesman] unless the person:

(1) Is a licensed dealer; or

(2) Is employed as a vehicle salesman by a licensed dealer."

Whether a broker who is a "vehicle salesman" is employed by a dealer is obviously a factual question; however, the broker may not be employed by more than one dealer. In reviewing the issue of whether a salesman can be employed by more than one dealer, the Court of Appeals stated as follows:

"These cases demonstrate that the hierarchial structure found in today's automobile industry, from manufacturer to dealer to salesman, is an integral part of Maryland's statutory enforcement mechanism. This mechanism places a premium on the control exercised by one party over another in the process. In our view, Section 15-404's 'employed by' requirement should be read in light of this concept. Obviously, dual employment affords a licensed dealer less control over a vehicle salesman than exclusive employment. A qualitative difference exists between the degree of control exercised by the dealer and the degree of control it exercises over [the buying service's] referral agents. This qualitative difference reinforces our view that Section 15-404 prohibits dual employment." Harold Folk Enterprises, 301 Md. at 664-65 (emphasis added).

III
Conclusion

In summary, it is our opinion that:

1. If a vehicle lessor uses leases intended as security, and meets the other requirements of the Vehicle Laws, the lessor must obtain a vehicle dealer's license from the Motor Vehicle Administration.

2. If a vehicle lease broker is compensated by (i) a dealer, under any form of agreement or arrangement; (ii) a financial institution that buys a vehicle from the dealer; or (iii) a lessee under a lease intended as security, the broker must obtain a vehicle salesman's license from the Administration.

Stephen H. Sachs
Attorney General
Edward R. K. Hargadon
Assistant Attorney General

Jack Schwartz
Chief Counsel
Opinions and Advice

Editor's Note: Since the issuance of this opinion, the General Assembly has enacted a comprehensive Motor Vehicle Leasing Regulatory Act, including provisions on dealer and salesman licensing. Chapter 577, Laws of Maryland 1987.