Can Tennessee require nonresident real estate license applicants to be Tennessee residents for 45 days, or treat them differently based on their home state's reciprocity?

Plain-English summary

The chair of the Tennessee Real Estate Commission asked four questions about how the Commission could treat out-of-state applicants for an affiliate broker or broker license. The AG's answers map cleanly to the federal Privileges and Immunities Clause (U.S. Const. art. IV, § 2) and the dormant Commerce Clause (art. I, § 8) framework.

Different treatment of reciprocity-state nonresidents vs. non-reciprocity-state nonresidents. Allowed, as long as the difference relates to securing reciprocal benefits for Tennessee residents in the other state. Reciprocal licensing statutes "have been found invulnerable to constitutional attack on equal protection grounds." Hawkins v. Moss, 503 F.2d 1171, 1177-78 (4th Cir. 1974). A state can offer reciprocity to one state but not another, and can have different reciprocal conditions for residents of different states, Parks v. Bd. of Bar Exam'rs, 878 A.2d 297, 300-01 (Vt. 2005).

Denying a license to a nonresident who plans to use Tennessee's license to obtain a license elsewhere. Not allowed. The Commission would be discriminating against nonresidents (applying the rule to them but not to Tennessee residents who could do the same thing). The Privileges and Immunities Clause requires both a "substantial reason" and a "substantial relationship" between the discrimination and the State's objective (Piper, Barnard). Concern about subverting another state's licensing rules is the other state's problem, not Tennessee's, and would not justify treating nonresidents worse.

Tenn. Code Ann. § 62-13-303's 45-day residency requirement. Unconstitutional. Piper (lawyer-license residency, NH) and Barnard (lawyer-license residency, USVI) and Friedman (lawyer-license reciprocal residency, VA) all hold residency requirements in professional licensing statutes invalid under the Privileges and Immunities Clause. The 45-day length does not save it; the rule has to fail the substantial-reason or substantial-relationship test, and short durations do not change that analysis.

Tenn. Code Ann. § 62-13-314(a)(4)'s authority to refuse a license based on residency in the reciprocal context. Also unconstitutional, following Friedman. Residency requirements in reciprocal licensing statutes are unconstitutional for the same Privileges and Immunities reason.

Currency note

This opinion was issued in 2010. 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.

Common questions

Q: What is the Privileges and Immunities Clause and how does it apply to licensing?
A: U.S. Const. art. IV, § 2 says "The Citizens of each State shall be entitled to all Privileges and Immunities of Citizens in the several States." It bars states from discriminating against nonresidents in matters fundamental to interstate commerce, including the right to earn a living. A state can discriminate against nonresidents only if (i) there is a substantial reason for the difference and (ii) the discrimination has a substantial relationship to the state's objective. Piper, 470 U.S. at 284. Courts also look for less restrictive means.

Q: Why are residency requirements singled out?
A: Because they are the purest form of discrimination on the basis of citizenship in another state, and courts have struck them down repeatedly in the professional-licensing context. Piper (New Hampshire 30-day bar residency), Barnard (USVI bar residency), and Friedman (Virginia reciprocal-license residency) form a tight federal line that residency is not a permissible licensing criterion.

Q: Why are reciprocity arrangements allowed when they treat people differently based on residency?
A: Because reciprocity is a benefit to nonresidents, not a discrimination against them. A reciprocity statute exempts the nonresident from requirements that a standard licensing applicant must meet (like taking the state's licensing exam). Reciprocity is the state's bargaining tool to get its own residents the same benefit elsewhere. So states have constitutional latitude to engage selectively in reciprocity, with whatever terms they negotiate.

Q: How is the Commerce Clause relevant?
A: In addition to the Privileges and Immunities analysis, Georgia Ass'n of Realtors v. Alabama Real Estate Comm'n, 748 F. Supp. 1487 (M.D. Ala. 1990), holds that real estate licensing statutes that "unduly burden interstate commerce" violate the dormant Commerce Clause. The two clauses provide overlapping but distinct constraints.

Q: What about denying a license because the nonresident plans to use it to qualify for an out-of-state license?
A: The AG saw no substantial reason for this. The concern is that nonresidents from a reciprocity state could come to Tennessee, get a Tennessee license, and then go back to their home state and use Tennessee's reciprocity to bypass their home state's standard licensing. But that is the home state's regulatory problem, not Tennessee's. Tennessee suffers no cognizable harm. And whatever harm exists exists equally for Tennessee residents who could try the same maneuver in reverse. So discrimination only against nonresidents fails the substantial-reason test.

Q: What can Tennessee still do?
A: Tennessee can still require all applicants (residents and nonresidents) to meet educational requirements, pass the exam, and meet other neutral qualifications. Tennessee can pick and choose its reciprocity partners and set different terms for each. What Tennessee cannot do is exclude or penalize applicants because of their residency status alone.

Background and statutory framework

Tennessee licenses real estate brokers, affiliate brokers, time-share salespersons, and acquisition agents under Tenn. Code Ann. §§ 62-13-301 et seq. The Code separates applicants into two tracks:

• Standard licensing. Section 62-13-303 requires educational hours, a written exam, and (under (e)(2)(B) for affiliate brokers, (f)(2)(B) for brokers) 45 days of Tennessee residency.
• Reciprocal licensing. Section 62-13-314 lets an applicant who already holds a license in another state qualify without retaking the Tennessee exam, provided their out-of-state requirements meet or exceed Tennessee's and their state has a reciprocity agreement with Tennessee. § 62-13-314(a)(4) reserves the Commission's discretion to refuse the license if the applicant is "not a resident of" Tennessee.

The federal constitutional analysis splits the two:

• Standard licensing discriminates against nonresidents because it treats them worse than residents who do not have to clear a residency hurdle. Piper, 470 U.S. at 288, Barnard, 489 U.S. at 558-59. Both reject the proffered justifications (familiarity, ethics, availability, pro bono).
• Reciprocal licensing benefits nonresidents who have a license in a partner state. Treating reciprocity-partner and non-partner nonresidents differently is constitutional because it is the legitimate exercise of a state's interest in securing reciprocal benefits for its own residents. Hawkins, 503 F.2d at 1177-78. But within a reciprocal statute, a stand-alone residency requirement fails for the same Privileges and Immunities reason. Friedman, 487 U.S. at 70.

The Commerce Clause overlay (Georgia Ass'n of Realtors, 748 F. Supp. at 1493) reinforces that even where Privileges and Immunities analysis is not dispositive, real estate licensing statutes must not unduly burden interstate commerce.

Citations and references

Constitutional provisions:

• U.S. Const. art. IV, § 2 (Privileges and Immunities Clause)
• U.S. Const. art. I, § 8 (Commerce Clause)

State statutes:

• Tenn. Code Ann. §§ 62-13-301 et seq. (real estate licensing)
• Tenn. Code Ann. § 62-13-303 (standard licensing requirements)
• Tenn. Code Ann. § 62-13-303(e)(2)(B), (f)(2)(B) (45-day residency)
• Tenn. Code Ann. § 62-13-304 (further qualifications)
• Tenn. Code Ann. § 62-13-314 (reciprocal licensing)
• Tenn. Code Ann. § 62-13-314(a)(3)(A), (B), (D) (out-of-state license requirements)
• Tenn. Code Ann. § 62-13-314(a)(4) (residency-based denial in reciprocal context)

Cases:

• Supreme Court of New Hampshire v. Piper, 470 U.S. 274 (1985) (bar residency unconstitutional)
• Barnard v. Thorstenn, 489 U.S. 546 (1989) (USVI bar residency unconstitutional)
• Supreme Court of Virginia v. Friedman, 487 U.S. 59 (1988) (reciprocal-license residency unconstitutional)
• Georgia Ass'n of Realtors, Inc. v. Alabama Real Estate Comm'n, 748 F. Supp. 1487 (M.D. Ala. 1990) (real estate licensing and dormant Commerce Clause)
• Fales v. Comm'n on Licensure, 275 A.2d 238 (D.C. App. 1971) (state not obligated to recognize out-of-state licenses)
• Hawkins v. Moss, 503 F.2d 1171 (4th Cir. 1974) (reciprocal licensing differential treatment OK)
• Parks v. Bd. of Bar Exam'rs, 878 A.2d 297 (Vt. 2005) (different reciprocity terms for different states OK)
• Arthur v. Iowa State Bar Ass'n, 415 N.W.2d 168 (Iowa 1987) (reciprocal-only office requirement)

Source

• Landing page: https://www.tn.gov/attorneygeneral/opinions.html
• Original PDF: https://www.tn.gov/content/dam/tn/attorneygeneral/documents/ops/2010/op10-090.pdf

Original opinion text

August 2, 2010
Opinion No. 10-90

Real Estate Licensing Requirements for Non-Tennessee Residents

QUESTIONS

1. May the Tennessee Real Estate Commission create or establish a different licensing requirement for residents of states with which Tennessee has reciprocity than for residents of states with which Tennessee does not have reciprocity?

2. May the Commission deny a license to a nonresident who completes all of Tennessee's requirements if that licensee intends to use the Tennessee license to secure a license in another state through that state's reciprocity procedure?

3. Tenn. Code Ann. § 62-13-303(e)(2)(B) requires a showing of forty-five days of residency in this state as a qualification for an affiliate broker's license. The same is required for someone seeking a broker's license. Tenn. Code Ann. § 62-13-303(f)(2)(B). Is this residency requirement constitutional?

4. Reciprocity is outlined in Tenn. Code Ann. § 62-13-314, and subsection (a)(4) states that the "commission may, in its discretion, refuse to issue, renew or reinstate a broker's, affiliate broker's or time share salesperson's license if the applicant for, or holder of, the license is not a resident of this state." May the Commission refuse a license based only on residency?

OPINIONS

1. With regard to reciprocal licensing requirements, the Commission may treat nonresidents from states with and without reciprocity differently, as long as the difference is related to the state's desire to secure an advantage in another state for its residents on similar terms. As for standard licensing requirements, the constitutional analysis considers the discrimination suffered by nonresidents from states with and without reciprocity as compared to Tennessee residents. The discriminatory requirement must satisfy the "substantial reason" and "substantial relationship" tests and must not unduly burden interstate commerce. Residency requirements are unconstitutional for both reciprocal and standard licensing statutes.

2. No. Such a provision would violate the Privileges and Immunities Clause. It would discriminate against nonresidents because it would apply to them but not Tennessee residents. To deny a license to a nonresident who intends to use it to secure a license in another state while allowing a Tennessee resident to do the same would violate the "substantial reason" test.

3. No. With regard to standard licensing statutes, residency requirements violate the Privileges and Immunities Clause.

4. No. With regard to reciprocal licensing statutes, residency requirements violate the Privileges and Immunities Clause.

ANALYSIS

1. Tenn. Code Ann. §§ 62-13-301 et seq. (2009) set forth qualifications that must be satisfied for a person to obtain a real estate broker, affiliate broker, time-share salesperson, or acquisition agent license in Tennessee. These statutes contemplate two types of license applicants. The first type is an applicant who does not already possess a valid license. Tenn. Code Ann. § 62-13-303 (2009). Such an applicant may obtain a Tennessee license in accordance with Tennessee's standard licensing statute, which requires an applicant to satisfy educational requirements, pass a written exam, and be a resident of Tennessee for forty-five days. Tenn. Code Ann. §§ 62-13-303(b)(2), (c)(2), (e)(2)(B), (f)(2)(B), and -304 (2009). The second type is an applicant who possesses a valid license from another state. Such an applicant may obtain a Tennessee license pursuant to the reciprocal licensing statute. Tenn. Code Ann. § 62-13-314 (2009). The applicant is not required to pass the Tennessee license exam, but must have passed a written exam to obtain the out-of-state license and meet or exceed Tennessee's licensing qualifications. Tenn. Code Ann. § 62-13-314(a)(3)(A) and (B) (2009). Also, the applicant's state of residence must have a reciprocity agreement with Tennessee. Tenn. Code Ann. § 62-13-314(a)(3)(D) (2009). However, the Tennessee Real Estate Commission reserves the right to "refuse to issue, renew or reinstate a . . . license if the applicant . . . is not a resident of" Tennessee. Tenn. Code Ann. § 62-13-314(a)(4) (2009).

The Privileges and Immunities Clause of Art. IV, § 2, of the United States Constitution prevents states from discriminating against nonresidents through their standard licensing statutes. It is unconstitutional for such statutes to discriminate against nonresidents unless "(i) there is a substantial reason for the difference in treatment; and (ii) the discrimination practiced against nonresidents bears a substantial relationship to the State's objective." Supreme Court of New Hampshire v. Piper, 470 U.S. 274, 284 (1985); Barnard v. Thorstenn, 489 U.S. 546, 552 (1989). With regard to the "substantial relationship" test, a court should "consider the availability of less restrictive means." Piper, 470 U.S. at 284; Barnard, 489 U.S. at 552-53. In Piper and Barnard, the United States Supreme Court held that rules prohibiting nonresidents from obtaining a law license through each state's standard licensing statute violated the Privileges and Immunities Clause. Piper, 470 U.S. at 288; Barnard, 489 U.S. at 558-59. The rules discriminated against nonresidents, and the Court was not convinced by the proffered justification that nonresidents, as compared to residents, would be less familiar with local rules and procedures, less likely to behave ethically, less likely to be available for court proceedings, and less likely to perform pro bono work. Piper, 470 U.S. at 285-87; Barnard, 489 U.S. at 553-58. It must also be noted that the Commerce Clause of Art. I, § 8, of the Constitution prohibits standard licensing statutes that unduly burden interstate commerce. Georgia Ass'n of Realtors, Inc. v. Alabama Real Estate Comm'n, 748 F. Supp. 1487 (M.D. Ala. 1990).

States have more latitude with regard to reciprocal licensing statutes. States are not obligated to recognize professional licenses issued by other states. Fales v. Comm'n on Licensure to Prac. Heal. Art, 275 A.2d 238, 240 (D.C. App. 1971). Thus, a state has a legitimate interest in securing for its residents the advantage of having its professional licenses recognized by another state by offering the same advantage to residents of that state. Hawkins v. Moss, 503 F.2d 1171, 1177 (4th Cir. 1974), cert. denied, 420 U.S. 928 (1975); Parks v. Bd. of Bar Exam'rs, 878 A.2d 297, 300-01 (Vt. 2005). Because of this legitimate interest, reciprocal licensing statutes "have been found invulnerable to constitutional attack on equal protection grounds." Hawkins, 503 F.2d at 1177-78. A state may enter into a reciprocal arrangement with one state without being required to do so with other states, even though the effect is that the state treats residents from states that do not offer reciprocity differently than residents from states that do. Id. at 1177. Also, a state may have different reciprocity requirements for residents from different states. Parks, 878 A.2d at 300-01 (Vermont Supreme Court upholding reciprocal licensing statute that required Rhode Island applicants to have five years' experience while admitting applicants with only three years' experience from states that extend the same three-year requirement to Vermont residents).

Reciprocal licensing statutes generally do not violate the Privileges and Immunities Clause because they do not discriminate against nonresidents in favor of residents. Nonresidents often benefit from such a statute because it exempts them from requirements that they otherwise would have to satisfy under a standard licensing statute. Hawkins, 503 F.2d at 1179-80; Fales, 275 A.2d at 240-41; Arthur v. Iowa State Bar Ass'n, 415 N.W.2d 168, 171 (Iowa 1987) (rule requiring reciprocal -- but not standard -- licensing applicants to show they intend to maintain an "office for the practice of law" does not violate the Privileges and Immunities Clause because standard licensing applicants show such intent by bearing "the burden of taking the bar exam"). However, as with standard licensing statutes, the United States Supreme Court has held that residency requirements in reciprocal licensing statutes violate the Privilege and Immunities Clause. Supreme Court of Virginia v. Friedman, 487 U.S. 59, 70 (1988).

The courts have permitted states to make a distinction in treatment between nonresidents located in states offering reciprocity and nonresidents located in states without reciprocity. Entering into a reciprocity arrangement with one state but not another is constitutional, Hawkins, 503 F.2d at 1177, and treating these groups differently in a reciprocal licensing statute would be constitutional as long as the difference is related to the state's desire to secure an advantage in another state for its residents on similar terms. Parks, 878 A.2d at 300-01. With regard to a standard licensing statute, the constitutional analysis would concern the discrimination suffered by nonresidents from states with and without reciprocity as compared to Tennessee residents. Any discriminatory treatment must satisfy the "substantial reason" and "substantial relationship" tests, Piper, 470 U.S. at 284 and Barnard, 489 U.S. at 552, and must not unduly burden interstate commerce. Georgia Ass'n of Realtors, Inc., 748 F. Supp. at 1493. Residency requirements are unconstitutional as to both reciprocal and standard licensing statutes. Friedman, 487 U.S. at 70; Piper, 470 U.S. at 288; Barnard, 489 U.S. at 558-59.

2. A provision permitting the Commission to deny a license to a nonresident who satisfies Tennessee's standard licensing statute because the nonresident intends to use another state's reciprocal licensing statute to obtain a license in that state would be unconstitutional. The Privileges and Immunities Clause prohibits discrimination against nonresidents unless "there is a substantial reason for the" discrimination and the discrimination "bears a substantial relationship to the State's objective." Piper, 470 U.S. at 284. Such a provision would discriminate against nonresidents because it would apply to them but not Tennessee residents. The Commission might contend that the "substantial reason" for the discrimination would be to prevent nonresidents from a state with reciprocity (i.e., Mississippi) from using Tennessee's standard licensing statute and the Mississippi and Tennessee reciprocity arrangement to obtain a Mississippi license while avoiding requirements under Mississippi's standard licensing statute. While Mississippi might be concerned with the subversion of its standard licensing requirements, Tennessee would not suffer any harm in such circumstances. And even if there were some sort of harm, it is unclear why it would occur only when a nonresident, as opposed to a Tennessee resident, uses Tennessee's standard licensing statute and the reciprocity arrangement to avoid Mississippi's standard licensing requirements. Accordingly, the proposed provision would be unconstitutional.

3. Statutes and rules prohibiting nonresidents from obtaining a license through a state's standard licensing statute violate the Privileges and Immunities Clause. Piper, 470 U.S. at 288; Barnard, 489 U.S. at 558-59. Such is the case even for a relatively short 45-day residency requirement.

4. Similar to standard licensing statutes, residency requirements in reciprocal licensing statutes violate the Privileges and Immunities Clause. Friedman, 487 U.S. at 70.

ROBERT E. COOPER, JR.
Attorney General and Reporter

GINA J. BARHAM
Deputy Attorney General

NICHOLAS G. BARCA
Assistant Attorney General

Requested by:

Grover Collins
Chairman, Tennessee Real Estate Commission
500 James Robertson Parkway
Nashville, Tennessee 37243-1151