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Wisconsin REALTOR®
September 2000
Volume 16, Number 12
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Legal Matters |
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Best
of the Legal Hotline
By Debbi Conrad
& Tracy Rucka
The following questions pertaining to office management issues were
recently asked of the Legal Hotline:
| Q. What policies and
procedures must be followed by an agent who is leaving his or
her current company and opening a new office? The agent has a
broker’s license and intends to have sales agents working in
the new office. |
A. The agent may contact the Department of
Regulation and Licensing (DRL) (call 608-266-5511 or write to
the State Of Wisconsin, Department of Regulation and
Licensing, PO Box 8935, Madison, WI 53708 - 8935) for the
forms needed to terminate the agent’s affiliation with the
current broker/employer, to open and register a new real
estate trust account, and to transfer the licenses of other
agents to the new company.
The agent should review the Wisconsin Administrative Code
provisions and state statutes which provide the regulatory
structure for real estate practice. A copy of the book
containing the real estate statutes and regulations may be
ordered from the DRL - see http://drl.wi.gov/index.htm
for more information.
Excerpts may be found on the WRA Web site in the Legal
section.
Many issues are addressed in Wis. Admin. Code Chapters RL 17
(broker supervision), 18 (trust accounts), and 24
(advertising, disclosures, and other transactional rules). The
agent may work with legal counsel to address issues such as
the appropriate choice of business entity, tax issues,
formulating a business plan, error and omissions insurance,
and an office policy and procedure manual. |
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| Q. When are brokers
required to have an office policy manual? |
A. Wis. Admin. Code § RL 17.08 requires a
broker/employer to provide all licensed agents and employees
(including independent contractors) with a written statement
of the office’s policies and procedures for handling leases,
listing contracts, offers to purchase and other transactional
documents.
Beyond these DRL requirements, the broker may adopt and
include additional policies and procedures in the office
manual including, but not limited to, discrimination,
harassment, office hours, individual property purchases,
multiple representation, disclosures, lead-based paint,
conflict resolution, Internet policy, compensation, etc. An
office policy manual will clearly set forth the rights and
responsibilities of the broker/employer and the agents, and
will help to avoid disputes by anticipating them and providing
the practices and procedures necessary to eliminate their
causes. The WRA’s Office Policy Manual Guide (6th Edition)
can help brokers write and update their office policy
manual. |
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| Q. Are broker/employers
required to enter into an independent contractor agreement
with their agents? |
A. A broker/employer is not required to
enter into an independent contractor agreement to formalize
commission fees and rates. Prudent practice, however, would
dictate a written agreement as evidence of the agreement in
the event that a dispute later arises, for example, when an
agent leaves an office with pending transactions. A written
agreement that is signed when the business relationship is
commenced will alleviate disputes upon termination of the
relationship.
The relationship between the broker and his or her
salespersons can be either an independent contractor
relationship or an employer/employee relationship. Independent
contractors, in turn, can be either common-law independent
contractors or statutory independent contractors. The
determination of whether an individual is an employee or
independent contractor is important for several reasons.
Federal and state income tax is generally withheld from wages
paid to employees, but not from compensation paid to
independent contractors. The employee/independent contractor
status also determines Social Security and Medicare payments,
federal and Wisconsin unemployment compensation, Wisconsin
worker’s compensation, tax on self-employment income, and
the deductibility of business expenses (see Legal Update 97.12
for further discussion of these issues).
Broker/employers can use independent contractor written
agreements, such as the WRA Real Estate Independent Contractor
Agreement, to qualify their licensed salespersons as statutory
independent contractors for federal and Wisconsin tax
purposes. The agreement should specify that the agent will not
be treated as an employee for federal tax purposes, and
substantially all of the agent’s compensation should be
commissions earned for providing real estate services. If
there is no written agreement between the broker/employer and
the salespersons, brokers/companies must observe the more
restrictive common-law test to qualify their salespersons for
independent contractor status for Wisconsin tax purposes. |
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| Q. A real estate broker
employs several agents who, in turn, employ unlicensed
personal assistants. The broker provides worker’s
compensation insurance for all agents and all personal
assistants. Can the broker require that all agents who employ
personal assistants pay the broker back for the costs of the
worker’s compensation insurance attributable to the personal
assistants? |
A. No. Wis. Stat. § 102.16(3) provides
that no employer may solicit, receive, or collect any money
from an employee or any other person (including real estate
licensees and assistants), or make any direct or indirect
deduction from their wages for the purpose of discharging any
workers compensation liability or recovering workers
compensation premiums that the employer has paid. The
Department of Workforce Development has the jurisdiction to
order the employer to reimburse the employee for any premiums
deducted from wages. Likewise, no agreement by an employee to
waive the right to any compensation for the purpose of
covering workers compensation insurance premiums is valid.
Every independent contractor real estate agent is classified
as an employee for purposes of worker’s compensation,
subject to one exception: Independent contractors who maintain
a separate business with their own separate office, equipment
and materials, their own federal ID number, and meet the other
criteria stated in Wis. Stat. § 102.07(8) are not treated as
employees. See page 4 of Legal Update 97.12 for further
discussion of this exemption. Thus, the broker-employer
generally must maintain worker’s compensation insurance for
all employees and all independent contractor agents who do not
meet the criteria for the exception.
In addition, Wis. Stat. § 102.07(4) provides that all helpers
and assistants of employees may also be classified as
employees for purposes of worker’s compensation, provided
they are employed with the knowledge of the employer.
Broker/employers are generally responsible for maintaining
worker’s compensation insurance for all personal assistants
employed by the broker’s agents, particularly if all
payroll/bookkeeping functions are centralized with the
broker/employer. If, on the other hand, an agent acts
independently in employing an unlicensed assistant and
personally handles all payroll matters, the agent is
considered to be the employer and would be responsible for
providing worker’s compensation coverage for the assistant.
Every employer subject to the Wisconsin Worker’s
Compensation Act must have worker’s compensation insurance
with an insurance company authorized to write worker’s
compensation insurance in Wisconsin. An employer becomes
subject to the Wisconsin Worker’s Compensation Act when:
- The employer usually employs three or more persons full
or part-time for services performed in Wisconsin. This
employer needs insurance immediately; or
- The employer has one or more full-time or part-time
employees and has paid gross combined wages of $500 or
more in any calendar quarter for work done in Wisconsin.
This employer must have insurance by the tenth day of the
first month of the next calendar quarter.
For more information, contact
Department of Workforce Development’s (DWD) Worker’s
Compensation Division
P.O. Box 7901
Madison, WI 53707-7901
Phone: 608-266-1340 (Main Number)
Fax: 608-267-0394
www.dwd.state.wi.us |
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| Q. An agent has an
accepted offer to purchase and is concerned about receiving a
commission if he leaves his current office prior to the
closing of the transaction. The agent has a verbal agreement
with the current broker, but nothing in writing. What are
agent’s options? |
A. Wisconsin real estate statutes and
administrative rules do not address commission policies
between a broker/employer and a real estate agent. Rather, the
entitlement to a commission in this situation depends upon the
verbal or written agreements between the broker and the agent
(i.e., independent contractor agreement, company policy and
procedures manual, etc.). Although verbal commission
agreements can be binding, the agent may have difficulty
proving the terms of an oral agreement. If the commission
agreement is verbal and written agreements do not address the
issue, the prior actions of the broker in similar situations
and the prevailing practice in the industry would be factors
the court may consider if the matter went to court.
If the agent leaves the company prior to collecting his
commission and if the broker does not pay the commission, the
agent will need to enforce the provisions of his agreement
with the broker. The agent can attempt to have the dispute
arbitrated at the local Board, provided the now-previous
broker agrees to arbitrate. This would be considered a
voluntary arbitration under Article 17 of the Code of Ethics.
If the former broker refuses to arbitrate, the salesperson can
bring separate actions in small claims court for each
commission due.
To prevent these issues, a well-drafted independent contractor
agreement will minimize conflicts. An agent in this situation
may be referred to legal counsel to advise on commission
issues. |
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On-Line
Publications
Case
Law Update
By Debbi Conrad
The following cases were recently decided by the Wisconsin Court of
Appeals:
Baierl v. McTaggart (Ct. App. August 8, 2000, No.
98-3329).
Landlord/Tenant Law: Doctrine of Severability Applied to
Leases.
In this landlord-tenant dispute, the lease consisted of a
two-page residential lease plus several addenda, one
consisting of twenty-seven paragraphs. The following
language appeared in paragraph 17 of the long addendum:
"In the event that [the landlord] shall be obliged to
commence legal action in order to enforce the terms and
conditions of any portion of this lease and amendment, the
tenant shall be liable to [the landlord] for all [the
landlord’s] costs, disbursements and expenses incurred
including, without limitation, reasonable attorney fees
incurred."
Wis. Admin. Code § ATCP 134.08(3) provides that no rental
agreement may "Require payment, by the tenant, of
attorney’s fees or costs incurred by the landlord in any
legal action or dispute arising under the rental agreement.
This does not prevent the recovery of costs or attorney’s
fees by a landlord or tenant pursuant to a court order under
ch. 799 or 814, Stats." The court found that paragraph
17 was in violation of this rule.
The lease term was from August 1, 1996, to July 31, 1997. In
a letter dated November 29, 1996, the tenants notified the
landlord that they were terminating the lease effective
February 1, 1997. The landlord unsuccessfully tried to
re-rent the apartment, and then withheld the security
deposit for unpaid rent and sued the tenants to enforce the
lease terms. The landlord never implemented the paragraph 17
provision, and only sought the minimal attorney fees
authorized in the statutes.
The tenants alleged that the entire lease was void because
Wis. Admin. Code §ATCP 134.08(3) prohibited the paragraph
17 attorney’s fees provision. The trial court agreed and
awarded the tenants double damages - twice the $1,790
security deposit less some expenses.
On appeal to the Wisconsin Court of Appeals, the landlord
argued that, per the holding in the Simenstad v. Hagen case,
the prohibited clause should have been severed from the
lease because it was a non-essential clause which could be
severed without defeating the primary purpose of the
parties’ agreement. In other words, the lease should be
read as if the illegal provision has been deleted or voided,
leaving the balance of the lease in place. The Simenstad
doctrine of severability, however, had never before been
applied to a lease under Wisconsin case law.
The Court of Appeals noted that the landlord never attempted
to enforce the illegal provision, and only requested only
limited attorney fees. No statute forbade the severance of
the clause from the lease and severing paragraph 17 from the
lease did not defeat the primary purpose - to spell out the
rights and duties between the landlord and tenant for the
renting of the apartment. Furthermore, it was the tenants
who breached the lease. The court observed, "Not only
were the tenants relieved of the duty to pay rent for the
lease term, but they were paid double their security deposit
and reimbursed all of their attorney fees. The tenants have
obtained a windfall for what was, indisputedly, their breach
of the lease. Conversely, the landlord was not compensated
for the many months that the apartment went vacant, nor did
he recover any of his expenses in cleaning the apartment and
in attempting to re-rent it." Thus, the court held that
the prohibited paragraph 17 provision was severed from the
lease and the rest of the lease was to be enforced,
including the security deposit withholding provisions.
The dissenting judge noted that the "trend and
philosophy [of the case law] is that the inclusion ... of
contract provisions which are directly prohibited by
Consumer Protection Statutes results in the voiding of the
entire contract." Consumer protection laws like Chapter
ATCP 134 allow tenants to recover double damages and
attorney fees to encourages them to bring legal actions to
enforce their rights. When tenants enforces their individual
rights, this serves to enforce the public’s rights
overall. This obviously deters landlords from illegal
conduct when they know that tenants can sue them for double
damages plus attorneys fees. The dissenting judge indicated
that the court’s holding undermined these consumer
protection mechanisms.
The dissenting judge concluded that "Under the
majority’s interpretation, Wis. Admin. Code § ATCP 134.08
now reads, between the lines: ATTENTION LANDLORDS: DO NOT
REQUIRE TENANTS TO PAY YOUR ATTORNEYS’ FEES OR COSTS IN
ANY LEGAL ACTION OR DISPUTE. HOWEVER, IF YOU DO, YOU
PROBABLY WILL GET AWAY WITH IT. BUT IF YOUR TENANT REALIZES
THE REQUIREMENT IS UNLAWFUL, AND IF YOUR TENANT IS ABLE TO
GO TO COURT TO CHALLENGE IT, YOU WILL NOT BE ALLOWED TO
ENFORCE THE UNLAWFUL REQUIREMENT. BUT DO NOT WORRY. ALTHOUGH
YOU WILL NOT BE ALLOWED TO ENFORCE THE UNLAWFUL REQUIREMENT,
YOU WILL SUFFER NO OTHER CONSEQUENCES."
If this case is not appealed to the Wisconsin Supreme Court
and overturned, it will stand for the proposition that an
illegal lease provision (under Chapter ATCP 134 or the
landlord/tenant law) may be severed and not enforced, while
the balance of the lease remains in place. But the
circumstances will have to be right. If the landlord
attempts to enforce the illegal provision or if it is the
landlord who is breaching the lease, a court may still void
the lease and charge the landlord double damages plus
attorney’s fees.
|
Kampinen v. Bierman (Ct. App. July 18, 2000, No
99-3226). Easement Law: Easement Inadequately Described
& Not in Chain of Title is Unenforceable.
Landowner K’s deed to a back lot and a lake lot
included the following language: "Together with an
easement for access purposes from State Highway 17 southerly
over the existing driveway located on the back lot
partitioned and conveyed to Marie Rotter and said easement
to extend easterly over the N. 20 feet of the frontage lot
partitioned and conveyed to Marie Rotter to the front lot
above described of grantee."
This language purports to grant K an easement across the
back of Rotter’s lake lot. The quitclaim deed to Rotter
makes no mention of any reservation of the easement nor does
Rotter’s deed conveying her two lots to Landowner B.
K first sued B, contending that B wrongfully interfered with
the use of her easement by blocking the driveway. K claimed
that the easement was described in her deed and therefore
was within the chain of title. The trial court agreed and
found for K. B appealed to the Wisconsin Court of Appeals.
B argued that K’s deed failed to adequately describe the
easement as required by Wis. Stat. § 706.02(1), which
requires that a deed must identify the land conveyed with
reasonable certainty. The court concluded that the reference
to Rotter’s deed and the terms "back lot" and
"frontage lot" were not sufficiently definite to
adequately describe the location of the easement. The
description assumes that the only deed to Rotter was a
partition deed and that the lot that bordered the lake was a
"frontage" lot.
B also was a purchaser for value without notice of the
easement. A purchaser for value without notice takes title
free of any adverse claim dependent upon a document not
recorded with the register of deeds in the purchaser’s
chain of title. A document in within the chain of title for
a parcel if it is discoverable when the title company
searches the documents recorded at the register of deeds to
look for all documents in the history of the parcel, based
upon the legal description. The court found that K’s deed
was outside B’s chain of title because B did not take
title from K and mention of the easement was not made in
Bs’ deed from Rotter or in earlier deeds to Rotter or
Rotter’s predecessors in title.
The court concluded that K’s deed’s reference to
Rotter’s deed is not sufficiently definite to allow the
easement to be discoverable by reasonable search of the
public records. Because the legal description was
inadequate, K’s deed did not give sufficient notice of her
claimed easement interest. There was no actual or visible
use of the easement. Accordingly, B is a purchaser for value
without notice and takes title free of K’s easement claim
based on K’s deed.
The creation of an easement over Lot B in a deed to A is
insufficient unless the easement is also at least mentioned
in the chain of title for Lot B. Any purchasers of Lot B
must be able to search the chain of title to Lot B and find
evidence of the easement appearing within the last 30 years.
For further discussion of easements, see Legal Update 00.08.
|
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On-Line
Publications
Review the Current Drafts of the DRL Forms Council
By Rick Staff
Current drafts of
the forms the DRL Forms Council is revising are currently posted
on the WRA web site. Currently drafts of business, residential listing
for lease and timeshare forms are available for review. Contact Rick
Staff at the WRA with your comments.
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On-Line
Publications
Deduction for Brokers? Conference Meals Limited
to 50%
By Rick Staff
The IRS has ruled that the deduction for food and beverages
provided by a brokerage firm to its independent contractor brokers at
annual conferences is limited to 50 percent. The facts considered by
the IRS were as follows:
A brokerage firm holds six regional and national sales and education
conferences each year to promote its products and services and to
provide required continuing education for its brokers. To facilitate
its scheduling and to facilitate networking among the brokers, the
firm paid for meals and cocktail parties at those conferences. The
brokerage firm knew the identity of each representative and the number
of guests attending each conference and spent between $109 and $709
per representative at each conference.
An employer is permitted to deduct the entire (reasonable) cost of
such expenses for its employees, however, the brokers were independent
contractors - not employees. Therefore, the deduction is subject to
the 50 percent limitation.
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