Colorado Real Estate Commission - Can Letters of Intent be Drafted by Brokers?
Submitted by John Logan, NAIOP Colorado Legislative Affairs Chair
Here’s the Cliff Notes version of the issue: The Colorado Real Estate Commission has five members. Two of the newer members are real estate attorneys. They’ve both had experiences where letters of intent were claimed by one side to be a binding contract and resulted in litigation. They believe that brokers who write letters of intent may be engaged in the unauthorized practice of law, and potentially only attorneys should be involved in drafting Letters of Intent (LOI’s).
Almost 50 years ago the Colorado Supreme Court held that while preparing real estate documents was the practice of law, the public interest was served by allowing brokers to complete simple real estate documents. That decision was (in part) brought about by the then relative absence of lawyers in parts of Colorado, a factor one of the attorney members of the commission pointed out.
NAIOP Colorado believes that properly drafted letters of intent are important tools in commercial real estate transactions and can, and should, be written by brokers. It is important both for the speed of the transaction and to keep costs down that deal point parameters be set out by those closest to the market. It's also important to note that the Commission has never had a complaint against a broker regarding a letter of intent.
NAIOP Colorado representatives raised these points on behalf of the industry at the Real Estate Commission meeting earlier today. Additionally, it was pointed out that the Colorado Supreme Court is the only entity that can determine whether such conduct is the practice of law.
The Commission decided not to take any action at today's meeting, but will have a retreat this fall and will be considering the issue at that time. They are unlikely to declare the drafting of an Letter of Intent (LOI) to be the unauthorized practice of law, but may find it to be a 'competency' issue, meaning that they would have jurisdiction to field a complaint if by drafting an LOI a broker went beyond his or her level of competency. There may also be a standard form generated for an LOI and an educational class as well.
There is still a very good reason for brokers to keep an eye on this issue. Two of the five members of the Commission believe brokers are overstepping their bounds in drafting letters of intent. It will only take one more vote for them to impose regulations and sanctions. This issue may be brought before the Colorado Supreme Court Unauthorized Practice of Law Committee. There's also no question that poorly drafted letters of intent can result in costly lawsuits, and malpractice claims could be brought against brokers for bad LOI's. Finally, there is anecdotal evidence that some letters of intent are morphing into long, detailed documents that do look more like contracts than brief bullet point LOI's. The longer the LOI, the more chance that there will be provisions that will be considered the illegal practice of law.
NAIOP Colorado will continue to monitor this issue and will let you know how it evolves.