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Your Hotline Questions Answered: New Team Legislation, Void vs. Default Explained

  • Matthew L. Troiani
Aug 23, 2018

Q: As a real estate licensee, I market myself as a member of a team. What do I need to know about the newly-enacted team legislation?

A: The Virginia Department of Professional and Occupational Regulation (DPOR) has long taken the position that teams must register for a separate business entity license. The Virginia General Assembly passed legislation to clarify this requirement during the 2018 session.

A real estate team is defined as “two or more individuals, one or more of whom is a real estate salesperson or broker, who: (i) work together as a unit within the same brokerage firm; (ii) represent themselves to the public as working together as one unit; and (iii) designate themselves by a fictitious name.” The definition of team also includes one licensee working with unlicensed assistant(s). Sole salespersons working by themselves cannot call themselves a team. Unlicensed members of a team must be paid on an hourly or salary basis and cannot have an ownership interested in the team business entity.

Principal brokers still retain supervisory authority and responsibility for the teams in their brokerage and must sign the business entity license registration. Brokerage agreements must include the name and contact information of the supervising broker, even when teams are involved in the representation.

The new law takes effect Jan. 1, 2019, so teams should register a team business entity before January to avoid possible sanctions. Agents should consult an attorney and/or tax professional with specific questions as to the best form of business entity to use.

Q: I represent a seller and the buyer has breached the contract before the settlement date. Can my seller deliver a notice voiding the contract and put the property back on the market?

A: The seller’s available remedies depend on the nature of the buyer’s breach. Voiding a contract is a specific remedy under a contract. A party generally can only exercise a right to void where that power is specifically stated in the contract. The NVAR Sales Contract and Addenda generally do not grant the seller the unilateral ability to void the contract. There may be instances where a contract may become void pursuant to a contingency, but these are largely rights held by the buyer that only can be exercised in certain situations.

So what remedies, if any, does the seller have if the buyer has breached the contract? The answer depends on whether there is a material or non-material breach. This determination is based on a fact-intensive, case-by-case analysis. A material breach is a failure to perform an essential element of the contract that negatively affects the value of the contract. A material breach does not give the non-breaching party a right to void the contract, but may make the contract unenforceable by the breaching party against the non-breaching party. The non-breaching party could immediately file a lawsuit to recover damages and be excused from performing their duties under the contract. The general remedy for non-material breach of a contract is for the non-breaching party to pursue damages from the breaching party.

However, in most residential sales contracts, what damages might the non-breaching party have incurred between contract ratification and settlement? For example, a contract stated that the buyer would deliver the earnest money deposit to the escrow agent within five days of ratification. If the buyer failed to deliver the deposit, the buyer would be in breach. The seller does not have a right to void the contract, but the seller could deliver a letter to the buyer declaring the buyer in default. If the buyer promptly delivers the earnest money deposit to the escrow agent, it is unlikely that the seller has suffered any damages or that the value of the contract has been negatively affected. Therefore, the seller would likely have to continue to perform under the contract.

If the buyer is notified of the breach and does not promptly take steps to cure the breach, then the likelihood that the breach is material increases. An earnest money deposit may not be an essential element to contract formation, but few would argue that it is not an important element of many sales contracts. The longer the time the seller’s property is off the market, the greater likelihood the breach would be material.

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