AirBnB Property Manager Files Constitutional Challenge To Pa. Real Estate Licensing Regime

Sally Ladd is an entrepreneur who manages vacation properties in Pennsylvania’s Pocono Mountains. Recognizing the exciting opportunities afforded by the rise of the sharing economy in recent years—especially given the emergence of sites like Airbnb and VRBO—Sally saw a real chance to carve out a niche for herself in the world of short-term vacation rentals. In short, Sally saves property owners needless headache and hassle by helping them post, market and book their homes online. She does all of this on her laptop, from the comfort of her own home.

But earlier this year, Sally received a call from the Pennsylvania Department of State informing her that she was under investigation for the unlicensed practice of real estate. Sally was shocked and disappointed to learn that, to operate legally, she would have to spend three years working for an established broker, pass two exams, and set up her own brick-and-mortar office in Pennsylvania—where she does not live and has no desire to live.

Sally is right to be upset. Pennsylvania’s attempt to treat her like a real estate broker imposes a serious and unnecessary burden on her freedom to support herself by doing work she loves. Requiring her to serve established brokers for three years, especially, does nothing to protect the public from harm. What it does do, however, is protect traditional real estate brokers from the competition offered by an emerging vacation rental market. But economic protectionism is not a legitimate use of government power, and Sally should not have to become a real estate broker just to manage a few vacation homes.

Unfortunately, Sally’s story represents a broader problem. Despite a rapidly-changing market, property management company Buildium reports that 40 states maintain outdated laws that—like Pennsylvania’s—lump this emerging class of vacation property managers in with traditional real estate brokers. And that’s just one data point in what’s becoming a national over-licensing epidemic: while just five percent of Americans needed a license to work in their chosen occupation fifty years ago, that number has skyrocketed to nearly 25 percent in recent years.

Fortunately, the Pennsylvania constitution agrees. Sally has a basic right to earn an honest living free from unreasonable and protectionist regulation—a right which Pennsylvania courts have, for decades, accorded strong protection. Sally’s case is no different, which is why Sally, along with one of her former clients, Samantha Harris, have teamed up with the Institute for Justice to take on Pennsylvania’s real estate cartel and vindicate their constitutional rights.

Pennsylvania Property Management

Date Filed

July 18, 2017

Original Court

Commonwealth Court of Pennsylvania

Current Court

Commonwealth Court of Pennsylvania

Case Status

Open

Attorneys

Media Contact

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Case Team

Timeline and Case Documents

Sally Ladd is a digital marketer who worked for decades in the world of desktop publishing and marketing before gaining an interest in property management. That interest arose organically out of her ownership of two small Pocono cottages, which she started renting out to short-term vacationers during the rise of the sharing economy.

Sally was a natural. Her experience as a digital marketer made it easy for her to market and book her cottages, and friends and community members took notice. Soon enough, people started approaching Sally to ask if she would manage their properties, too. Excited at the opportunity to help others while earning a bit of supplementary income, Sally eagerly accepted.

As a property manager, Sally took the hassle out of short-term vacation rentals[1] by handling all of the marketing and logistics that owners would otherwise have to conduct themselves: She helped clients set up websites for their properties and post them on sites like Airbnb and VRBO; she worked with owners to establish rental rates and schedules; she responded to inquiries and handled all bookings; she got rental agreements signed and ensured a smooth stay from arrival to departure; and she had a cleaning service tidy up for subsequent guests. Sally was able to coordinate all of this on her laptop, from the comfort of her own home.

Sally was never a real estate broker. While residential brokers devote most of their time and attention to buying and selling houses, Sally took pride in focusing exclusively on facilitating short-term vacation rentals. Sally felt that specializing in this niche and emerging area of the market allowed her to devote more time and attention to each of her clients’ properties than most traditional brokers were able to offer.

Clients loved her and she loved the work. In fact, business was going so well for Sally that she even formed her own company (Pocono Mountain Vacation Properties, LLC), and recently built her own website (http://PoconoMountainVacation.com/), to better coordinate her services. At 61 years old, Sally was starting to hope that her business could serve as a source of supplemental, home-based retirement income into her golden years.

But that hope came crashing down when, earlier this year, she received a call from the Pennsylvania Department of State informing her that she was under investigation for the unlicensed practice of real estate. Shocked and disappointed, but wanting to avoid breaking the law, Sally started researching what would be required to obtain a broker’s license. She discovered that, among other things, Pennsylvania law required her to spend three years working for an established broker, pass two exams, and set up a brick-and-mortar office in Pennsylvania before she would be allowed to continue working there.[2] Unwilling to subject herself to such a regime, but fearful about the possibility of enforcement, Sally felt forced to shut down her business.

Sally is right to be upset. Pennsylvania’s attempt to treat her like a real estate broker imposes a serious and unnecessary burden on her freedom to support herself by doing work she loves. Requiring her to serve and share profits with established brokers for three years, especially, does nothing to protect the public from harm. What it does do, however, is protect established brokers from the competition offered by an emerging vacation rental market. But economic protectionism is not a legitimate use of government power, and Sally should not have to join Pennsylvania brokers’ modern-day guild system just to manage a small handful of vacation homes.

Niche Services in an Emerging Market

This case comes on the heels of the sharing economy’s impressive, nationwide growth in recent years. Just as companies like Uber and Lyft are changing the way we think about transportation and car ownership, so companies like Airbnb and VRBO are changing the way we think about vacation rentals and home ownership more broadly. And just as drivers and riders benefit from the enormous opportunities that the sharing model has brought to the transportation market, so homeowners and property managers who assist them with rentals are benefitting from the emerging vacation rental market. Unfortunately, Pennsylvania, like many states across the country, is attempting to force vacation property managers into the outdated broker box. A victory in this case would go a long way towards liberating that market in Pennsylvania—and hopefully, similar markets nationwide, too.

Legal Claim: The Right to Earn an Honest Living

Sally, along with her client, Samantha Harris, raise a single claim against Pennsylvania’s real estate licensing regime. They argue that applying that regime to short-term vacation property management violates Article I, Section 1 of the Pennsylvania Constitution, which declares that “[a]ll men are born equally free and independent, and have certain inherent and indefeasible rights, among which are those of enjoying and defending life and liberty, of acquiring, possessing and protecting property and reputation, and of pursuing their own happiness.”[3]

Pennsylvania’s licensing requirements violate this clause because they do not bear any real or substantial relation to a legitimate government end, which the constitution requires.[4] Pennsylvania’s regulatory scheme for real estate brokers is overwhelmingly focused on the sale of homes and other transactions that create a landlord/tenant relationship. Short-term vacation rentals like those Sally helps manage raise none of the concerns posed by permanent or long-term real estate transactions.

Pennsylvania’s requirements also violate the Constitution because they impose an undue burden on Sally’s right to earn an honest living, which the constitution forbids.[5] There is no reason why Sally should be forced to work under a broker for three years, study for and pass exams focused on the sale of property, or open a physical office in a state where she does not live simply to help manage vacation rental properties.

Sally and Samantha’s lawsuit is the first in the nation to challange the application of real estate licensing laws to the growing market for short-term vacation-home rentals and gives the Pennsylvania courts an important opportunity to clarify and strengthen constitutional protection for economic liberty.

Plaintiffs

The plaintiffs are vacation property manager Sally Ladd and her client Samantha Harris. Sally just wants the freedom to continue facilitating short-term vacation rentals without having to subject herself to Pennsylvania brokers’ modern-day guild system. And Samantha seeks only the freedom to continue using Sally, who she knows and trusts, to help rent out her property. Both also hope that this case will help to liberate Pennsylvania’s emerging vacation rental market and the broader sharing economy.

Defendants

The defendants in this case are the Pennsylvania Real Estate Commission and the Pennsylvania Department of State (Bureau of Professional and Occupational Affairs). The Real Estate Commission is the agency responsible for enforcing Pennsylvania’s real estate licensing laws.[6] The Department of State is the agency responsible for overseeing the activities of Pennsylvania’s professional licensing boards and commissions, including those of the Real Estate Commission.[7] 

The Litigation Team

CASE TEAM

Founded in 1991, the Institute for Justice is the national law firm for liberty. For the past 25 years, IJ has secured numerous victories for economic liberty, including:

  • Patel v. Texas Department of Licensing and Regulation[8]—In 2015, IJ secured a landmark victory for the right to earn an honest living when the Texas Supreme Court struck down the state’s requirement that eyebrow threaders complete 750 hours of largely irrelevant cosmetology training.
  • Brantley v. Kuntz[9]—In 2015, IJ successfully persuaded a federal court in Texas to strike down the state’s irrational licensing requirements for hair braiding instructors.
  • Joseph Abbey v. Castille[10]—In 2013, IJ scored a major victory in Louisiana on behalf of the Benedictine monks of the St. Joseph Abbey when the 5th U.S. Circuit Court of Appeals struck down a Louisiana law that required them to become licensed funeral directors to sell handmade wooden caskets.

In 2016, IJ launched IJ Asks Why, a nationwide initiative aimed at promoting economic liberty through litigation, activism and research.

[1] A “short-term” rental is one for less than thirty days.

[2] See 63 Pa. Cons. Stat. Ann. §§ 455.101, et seq.

[3] Pa. Const. art. I, § 1.

[4] Nixon v. Commonwealth, 576 Pa. 385, 400–01 (2003).

[5] Id. at 400–01.

[6] 63 Pa. Cons. Stat. Ann. § 455.406.

[7] Id. § 2201.

[8] Patel v. Texas Dep’t of Licensing & Regulation, 469 S.W.3d 69 (Tex. 2015).

[9] Brantley v. Kuntz, 98 F. Supp. 3d 884 (W.D. Tex. 2015).

[10] St. Joseph Abbey v. Castille, 712 F.3d 215 (5th Cir. 2013).

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