QUESTION
We are a lender with some concerns regarding our office sharing
arrangements. One of our branches shares space with a realtor, another
subleases from a certified public accountant, and still another subleases from
a real estate appraiser. Each branch has an individual locked office with shared
access to conference room and break areas. Are these arrangements permissible?
ANSWER
Provided the lender is paying the fair market value for the space
pursuant to a written lease agreement, each of the scenarios is permissible. The
appraiser and realtor landlord arrangement raises greater concern as both of
them are also settlement service providers; but again, such arrangements are
not prohibited as long as there are no payments for referrals and the rent charge
is the actual fair market value for the spaces and services provided that a
non-settlement service provider would pay.
Section 8 of RESPA prohibits the giving or accepting of a “thing of
value” to another person for the referral of settlement business. RESPA defines
“thing of value” to include “lease or rental payments based in whole or in part
on the amount of business referred”. RESPA does permit payments for goods or for
services actually performed. Thus, the question is whether the lender is
leasing space at a higher than market rate in exchange for referral of business
from the realtor or appraiser.
The rental payment must reflect the general market value for the spaced
leased. If you are leasing at a higher than market rent, there will be a
presumption that the rental payments represent disguised referral fees. You
cannot arbitrarily assign the fair market value: you need to make sure it is researched
and well documented. In determining the fair market value of rental space, one
must look at what a non-settlement service provider would pay for the same
amount of space and services rendered in the same or a comparable building as
opposed to what a settlement service provider would pay for the space and services.
The value of a referral cannot be considered in determining whether
there is a reasonable relationship between the rental payments and the
facilities and services provided. The value may include an appropriate
proportion of the cost for office services actually provided to the tenant,
such as secretarial services, utilities, and office equipment. If the rental
payments exceed the fair market value of the space and services provided, the
excess amount will be considered as payment for the referral of business in
violation of Section 8.
Joyce Wilkins Pollison
Director/Legal & Regulatory Compliance
Lenders Compliance Group
