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Brokerage Standards Manual

VI. Managing Broker Duties

Active Charge

Section 6(2) of the Real Estate Services Act states that:

“A managing broker licensed in relation to a brokerage acts for the brokerage for all purposes under this Act, and is responsible for

(a) the exercise of the rights conferred on the brokerage by its licence,

(b) the performance of the duties imposed on the brokerage by its licence, and

(c) the control and conduct of the brokerage’s real estate business, including supervision of the associate brokers and representatives who are licensed in relation to the brokerage.”

Section 3-1 of the Rules describes this supervisory responsibility in more detail as follows:

“(1) Supervision. A managing broker must

(a) be actively engaged in the management of their related brokerage,

(b) ensure that the business of the brokerage is carried out competently and in accordance with the Act, regulations, rules and bylaws, and

(c) ensure that there is an adequate level of supervision for related associate brokers and representatives and for employees and others who perform duties on behalf of the brokerage.”

The Council has seen instances where managing brokers have been paid simply to “lend” their licences to a brokerage but provide no supervision and have no control. The licences of some managing brokers have been cancelled because they were not in control of the business of the brokerage. The licence of the brokerage may also be subject to discipline, including a fine, reprimand, suspension or cancellation in these circumstances.

There is also a misconception that, because many licensees are considered “independent contractors” for taxation and other purposes, this has somehow reduced or eliminated a managing broker’s supervision responsibilities. The requirement that a managing broker be in control of the business of the brokerage, and ensure that it is carried out in accordance with the Real Estate Services Act, its regulations, and the Council Bylaws and Rules, applies regardless of the contractual relationship between the brokerage and the licensees engaged by that brokerage. In order to exercise the necessary control, the managing broker must have the authority and information to make decisions in a timely manner.

FST Appeal Decision Confirms Obligations of a Managing Broker

An appeal decision of the Financial Services Tribunal (“FST”) reinforces the obligation of a managing broker to be actively engaged in the management of their related brokerage. A July 18, 2008 decision of a Discipline Hearing Committee of the Council found that the managing broker attended the office of the brokerage only occasionally, and that he:

  • did not meet or in fact know most of the employees of the brokerage, did not supervise the employees of the brokerage,
  • had no direct involvement in the investigation of the incident giving rise to the investigations of the Council,
  • did not participate in the financial matters of the brokerage or review its books and records,
  • played no role in responding to an audit performed by the Council, did not have keys to the brokerage’s offices,
  • did not have an office, did not sign cheques or have signing authority on the brokerage’s trust accounts,
  • did not have any direct responsibility for rental property management services provided by the brokerage, and
  • at no time sought active involvement in the office.

The evidence established that neither the managing broker nor his related brokerage intended the managing broker to do anything other than sign formal documents, in particular the annual financial statements, required by the Council. As a result, the Discipline Hearing Committee found that the managing broker had committed professional misconduct within the meaning of section 35(1) and/or (2) of the Real Estate Services Act. Because the managing broker was no longer licensed at the time of the decision, he was ordered to undertake educational assignments prior to any future application for licensing, and was ordered to pay enforcement expenses related to the hearing.

On appeal, the managing broker asserted that regardless of the statutory and regulatory requirements imposing duties and responsibilities on licensed managing brokers, he should not be found to have committed professional misconduct where those duties and responsibilities have intentionally not been complied with by him in circumstances where he was acting effectively as a “nominee” managing broker for nominal consideration and without any intent or desire to put himself in the position of being capable of fulfilling the said duties and responsibilities.

In reaching its appeal decision, the Financial Services Tribunal stated:

“To rule in favour of the Appellant in this Appeal would be to create an absurdity. In effect, the Appellant is asking the FST to give its approval to conduct by a licensed managing broker that is flagrantly contrary to the legislation, regulations, and rules governing managing brokers. Further, it would be asking the FST to approve bogus arrangements whereby owners of property may be expected to be harmed by wrongful, fraudulent, or even criminal activities that are masked by an appearance of legitimacy due to the managing broker’s licensed status.

It is illogical and unreasonable for the Appellant to take the position that he was a knowing participant in a scheme that thwarts the legislation, regulations and rules that governs his profession but is not responsible for the consequences of that participation because he turned a blind eye to the scheme, did not make any attempts to put himself in a position where he could comply with his duties and responsibilities, and accepted payment, however nominal, for his participation in the scheme. The public requires protection from such misconduct.”

The Discipline decision of the Council was ordered to stand, including the requirement to pay enforcement expenses of $3,864.00. Further, the Appellant was ordered to pay $1,000.00 costs in the Appeal as a result of the FST finding that the Appeal had “no merit whatsoever.”