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Professional Standards Manual

Introduction

1. About the Professional Standards Manual

This Professional Standards Manual is designed to ensure that licensees have the information they need to carry out their duties under the Real Estate Services Act (RESA). The Council has developed the material in this manual with the participation of real estate licensees and it has been thoroughly reviewed and approved prior to publication.

As a licensee, you can use the information in the Professional Standards Manual to:

  • Better understand your professional obligations
  • Manage challenges or answer questions that arise in your professional practice
  • Support your ongoing development of knowledge, skills, and professional competence.

Licensees are expected to be knowledgeable about the Professional Standards, and are responsible for keeping up to date with additions and revisions to this information. The laws, regulations and policy rulings affecting real estate matters are subject to constant and continuing change, and information in the Professional Standards Manual is revised to keep pace with these changes.

Licensees have a duty to keep themselves up-to-date by reading the Report from Council newsletter, which includes reports on any major regulatory changes and revisions or additions to information in the Professional Standards Manual. If in doubt about any information in the Professional Standards Manual, licensees should contact their managing broker or the Council for guidance.

The Council values any comments and suggestions from licensees about the content in this manual. If you would like to provide feedback on anything you read in this manual, you can email the Council at info@recbc.ca.

2. About the Real Estate Council of BC

The Real Estate Council of BC is a regulatory agency established by the provincial government. Its mandate is to protect the public interest by enforcing the licensing and licensee conduct requirements of the Real Estate Services Act (RESA). The Council is responsible for licensing real estate representatives, associate brokers, managing brokers, and brokerages engaged in real estate sales, rental property management, and strata management. The Council also enforces entry qualifications, investigates complaints against licensees, and imposes disciplinary sanctions under RESA.

The Council is responsible for ensuring that the interests of consumers who use the services of real estate licensees are adequately protected against wrongful actions by licensees. A wrongful action can be deliberate, or may be the consequence of inadequate exercise of reasonable judgement by a licensee in carrying out the normal duties and responsibilities as a licensee while acting for the parties involved in the transaction.

The Council also determines the appropriate education in real estate matters for individuals seeking to be licensed as real estate practitioners and arranges for licensing courses and examinations as part of the qualification for licensing. Under the authority of the Council, licensing courses are conducted by the University of British Columbia's Sauder School of Business, Real Estate Division, Vancouver.

3. Index to Clauses

Looking for a clause to include in a Contract of Purchase and Sale? Use the index below to locate the clause you need.

Simply click on the grey arrow beside each heading to view a list of the clauses in that category. Clicking on a clause title will take you to the section of the Professional Standards Manual where the clause can be found. Clauses within the Professional Standards Manual are easily identifiable: just look for the boxed text. You'll also find useful practical tips about how, when and why to use the clause, along with detailed information about the topic.

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General Information

1. Overview

The Real Estate Services Act (RESA) came into force on January 1, 2005. RESA replaced Part 1 of the Real Estate Act. The Real Estate Development Marketing Act replaced Part 2 of the Real Estate Act. In addition to RESA, RegulationsBylaws, and Rules were also enacted.

RESA sets out general requirements, such as when a licence is required, the levels and categories of licence, the role of the Real Estate Council of British Columbia (the Council), and the role of the Superintendent of Real Estate. RESA also contains general provisions relating to the holding of trust money and discipline, as well as provisions relating to the creation or continuation of other related bodies such as the Real Estate Foundation of British Columbia, Real Estate Errors and Omissions Insurance Corporation, and the Real Estate Compensation Fund Corporation.

Regulations are approved by Order in Council and contain exemptions from licensing and other technical provisions relating to the operation of RESA.

The Rules, which are drafted by the Superintendent of Real Estate, establish standards in relation to requirements placed on licensees.

Bylaws are drafted by the Council. The Bylaws relate to the operation of the Council and address matters such as the forms required to apply for or renew a licence or to file an accountant’s report.  The procedures that the Council and the Superintendent of Real Estate must follow in order to amend the Bylaws and Rules are outlined in the Regulation.

Licensee conduct is addressed in RESA, the Real Estate Services Regulation and the Rules. Licensees should therefore be familiar with the provisions of not only RESA, but also the Real Estate Services Regulation and Rules.

The purpose of RESA is to protect the public by ensuring that real estate licensees are competent and that they perform their work to certain standards.

RESA requires that, unless a person is exempted, a licence is obtained before a person provides real estate services to or on behalf of another for remuneration. RESA defines ‘‘real estate services’’ to include rental property management, and strata management services, as well as ‘‘trading services’’. Trading services includes a number of services, associated with the listing, selling, and leasing of real estate, such as advising on the appropriate price for real estate, finding real estate for a party to acquire, finding a party to acquire real estate, showing real estate, presenting offers, and receiving deposits. As a result of including strata management within the definition of ‘‘real estate services’’, anyone conducting strata management must be licensed.

The Council is the body responsible for the education, licensing, and discipline of licensees.

The Superintendent of Real Estate is responsible for taking action in relation to unlicensed activity, for oversight of the Council, and for addressing any matters where the Council has failed to act. The Superintendent of Real Estate is able to amend and create new Rules in order to respond to changes in the real estate environment.

2. Exemptions From Licensing

The Real Estate Services Regulation contains various exemptions from the requirement to obtain a licence before providing real estate services. Exemptions exist in relation to the general need for licensing under the Act, and in relation to specific activities.

(a) General Exemptions

A general exemption exists for all employees who provide real estate services on behalf of their principal, as long as the person does not provide real estate services on behalf of any other principal. In addition, a general exemption exists for those who may provide real estate services in the course of their business as a collection agent. General exemptions also exist for those who may provide real estate services in relation to mines and various resource development properties. The government and government corporations are generally exempt from the need for licensing under RESA.

(b) Exemptions Relating to Trading Services

The Real Estate Services Regulation also contain exemptions from the need for licensing for the provision of trading services in certain circumstances.

Employees of developers may provide trading services on behalf of a developer without the need for licensing under specific circumstances. The trading services must be provided in relation to the marketing of a development unit as defined in the Real Estate Development Marketing Act. A development unit includes a subdivision lot, strata lot, cooperative interest, time share interest, shared interest in land, or a leasehold unit. The trading services must be provided on behalf of the developer or developers of the development unit and the individual must be an employee of the developer or developers or an employee of a holding company of one or more of the developers. The individual may not provide trading services on behalf of anyone other than the developer, the holding company, or another developer that is a subsidiary of the holding company. The individual must disclose to every potential buyer other than the developer, that the individual is not licensed under RESA, who the individual is employed by, and on whose behalf the individual is acting.

Notaries are exempt from the need for licensing in relation to providing trading services as long as the services are provided in the course of and as part of the provision of services permitted under the Notaries Act. Similarly, a practising lawyer, as defined in the Legal Profession Act, is exempt from licensing in respect of real estate services provided in the course of the person’s practice.

Section 3(3)of RESA also provides exemptions for:

  • a person acting under the authority of a court;
  • a trustee in bankruptcy, custodian, receiver, receiver-manager, or liquidator who is appointed under a provincial or federal enactment, in respect of real estate services undertaken by the person in that capacity;
  • an executor or administrator of an estate, in respect of real estate services provided in relation to real estate owned or held by the estate;
  • a trustee, in respect of real estate services provided under the terms of a will, marriage settlement, or deed of trust; and
  • a financial institution that has a trust business authorization under the Financial Institutions Act, in respect of real estate services provided in relation to real estate that it owns, holds, or administers.

An accountant who is qualified to practise public accounting as a CA, CGA, or CMA, and who provides trading services in relation to the purchase and sale of a business, is exempt from the need for licensing as long as both the purchase, sale, and the trading services arise in the course of the practice of public accounting.

Appraisers and property inspectors who provide trading services are exempt from the need for licensing if the appraisal or inspection is provided in the course of the person’s business.

A limited exemption exists that permits auctioneers to provide trading services. An auctioneer is not, however, permitted to show the property, provide information relating to the property to a party to the trade, or receive deposits.

A person who provides trading services by providing information is exempt from the need for licensing. As a result of this exemption, a person may provide owners with general information to assist owners to sell their own real estate.

An exemption exists for persons who provide referral services, as long as the person does not engage in any activities to solicit the names of persons who may be interested in acquiring or disposing of real estate, and the practice of making referrals is incidental to the person’s main business.

Individuals who provide trading services to an expropriating authority are exempted from the need for licensing.

 

(c) Exemptions Relating to Rental Property Management

The Real Estate Services Regulation provides an exemption for caretakers from the need to obtain a rental property management licence in limited circumstances.

As noted above, a general exemption from licensing includes all employees of principals; however, that exemption is limited to providing services to only one principal. The caretaker exemption permits an exemption for caretakers who are employed by owners of different residential real estate. A caretaker is exempt from the requirements to be licensed if the caretaker is an employee of each of the owners, the owners have agreed among themselves that the caretaker may provide rental property management services, and the individual is not providing rental property management services on behalf of any other person than the owners. The caretaker, in order to remain exempted, must promptly deliver any money collected in relation to the rental of the real estate, including rent or security deposits to the owner of the rental real estate property in relation to which the money was paid. Thus, an individual who is exempted under the section may be employed by a number of owners to act as a rental property manager, and is permitted to carry out all the activities of a rental property manager, except that when an exempted individual receives money in the form of rent, security deposits, or pet damage deposits, the individual must deliver the money to the owner(s).

An exemption exists for caretakers who are employed by brokerages. An individual who is employed as a caretaker or manager by a brokerage is exempt from the need for licensing if the caretaker or manager does not negotiate or enter into contracts on behalf of the brokerage or the owner of the rental real estate, and if the caretaker or manager promptly delivers any money, such as rent, security deposits, or pet damage deposits to the brokerage. As long as these conditions are met, the caretaker or manager may show the rental property to prospective tenants, may receive and present applications in respect of the rental of the rental real estate, and may communicate between landlords and tenants respecting landlord and tenant matters.

An exemption from the need for licensing in relation to rental property management also exists for the British Columbia Housing Management Commission.

(d) Exemptions Relating to Strata Management

An individual is exempt from the requirements to obtain a licence for strata management if the individual provides strata management services on behalf of the strata corporation of which he or she is an owner, as long as the individual provides such services to no more than two strata corporations. An individual who is exempted under this section must promptly deliver any strata fees, special levies or any other amounts promptly to the strata corporation. An individual who is employed as a caretaker or manager by the strata corporation, or by a brokerage that provides strata management services is exempt from the requirements to be licensed in respect of collecting strata fees, special levies or other amounts levied by the strata corporation, as long as the exempt caretaker or manager promptly delivers the money to the strata corporation or brokerage.

In addition, the owner/developer is exempt from the requirements to be licensed as a strata manager in respect of the strata management services that it provides on behalf of the strata corporation until the control of the strata corporation’s money is required to be transferred to the strata corporation. Under the Strata Property Act, the strata corporation’s money must be transferred to the strata corporation within one week after the first annual general meeting.

3. Application Of RESA

RESA applies to all real estate services that a licensee provides. Section 2 RESA provides:

    2. (1) This Act applies to every person who provides real estate services to or on behalf of another for or in expectation of remuneration.

    (2) In addition but subject to the rules, this Act applies to every licensee who provides real estate services, even if the licensee

      (a) provides real estate services on the licensee’s own behalf,

      (b) provides real estate services to or on behalf of another but not for or in expectation of remuneration, or

      (c) would other wise be exempted by this Act or the regulations from the requirement to be licensed in relation to the provision of those real estate services.

Section 2 means that the requirements of RESA, including the Real Estate Services Regulation and Rules, apply whenever a licensee provides real estate services, even if the licensee is providing the services on his or her own behalf, without expectation of remuneration, or if the provision of the services would be otherwise exempted.

As an example, under the former Real Estate Act, it was not uncommon for a real estate licensee to act on his or her own behalf to sell or rent his or her own property. It was also not uncommon for a licensee to work as an employee of a developer to market the developer’s property while also holding a real estate licence. The work carried out on behalf of a developer would be carried out pursuant to an exemption from the need for licensing.

However, as a result of section 2, all aspects of RESA, other than in the limited exceptions noted below, apply to the provision of real estate services by a licensee. Provisions, such as the requirement that a licensee may only receive remuneration in relation to real estate services from the brokerage to which he or she is licensed, would prevent a licensee from receiving remuneration from a developer. Provisions that require that all advertisements must include the name of a brokerage, prevent a licensee from advertising on behalf of a developer, or, on a licensee’s own behalf, to sell his or her own real estate. All such advertisements must include the name of the brokerage with which the licensee is engaged.

Real estate services are defined to be rental property management, strata management, and trading services. Trading services includes the activities most often associated with the listing and selling of real estate. Whenever a licensee is carrying out any activity that is related to rental property management, strata management, or the listing and selling of real estate, the licensee must consider the requirements of RESA and ensure that all aspects of the Act are met.

Another very common situation is where a licensee offers for rent real estate that the licensee or the licensee’s spouse or family partner owns. Renting out a property is a provision of real estate services. In order to avoid a situation where all such property had to be rented through the related brokerage of the licensee, an exemption was created to permit licensees to offer their own property or their spouse’s or family partner’s property without triggering the application of RESA.

(a) Exemptions for Rental Real Estate Owned by a Licensee

When offering their own real estate for rent, without an exemption, section 2 of RESA would require that the licensee comply with all of the provisions of RESA. However, sections 9-1 and 9-2 of the Rules create an exemption from the application of RESA in limited circumstances.

Under section 9-1 of the Rules, licensees who provide rental property management services on their own behalf in relation to their own real estate, are exempted from RESA, the Regulations, and the Rules if the licensee:

  • provides the services in the licensee’s own name and not in the name of his or her related brokerage;
  • does not indicate the name, address, or telephone number of his or her related brokerage in any advertising in respect of the rental property;
  • discloses to each potential tenant before the prospective tenant enters into a tenancy agreement that the licensee is licensed but is not acting under, and is not regulated under RESA in relation to this transaction; and
  • discloses in writing to the managing broker of the related brokerage that the licensee will be providing rental property management services on his or her own behalf in relation to his or her own real estate.

The disclosure to the tenant does not have to be in writing; however, a prudent licensee will ensure that the disclosure is in writing and that a copy is retained by the licensee.

Section 9-2 of the Rules permits a licensee to manage rental real estate owned by the licensee’s spouse, family partner, son, daughter, or parent without being required to comply with the provisions of RESA.  Section 9-2 of the Rules also permit a licensee to manage rental real estate owned by a partnership if the partners are any combination of the licensee, and the licensee’s spouse, family partner, son, daughter, or parent. Additionally, the licensee is permitted to manage rental real estate owned by a corporation if the shareholders are limited to the licensee, or the licensee’s spouse, family partner, son, daughter, or parent without the need to comply, except as follows.

When managing rental real estate outside of RESA for a family member, partnership or corporation, in addition to complying with the provisions noted above, the licensee must provide the rental property management services without remuneration. Additionally, the licensee must advise the family member, corporation, or partnership, in writing, that the licensee is not acting as a licensee and is not regulated under RESA in relation to this transaction and provide a copy of the written disclosure to the managing broker of the related brokerage. If the licensee is managing rental real estate owned by a corporation, and the licensee is the only shareholder of the corporation, the licensee must provide written notice to the licensee’s managing broker that the licensee will be providing rental property management services to or on behalf of that corporation.

The exemptions permitted in sections 9-1 and 9-2 of the Rules are limited to rental property management. As a result, the purchase and sale of real estate may not be conducted without complying with RESA.

(b) Exemptions for Strata Management Services

Strata management services are broadly defined under RESA and include exercising the delegated powers and duties of the strata corporation. In most cases, strata council members can be considered to be providing strata management services to their strata corporation. As a result of section 2 of RESA, without an exemption, a licensee who was elected to a strata council would be considered to be providing strata management services and would be required to comply with all aspects of RESA, including holding a licence that permits the licensee to conduct strata management services.

Under section 9-3 of the Rules, a licensee may provide strata management services to a maximum of two strata corporations in which the licensee owns a strata lot without the need to comply with RESA, the Real Estate Services Regulation, and the Rules, if the licensee:

  • discloses in writing to the strata corporation before providing services that the licensee is licensed but is not acting as a licensee, that the licensee is not regulated by RESA, and that the strata corporation is not entitled to the same protections under RESA as are strata corporations that deal with licensees that are not exempted;
  • provides a copy of the written disclosure to the managing broker;
  • does not have sole signing authority for the withdrawal or expenditure of any strata corporation funds;
  • does not receive or expect to receive remuneration for providing the strata management services; and
  • promptly delivers to the strata corporation any strata fees, contributions, levies, or other amounts levied by or due to the strata corporation.

Licensees should note that the Council is permitted to take disciplinary action against a licensee who fails to promptly deliver strata corporation funds to the strata corporation.

Section 9-3 of the Rules effectively permits a licensee to be elected to the strata council of, or to provide strata management services to, a strata corporation in which the licensee owns a strata lot. The exemption permitted by section 9-3 of the Rules is limited to strata management services. As a result, all other activities for which a licence is required, such as the provision of rental property management services or activities related to the purchase and sale of real estate, may not be conducted without complying with RESA.

(c) Unauthorized Practice of Law by Licensees

Although a licensee must apply his or her legal knowledge when advising a client, the licensee must not give legal advice to the client. If a client asks questions about the specific legal implications of particular terms or conditions, the licensee should explain that a licensee may not give legal advice and should encourage the client to consult a lawyer familiar with real estate matters.

For example, licensees who are drafting complex sales documents (for example, in the sale of a business or in the sale of a condominium requiring extensive remediation work), giving advice to sellers or buyers as to how to structure a transaction, or expressing an opinion as to the sufficiency of the terms of a Contract of Purchase and Sale to the buyer or seller, may be giving legal advice, and therefore, practising law contrary to sections 1(1) and 15 of the Legal Profession Act.

Licensees should ensure that the parties to a complex transaction are advised to obtain legal or the appropriate professional advice and the licensee should not be placed in a situation where he or she is giving legal advice or drafting documents beyond the licensee’s expertise.

(d) Protecting Personal Information

The Personal Information Protection Act (PIPA) regulates the way private sector organizations collect, use, keep secure and disclose personal information. Personal information means information about an identifiable individual including:

  • name, age;
  • home address, phone number;
  • marital status, religion;
  • race, ethnic origin, sexual orientation;
  • education;
  • income, purchases, and spending habits; and
  • employment information.

Real estate brokerages and licensees should become familiar with PIPA’s privacy principles.

    Principle 1 — Be accountable

    Principle 2 — Identify the purpose

    Principle 3 — Obtain consent

    Principle 4 — Limit collection

    Principle 5 — Limit use, disclosure, and retention

    Principle 6 — Be accurate

    Principle 7 — Use appropriate safeguards

    Principle 8 — Be open

    Principle 9 — Give individuals access

    Principle 10 — Provide recourse

Before collecting, using, or disclosing personal information, PIPA requires private sector organizations to obtain the person’s consent. The organization is permitted to use the information only for the purposes to which the person has agreed. PIPA also requires organizations to destroy or erase personal information that is no longer needed.

The Working With a REALTOR® brochure published by the British Columbia Real Estate Association sets out the purposes for which personal information is collected, used and disclosed relative to trades in real estate services. Licensees should ensure that they review these provisions with their buyers and sellers.

In addition to obtaining a person’s consent, licensees must ensure that the personal information is used only as provided for, is kept secure, and is destroyed when no longer needed.

Licensees providing rental/strata management services must also conform to the requirements of PIPA.

Further information on PIPA can be found at www.oipcbc.org.

(e) Duty To Report Illegal Activities

Occasionally, licensees will come across a situation where a property they have listed for sale, or are providing rental property or strata management services for, is being used for illegal purposes (e.g., a marijuana growing operation, fraud with respect to a new home, and the application of the Goods and Services Tax (GST)). The general rule is that no citizen has an obligation to report to the authorities an activity which may appear to them to be illegal. Exceptions to this general rule include the obligation to report to the authorities a child in need of protection and the requirements under the provisions of the federal Proceeds of Crime (Money Laundering) and Terrorist Financing Act.

While this general rule would apply to licensees, they must be careful not to appear to be aiding or abetting the carrying on of the illegal activity. Aiding and abetting is a criminal offence if a person does or omits to do something with the purpose of aiding another person to commit an offence, and there is a guilty intent behind the action or omission. There would be no guilty intent if a licensee, having observed the illegal activity, walked away from it because he or she did not want to become involved.

Guilty intent may, however, be implied if a licensee, knowing of the illegal use, promotes that use as if it were not illegal. For example, the Council has previously advised licensees that they are to avoid advertising illegal suites as a possible source of revenue for homeowners.

The same principle applies to the situation where a builder claims that no GST is payable on a new home and a licensee knows this is not true. Licensees must be cautious not to knowingly make a false or fraudulent statement in advertising or representations to buyers. Do not advertise ‘‘No GST’’ if you know or suspect other wise.

All licensees have the obligation to advise their clients of all known material information. Therefore, if licensees discover that a property that they are managing or offering for sale is being used to grow an illegal cash crop, they are obligated to advise the owner.

Licensees are advised to read Legally Speaking column # 296 (available on www.realtorlink.ca), which discusses the question of licensees’ duties if an illegal activity, such as a marijuana growing operation, is discovered on a listed property.

(f) Guidelines for Personal Offices

Section 4-3 of the Rules details the requirements related to licensees having personal offices outside of the location of their related brokerage.

Licensees may:

  • Have a personal office in their home; however, no sign may be placed outside this office that indicates that real estate services are provided from that office.
  • Have a personal office located in a commercial space. Where the personal office is located in a commercial space, the licensee may have a personal sign posted outside the commercial space office and on the building directory, if applicable (e.g., Joe Smith Personal Office).
  • Have a secretary or other unlicensed staff who may work at the personal office, but who may not engage in any activity requiring a real estate licence.

Licensees may not:

  • Answer the phone in the name of their related brokerage (e.g., Bigfoot Realty).
  • Have a sign outside of their personal office displaying the name of their related brokerage.
  • Indicate their personal office address on advertising, business cards, letterhead, etc. (‘‘advertisements”).

Where advertisements contain an office address, that address must be of the office to which the licensee is licensed. Advertisements may include the licensee’s personal phone number(s).

Licensees must also ensure that they:

  • Provide their related brokerage in a timely manner with all documentation received related to real estate services they are providing (Section 3-2 of the Rules).
  • Immediately deliver all funds received in respect of a trade in real estate or any real estate service to their related brokerage for deposit into trust (Section 27 of RESA).

4. Disclosures

Part 5, Division 2, of the Rules identifies a number of disclosures that licensees must make.

Except for the disclosure of agency representation, all disclosures must be in writing, be separate from any agreement giving effect to a trade in real estate, and, with the exception of the disclosure of certain types of remuneration, be separate from the service agreement or any other agreement under which real estate services are provided.

(a) Disclosure of Interest in Trade

If a licensee acquires, directly or indirectly, or disposes of real estate, or if the licensee assists an associate in acquiring, directly or indirectly, or disposing of real estate, section 5-9 of the Rules requires that the licensee make a disclosure in writing to the opposite party before any agreement for the acquisition or disposition of the real estate is entered into.

Section 5-9(2) of the Rules sets out an example of an indirect acquisition. As provided in the Rules, a licensee or associate may acquire real estate indirectly by having a third party purchase real estate with the intention of reselling the real estate to the licensee or the licensee’s associate.

Under the former Real Estate Act, licensees were required to disclose to sellers when the licensee was acquiring real estate. Under RESA, the need for disclosure has been expanded to include disclosure when a licensee is disposing of real estate and disclosure when a licensee is assisting an associate in the acquisition or disposition of real estate. The need for disclosure arises whenever a licensee is disposing of real estate, regardless of whether the licensee has personally listed the property for sale. Licensees should keep in mind that disposing includes both selling and leasing.

RESA establishes that the disclosure must be in writing, be separate from a service agreement or any other agreement under which real estate services are provided, and also separate from any agreement giving effect to the trade in real estate.

A form for licensees to use has been created by the Council, entitled ‘‘Disclosure of Interest in Trade.’’ The form includes the name of the person to whom the disclosure is made, as well as the name of the associate, if any, and the licensee’s relationship to the associate. The form requires the licensee to indicate the purpose for which the licensee or the licensee’s associate is acquiring the property and, in the case of an acquisition, the amount of remuneration earned and who will receive the remuneration. If the real estate is to be resold and the licensee or associate has negotiated or is currently negotiating the resale of the real estate, the terms of the resale must be disclosed. Where the form is used in relation to the disposition of real estate, the form only requires that the licensee indicates whether the licensee or licensee’s associate is the owner or tenant of the real estate.

The licensee who has made the disclosure must promptly provide either the original or a copy of the Disclosure of Interest in Trade form to their related managing broker. At the bottom of the second page of the form there is a section entitled 'Brokerage Use Only.'  This section is where the brokerage acknowledges receiving a copy of the form.  Managing brokers are reminded that while such duties may be delegated to another person who the managing broker believes is qualified to perform them, that delegation does not relieve the managing broker of their ultimate responsibility for the control and conduct of the business of the brokerage. Therefore, when duties are delegated, the managing broker should regularly review the work of the person to whom the work has been delegated. 

The Disclosure of Interest in Trade Form is not required to be submitted to the Council; however, a copy must be retained by the brokerage.

Section 5-7 of the Rules defines ‘‘associate’’ as follows:

‘‘associate’’ in relation to a licensee means a person who is any of the following:

    (a) in the case of an individual licensee,

      (i) a spouse or family partner of the licensee,

      (ii) a trust or estate in which the licensee, or a spouse or family partner of the licensee, has a substantial beneficial interest or for which the licensee, spouse or family partner serves as trustee or in a similar capacity, or

      (iii) a corporation, partnership, association, syndicate or unincorporated organization in respect of which the licensee, or a spouse or family partner of the licensee, holds not less than 5% of its capital or is entitled to receive not less than 5% of its profits;

    (b) in the case of a brokerage that is a corporation or partnership,

      (i) a director, officer or partner of the brokerage,

      (ii) a shareholder of the brokerage who holds more than 10% of the voting shares of the brokerage,

      (iii) a trust or estate

        (A) in which the brokerage, or a director, officer or partner of the brokerage, has a substantial beneficial interest, or

        (B) for which the brokerage, or a director, officer or partner of the brokerage, serves as trustee or in a similar capacity, or

      (iv) a corporation, partnership, association, syndicate or unincorporated organization in respect of which the brokerage, or a director, officer or partner of the brokerage, holds not less than 5% of its capital or is entitled to receive not less than 5% of its profits;

The definition of ‘‘associate’’ is broad. In some cases, the relationship may be somewhat removed and not immediately obvious. For example, an associate of an individual licensee includes a company of which a spouse or family partner is entitled to not less than 5% of the profit. An associate of a brokerage can be a company in which a director of the brokerage is entitled to not less than 5% of the profits. Whenever a licensee assists either an individual or company that is ‘‘connected’’ in some fashion to the licensee or the brokerage, the licensee should refer to the definition of ‘‘associate’’ to determine whether a ‘‘Disclosure of Interest in Trade’’ form is required. Licensees should note that children and parents do not fall within the definition of ‘‘associate’’.

Licensees should keep in mind that acquisition and disposition includes renting. As a result, when a licensee acquires property as a tenant, disclosure must be made to the landlord except in limited circumstances. Section 5-9 of the Rules exempts a licensee from the need to make disclosure if the rental real estate that is being acquired by the licensee, or the licensee’s spouse or family partner, complies with the following provisions:

  • the rental real estate is being acquired with the intention that it will be used for personal residential purposes;
  • the lease is for a term not exceeding one year;
  • the lease or agreement does not contain an option to purchase or a right of first refusal; and
  • any provisions for renewal do not extend the total lease period beyond one year.

Additionally, when a licensee offers property for rent in circumstances where either sections 9-1 and 9-2 of the Rules do not apply (as explained above under the heading ‘‘Application of RESA’’), the licensee must also make the appropriate disclosure. For example, if a licensee offered property for rent that was owned by a company of which the licensee or the licensee’s spouse was a shareholder and entitled to not less than 5% of the profits, disclosure would be required.

Licensees should also keep in mind that the disclosure must be made before an agreement for the acquisition or disposition of the real estate is entered into. When purchasing or renting real estate, the disclosure can easily be made prior to presenting the offer. However, when selling or offering real estate for rent, it may be that an offer is received before the disclosure is made. In such cases, in order for disclosure to be effective, the licensee must provide the disclosure to the prospective buyer or tenant and allow the prospective buyer or tenant to determine whether they wish to withdraw their offer.

Licensees who are required to make disclosure when offering real estate for sale may wish to include the fact that disclosure will be required on the listing. In this way, the buyer’s agent could obtain a disclosure form from the licensee offering real estate for sale or lease prior to writing up the offer.

In addition, licensees should be aware that their Real Estate Errors and Omissions Insurance Indemnity Plan excludes coverage for licensees when they are either buying or selling real estate. The exclusion reads as follows:

“This indemnity plan does not apply to: 9. a claim relating to or arising from providing real estate services in a transaction where the Insured or the Insured’s spouse, or a firm or corporation more than 10% owned separately or in combination by the Insured and the Insured’s spouse, has or may acquire an ownership interest;”

For further clarification, especially regarding spouses owning property, licensees are directed to the policy entitled ‘‘Indemnity Plan’’, available through the Real Estate Errors and Omissions Insurance Corporation website.

To clarify that the necessary disclosure has occurred prior to entering into a Contract of Purchase and Sale, licensees are encouraged to include the following clause in the Contract of Purchase and Sale:

Buyer’s/Seller’s Acknowledgement of Licensee’s Interest in Trade Clause

The Buyer/Seller acknowledges having received and signed a disclosure of the licensee’s interest in the transaction before the making/receipt of this offer.

(b) Disclosure Of Interest in Trade- Reminder to Licensees When Disclosure is Required

[11/03/2011 The following section was added to the Professional Standards Manual]

In order to assist licensees the Council has prepared the following examples:

Scenario 1

A licensee is representing his daughter and her husband in the purchase of their first home. The licensee is not contributing any funds towards the purchase and has no interest in the property. Children of the licensee do not fall within the definition of an associate; the licensee would therefore not be required to disclose under section 5-9 of the Rules as he was not acquiring the property directly or indirectly.

Scenario 2

A licensee is representing his daughter and her husband in the purchase of their first home. The licensee is contributing half of the funds to purchase the property and has a one half interest in the property although his name is not being registered on title. The licensee is required to disclose to the seller pursuant to section 5-9 of the Rules as he is acquiring property indirectly through his daughter.

Scenario 3

A licensee who is providing trading services to another licensee in the brokerage who is acquiring or disposing of real estate, does not fall within the meaning of the definition of providing real estate services to an “associate” and therefore is not required to make the disclosure as required by section 5-9 of the Rules, as long as the licensee is not purchasing the property indirectly through another licensee in his office.

Scenario 4

A licensee is the principal shareholder of ABC Mortgage Corporation and receives more than 5% of its profits ABC is providing financing to a buyer who has purchased property. A mortgage is then registered against the property in favour of ABC.

If there is a subsequent sale of the property and the licensee, who is the principal shareholder of ABC Mortgage Corporation which holds the mortgage registered against the property, is not providing trading services to the seller and buyer of the property and has no knowledge of the sale, that licensee would not be required to make disclosure in accordance with section 5-9 of the Rules.

However, if the licensee is providing trading services to either the buyer or seller or both the licensee would have to make the disclosure as the sale includes the disposition of the legal interest held by the associate, ABC, in the property. The same licensee would also be required to disclose the potential conflict of interest as required by section 3-3(1)(j) of the Rules if the licensee was representing the buyer or seller or both and was at the same time holding a mortgage against the property either personally or through a corporation.

Note: Licensees who are members of a real estate board should be aware that the Code of Ethics to which those boards subscribe contain broader disclosure obligations concerning their personal interest in a transaction than the disclosure obligations required by the Rules. Article 11 of the Code of Ethics can be reviewed in this regard on the RealtorLink website at www.realtolink.ca.

(c) Disclosure of Representation and Relationship in Trading Services

Section 5-10 of the Rules requires that a licensee must disclose the nature of the representation that the licensee will provide and whether, if applicable, the licensee or a related licensee is or expects to provide trading services to or on behalf of another person in relation to the same trade in real estate, or whether the licensee or related licensee expects to receive remuneration from another person in relation to the same trade in real estate. The disclosure is not required to be in writing, but it must be made before providing the trading services.

(d) Disclosure of Remuneration

The Rules require that as a licensee, you must disclose all remuneration you receive or anticipate receiving from anyone other than your client. Section 5-8 of the Rules requires that the disclosure be in writing. Section 5-8(1.1) of the Rules permits remuneration from a party other than a client to be disclosed in the service agreement and/or in a record other than an agreement giving effect to a trade in real estate that is separate from the service agreement. This means that the disclosure of remuneration cannot be made, for example, in a contract of purchase and sale, because that is an agreement giving effect to a trade in real estate.

Section 5-11 of the Rules provides that the disclosure of the commission or compensation be in writing as follows:

    5-11(1) This section applies if a licensee receives or anticipates receiving, directly or indirectly, remuneration, other than remuneration paid directly by a client, as a result of the licensee

    (a) providing real estate services to or on behalf of the client,

    (b) recommending to the client

    (i) a home inspector, mortgage broker, notary public, lawyer or savings institution, or

    (ii) any other person providing real estate related products or services, or

    (c) recommending the client to a person referred to in paragraph (b) (i) or (ii).

    (2) Subject to subsection (3), the licensee must promptly disclose to the client all remuneration paid or payable to the licensee’s related brokerage in relation to the real estate services provided, and the disclosure must include all of the following:

    (a) the source of the remuneration,

    (b) the amount of the remuneration or, if the amount of the remuneration is unknown, the likely amount of the remuneration or the method of calculation of the remuneration, and

    (c) all other relevant facts relating to the remuneration.

    (3) If trading services are provided by a licensee who has been designated to provide those services as a designated agent to or on behalf of only one party to a trade in real estate, the only remuneration that must be disclosed is the remuneration paid or payable to the licensee’s related brokerage in relation to the services provided by that licensee to or on behalf of that party, and the disclosure must be made in accordance with subsection (2).

     

Client Relationship Creates Disclosure Obligation

Section 5-11 of the Rules requires you, as a licensee, to disclose all remuneration you receive that is not paid directly by your client. A client is defined in the Rules as the principal who has engaged the licensee to provide real estate services to or on behalf of the principal. The definition anticipates that a principal and agent relationship exists when a licensee is engaged by a client. Fiduciary obligations arise as a result of the principal and agent relationship, including an obligation to disclose any remuneration received from someone other than the client.

If the person on whose behalf you are acting is not a client, (i.e. a customer), the requirement for disclosure of remuneration does not arise. Keep in mind that it is the nature of your relationship with your client that creates the obligation to disclose all remuneration paid for other than by the client.

Licensees must disclose the source and amount of the remuneration, or, if the amount is not known, the likely amount and method of calculation.

Section 5-11 of the Rules requires disclosure of all funds that licensees receive other than from the licensee’s client and not just the amounts received from referring the client to home inspectors, mortgage brokers, etc.

 

Disclosure When Acting for Buyers

[May 2015. The following section was added to the Professional Standards Manual]

As a buyer’s agent you have an obligation to disclose to your clients any remuneration that your brokerage will receive in relation to real estate services provided to the parties involved in the real estate transaction. The Rules require that licensees disclose all remuneration they anticipate receiving that is not paid directly by the client. This includes commissions, and also referral fees and any non-monetary bonuses you receive in exchange for a referral (such as gift certificates, air miles, bonus points, etc.). Remember, all remuneration must be paid to the brokerage—never to you directly.

Section 5-11 of the Rules makes it clear that the amount of remuneration that you must disclose to your client is the amount payable to the brokerage, not the amount that will eventually be paid to you, the licensee.

As well, subsection 5-11(3) specifies that when a licensee is acting as the designated agent for only one party in a transaction, the amount of remuneration that must be disclosed is the amount payable to the brokerage in relation to that client.

To assist licensees to make the required disclosures, the Council provides a Disclosure of Remuneration, Trading Services form. This form is available from the Council’s website and on Webforms. To make sure you understand how to use the form, read through the following scenarios. This information is also available in the April 2015 Report from Council newsletter.

 

Scenario 1: Designated Agent Acts Only for the Buyer

Joe Agent is a licensee engaged with LMN Realty Ltd. He is a Designated Agent for a buyer who is going to make an offer on Susie Seller’s home. Susie Seller, who is represented by a licensee engaged by XYZ Realty Ltd, has agreed to pay a total commission of $10,000, with $5,000 to be paid to a brokerage representing the buyer (LMN Realty Ltd.).

Q: What does Joe need to disclose to his client?
A: Joe is obliged to disclose to the buyer only the portion of the commission being paid to his brokerage: $5,000.

Disclosure 1

 

Scenario 2: Designated Agent Acts as Dual Agent

In this transaction, Joe Agent is the Designated Agent of both the seller and the buyer. With the consent of the seller and the buyer, Joe is acting as a Limited Dual Agent for both parties.

Q: Does this change what Joe must disclose?
A: Yes. As a Limited Dual Agent, Joe is obliged to disclose to the buyer the full amount of the commission being paid by the seller to the brokerage.

disclosure 2

 

Scenario 3: Different Designated Agents from the Same Brokerage Represent Buyer and Seller Individually

In this scenario, Joe Agent of LMN Realty Ltd. is the Designated Agent of the buyer in the transaction. Larry Licensee, who is also engaged at LMN Realty Ltd., is the designated agent of the seller. As the sole agents of their respective clients, Joe and Larry are not acting as Limited Dual Agents.

Q: Does Joe need to disclose the full amount of the remuneration payable to LMN Realty Ltd.?
A: No. Joe is acting as Designated Agent only for the buyer, therefore he is obliged to disclose to the buyer only the portion of the commission being paid by the seller to LMN Realty Ltd. in relation to his services.

disclosure 3

 

Scenario 4: Disclosure of a Referral Fee

Mary Chow has just sold her home in Burnaby. Her home was listed for sale with LMN Realty Ltd. and Joe Agent was her Designated Agent. Mary now wants to buy a strata lot in Kelowna. She asks Joe if he can recommend a licensee in Kelowna. Joe and Mary discuss three potential licensees, and Mary says she thinks she would like to work with Dave of XYZ Realty Ltd. Joe has an arrangement with Dave: if Joe refers a client to Dave who subsequently sells or buys real estate through Dave, Dave will pay Joe a $1500 referral fee that will be paid to LMN Realty Ltd. on completion of the trade.

Q: Must Joe disclose this fact to Mary when he recommends Dave?
A: Yes. Mary is a client, Joe refers Mary to Dave, and Joe anticipates receiving $1500 if Mary uses the services of Dave and XYZ Realty Ltd. to purchase a strata lot. The following example shows the proper way for this to be disclosed to Mary using Part C of the Disclosure of Remuneration Trading Services form. The disclosure must take place at the time Joe makes the referral to Mary, so she is aware of the information when she is deciding whether to use Dave’s services.

disclosure 4

 

Scenario 5: Disclosure of a Non-Monetary Bonus

Joe Agent has been approached by Best Rate Financial Services, a lending institution. They are willing to pay Joe 100,000 air mile points for every client’s name that Joe provides to them who subsequently borrows a minimum of $200,000. Joe is working with a buyer who is going to need to borrow $250,000 to complete a purchase, and with the buyer’s approval Joe gives the buyer’s name to his contact at Best Rate Financial Services. That person contacts Joe’s client and this leads to his client borrowing $250,000 from Best Rate Financial Services.

Q: Must Joe disclose this referral arrangement to his client?
A: Yes. Joe must disclose any form of remuneration that he anticipates receiving as a result of referring a real estate related service provider to his client. The definition of remuneration is very broad and includes any form of benefit, regardless of its size or nature.

The disclosure must be made when the information can be used by the client to make an informed decision about whether he or she wants to use the referred service provider. The following example shows how proper disclosure should be made, using Part C of the Disclosure of Remuneration Trading Services form. Note that Joe properly discloses that the travel points are going to be “paid” to LMN Realty Ltd., Joe’s related brokerage.

All forms of remuneration must be paid to the brokerage for disbursement to the individual licensee.

disclosure 5

 

 

(e) Disclosure of Benefits Related to Rental Property or Strata Management Services

Under section 5-12 of the Rules, licensees engaged in rental property management or strata management must disclose to the licensee’s principal, and to the related brokerage, certain benefits that the rental property manager or strata manager anticipates receiving as a result of the management of the rental property or the strata corporation. The disclosure must be made before the benefit is accepted.

Disclosure is required if the rental property manager or the strata manager anticipates receiving, either directly or indirectly, a benefit from expenditures made by or on behalf of a principal to whom the rental property or strata management services are provided. Disclosure must also be made if it is anticipated that an associate of the licensee will receive a benefit as a result of an expenditure on behalf of the principal.

A benefit from an expenditure may be an administration fee that the manager charges each time the manager writes a cheque on behalf of his or her principal. A benefit would also arise, and must be disclosed, if the manager retained a person or corporation that meets the definition of ‘‘associate’’, to perform services for the principal. Thus, for example, if a manager engaged a company in which the manager, or his or her spouse or family partner owned not less than 5% of the capital to perform work for the principal, the manager would be required to disclose the benefit to the principal and to the related brokerage before the associated company was engaged.

The disclosure of a benefit must be in writing and must be separate from the service agreement or any other agreement under which real estate services are provided. This means that it is not sufficient for a rental property manager or strata manager to include reference to an administration fee, or to the fact that an associated company will provide services to the property owner or strata corporation in the service agreement. Where a benefit is to be received from an expenditure, the disclosure must be in a separate written document.

The Council has prepared a ‘‘Disclosure of Benefits’’ form that may be used to disclose such benefits. Again, however, licensees are free to use whatever form they choose so long as it satisfies the disclosure requirements.

(f) Disclosure of Management of Rental Real Estate

Where a licensee provides rental property management services in relation to real estate owned by the licensee, section 9-1 of the Rules requires that the licensee disclose in writing to prospective tenants as noted above under ‘‘Application of RESA’’, and to the licensee’s managing broker that the licensee will be providing rental property management services on the licensee’s own behalf.

If a licensee is the sole shareholder of a corporation that owns rental real estate and the licensee provides rental property management services to the corporation, the licensee must also provide written disclosure to the licensee’s managing broker that the licensee will be providing rental property management services to or on behalf of the corporation.

In cases where a licensee is providing rental property management services to a spouse, family partner, son, daughter, parent, partnership, or corporation that includes such family members as partners or shareholders, the licensee must make written disclosure to the family member, partnership, or corporation as noted above under the heading ‘‘Application of RESA’’ and must provide a copy of the written disclosure to the licensee’s managing broker.

(g) Disclosure of Strata Management Services

As noted above under the heading ‘‘Application of RESA’’, licensees are permitted by section 9-3 of the Rules to provide strata management services to not more than two strata corporations in which they own a strata lot without the need to comply with the requirements of RESA, the Regulations, and the Rules under limited circumstances. Whenever a licensee provides such strata management services, the licensee must make written disclosure of various matters to the strata corporation. A copy of the written disclosure must also be provided to the licensee’s managing broker.

(h) Licensees Must Give Notice of Discipline, Bankruptcy, Criminal Proceedings

Section 2-21 of the Rules states that:

    (2) A licensee must promptly notify the council, in writing, if any of the following circumstances apply:

      (a) the licensee is subject to any disciplinary or regulatory proceedings in which the licensee may be or has been made subject to a discipline sanction under legislation in British Columbia or another jurisdiction regulating

        (i) real estate, insurance or securities activities, or

        (ii) mortgage brokers, accountants, notaries or lawyers;

      (b) the licensee has any court order or judgment made against the licensee in relation to

        (i) real estate services,

        (ii) a dealing in insurance, mortgages or securities, or

        (iii) misappropriation, fraud or breach of trust;

      (c) any business that the licensee owns, or of which the licensee has been a director, officer or partner at any time during the past 2 years, has any court order or judgment made against the business in relation to

        (i) real estate services,

        (ii) a dealing in insurance, mortgages or securities, or

        (iii) misappropriation, fraud or breach of trust;

      (d) the licensee is charged with or convicted of an offence under a federal or provincial enactment or under a law of any foreign jurisdiction, excluding

        (i) highway traffic offences resulting only in monetary fines or demerit points, or both, and

        (ii) charges initiated by a violation ticket as defined in the Offence Act or by a ticket as defined in the Contraventions Act (Canada);

      (e) the licensee is the subject of any bankruptcy, insolvency or receivership proceedings, including

      (i) an application for a bankruptcy order filed against the licensee,

      (ii) an assignment in bankruptcy made by the licensee,

      (iii) a bankruptcy order made against the licensee,

      (iv) a proposal made under Division I of Part III, or a consumer proposal made under Division II of Part III, of the Bankruptcy and Insolvency Act, or

      (v) an insolvency proceeding, including a receivership or an arrangement under the Companies’ Creditors Arrangement Act;

      (f) any business that the licensee owns, or of which the licensee has been a director, officer or partner at any time during the past 2 years, is the subject of any bankruptcy, insolvency or receivership proceedings, including

      (i) an application for a bankruptcy order filed against the business,

      (ii) an assignment in bankruptcy made by the business,

      (iii) a bankruptcy order made against the business,

      (iv) a proposal made under Division I of Part III, or a consumer proposal made under Division II of Part III, of the Bankruptcy and Insolvency Act, or

      (v) an insolvency proceeding, including a receivership or an arrangement under the Companies’ Creditors Arrangement Act.

    (3) In addition to providing a written notice, the licensee must provide

      (a) particulars, and

      (b) any additional information or documentation,

      as requested by the council.

    (4) In the case of notice required to be provided by an associate broker or representative, the licensee must give a copy of the notice under subsection (2) to the managing broker of the related brokerage.

Licensees must not wait for either licence renewal or licence transfer to report this information to the Council.

5. Brokerage Responsibilities

The brokerage is the entity through which real estate services are provided. Section 6 of RESA requires every brokerage to have one or more managing brokers, who are responsible for exercising the rights and performing the duties of the brokerage. A brokerage may only offer the real estate services that are permitted by the licence of the managing broker.

In addition to engaging a managing broker, a brokerage may engage associate brokers or representatives, who are licensed in relation to, and provide real estate services on behalf of, the brokerage. Only managing brokers, associate brokers, or representatives who are engaged by and licensed to the brokerage may provide real estate services on behalf of the brokerage.

Section 4-1 of the Rules requires each brokerage to prominently display the brokerage licence and branch licences at the brokerage or branch office. The brokerage must also display the business name on or near the door and on the building directory if there is one. 

Section 2-22 of the Rules requires that every brokerage notify the Council of any business changes, including:

  • changes in the brokerage contact information,
  • the licensees engaged by the brokerage,
  • the brokerage's partnership or corporate structure, and
  • savings institutions or branch locations for the brokerage. 

Section 2-20 of the Rules provides that a brokerage must also notify the Council if it is unable to pay its debts as they come due.

In addition, RESA sets out a number of duties that each brokerage must carry out, such as:

  • a requirement to maintain at least one interest bearing trust account on behalf of the brokerage,
  • certain requirements with respect to the handling of, accounting for, and payment out of trust money received by the brokerage,
  • a requirement to maintain proper business records, and
  • in some cases, the requirement to enter into written service agreements.

(a) Trust Funds and the Payment of Remuneration

RESA and the Rules impose obligations on a brokerage in relation to the handling of trust funds.

Other than in the exceptions described earlier in this chapter, section 27 of RESA requires that a brokerage must pay into a brokerage trust account, all money held or received from, for, or on behalf of a principal in relation to real estate services. Additionally, all money received which represents remuneration for real estate services, including money received from or on behalf of another brokerage, and whether or not the remuneration has already been earned, must be paid into the brokerage trust account.

Section 27 of RESA requires that the remuneration be paid into the brokerage trust account even if the transaction has completed.

A brokerage is not required to pay funds into the brokerage trust account if, in a separate written agreement, all principals to the transaction agree that other arrangements for the funds are acceptable.

Once the funds held in trust have been earned, section 31 of RESA requires that the funds payable to a cooperating brokerage must be paid out directly to the brokerage from the brokerage trust account. The net share of the remuneration owing to a licensee engaged by the brokerage must be paid out either directly to the licensee from the brokerage trust account or the funds may be paid into a commission trust account and then, from that account, to or on behalf of the licensee. Section 7-2 of the Rules permits a brokerage to maintain one or more commission trust accounts for the payment of licensee remuneration.

A commission trust account will be necessary if, of the net amount owed to the licensee, a portion of the funds are payable to a third party such as the Canada Revenue Agency (CRA). In such cases, it is not permissible for the brokerage to retain a portion of the net funds payable to the licensee in the brokerage trust account or the brokerage operating (general) account. As a result, either the entire amount of the net funds must be paid to a commission trust account, and from that account, funds can be paid to the licensee while other funds are held for payment to the CRA, or at least that portion of the net funds that are to be held and paid to a third party on behalf of licensees must be paid to the commission trust account.

RESA requires that a managing broker must be a signing authority on each trust account maintained by the brokerage.

A shortage in a trust account must be reported to the Council immediately if the managing broker considers that the negative balance in the trust account will result in a claim against the compensation fund, or if the shortage cannot be resolved within 10 working days of the shortage occurring.

(b) Audit Requirements

Section 7-7 of the Rules requires that every brokerage submit an Accountant’s Report within 120 days after the brokerage’s fiscal year end. Section 4-9 of the Council Bylaws requires that each trust account maintained by the brokerage be reported on by the accountant in the Accountant’s Report. However, trust accounts maintained for the purpose of holding commissions have been excluded from the audit requirement.

(c) Written Service Agreements

Section 5-1 of the Rules requires that a brokerage have a written service agreement in all cases where the brokerage provides trading services to an owner in relation to offering the real estate for sale or otherwise disposing of the real estate, or if the brokerage provides rental property management services to an owner of rental real estate, or strata management services to a strata corporation unless the agreement is waived by the client.

The written service agreement must be entered into before the brokerage offers the property for sale or lease or provides rental property or strata management services. Section 5-1 of the Rules sets out what the written service agreement must contain. Included in the required contents is a general description of the services to be provided.

The written service agreement that is used when offering real estate for sale is a listing contract.

In the case of rental property management or strata management services, the written service agreement will be the management contract between the brokerage and the owner of rental real estate or the strata corporation respectively.

Although, in many cases, an associate broker or representative is authorized to sign the listing contract or the management contract on behalf of the brokerage, it is important to keep in mind that the listing or management contract binds the brokerage. As a result, the general description of services that are included as part of the contract are not the services to be provided by the representative, but rather, the services to be provided by the brokerage. Managing brokers should, therefore, be actively involved in the drafting of the description of services to be used in the contracts and in reviewing the contracts signed on behalf of the brokerage.

(d) General Description of Services

The requirement to include a general description of the services to be provided in a contract is a new requirement under RESA. Previously, the standard listing contract and many rental property or strata management contracts did not specify what services the agent would provide in relation to the contract. As a result, it was very difficult for the parties to the contract to know what to expect of the brokerage and to establish whether a brokerage had fulfilled its obligations under the contract.

The brokerage should be aware that, because it is a term of the contract, the general description of services is binding on the brokerage and the failure to provide the services that are described may result in the client terminating the contract and in a potential claim by the client for damages for breach of contract.

(e) Records and Reports

The Rules set out a variety of financial and non-financial records that a brokerage must maintain.

A brokerage is required to maintain financial records for the brokerage which indicate the amount of money received or paid by the brokerage on its own account and on account of others. A brokerage must maintain the banking documents for the general accounts and records which show the receipts and disbursements of cash.

Every brokerage must maintain trust account records, including:

  • a cash record showing all transactions affecting the trust account,
  • a journal showing amounts received and disbursed.

It must also keep a separate ledger for:

  • each trade in real estate,
  • each principal in relation to rental property management services,
  • each principal in relation to strata management services, and
  • each licensee showing the amounts received and disbursed.

The brokerage must prepare a monthly trust liability and asset reconciliation.

Section 8-4 of the Rules sets out various general records relating to the provision of real estate services that a brokerage must retain; section 8-5 of the Rules sets out what documents must be retained in respect of trades in real estate; section 8-6 of the Rules sets out what documents must be maintained when a brokerage provides rental property management services, and section 8-7.1 of the Rules sets out what documents a brokerage must keep when it provides strata management services.

The Rules require that a brokerage retain its records for a minimum of seven years after their creation unless a shorter period is authorized in writing by the Council.

Each year, within 120 days of the end of a brokerage’s fiscal year, the brokerage must file financial statements, an Accountant’s Report, and a Brokerage Activity Report with the Council. The financial statements must be audited if the brokerage is a public company and, in other cases, subjected to at least a review engagement report by an accountant.

Under section 7-7(2.1) of the Rules, the Council may authorize a brokerage to file financial statements that have been subject to a Notice to Reader prepared by an accountant if certain conditions are met. Please refer to the Brokerage Standards Manual for further information. As an alternative to filing an Accountant’s Report, a brokerage that did not hold or receive any public trust money during the fiscal year to which the financial statements relate may file with the Council a solemn declaration. For further information, please contact the Council office or refer to the Brokerage Standards Manual.

At the time that a brokerage is winding up, the brokerage must promptly submit a winding-up report. Samples of the Accountant’s Report, the Brokerage Activity Report and the Brokerage Winding-Up Report are available on the Council’s website at www.recbc.ca.

(f) Retention of Disclosures

Section 8-4 of the Rules provides that a brokerage must keep copies of all written disclosures that a licensee must make. The brokerage must retain copies of the ‘‘Disclosure of Interest in Trade’’ form, disclosures relating to remuneration, disclosures relating to benefits in relation to rental property or strata management, and disclosures relating to material latent defects. In addition, the brokerage must retain all written disclosures under sections 9-19-2 and 9-3 of the Rules that a licensee must make. Section 8-10 of the Rules requires the brokerage to retain these disclosures for at least seven years after their creation unless a shorter period is authorized in writing by the Council.

(g) Duty to Clients

Section 3-3 of the Rules sets out the duties that a brokerage owes to a client. Unless the client and brokerage have agreed to modify the brokerage’s duties, a brokerage is required to do all of the following:

  • act in the best interests of the client;
  • act in accordance with the lawful instructions of the client;
  • act only within the scope of the authority given by the client;
  • advise the client to seek independent professional advice on matters outside of the expertise of the licensee;
  • maintain the confidentiality of information respecting the client;
  • disclose to the client all known material information respecting the real estate services, and the real estate and the trade in real estate to which the services relate;
  • communicate all offers to the client in a timely, objective, and unbiased manner;
  • use reasonable efforts to discover relevant facts respecting any real estate that the client is considering acquiring;
  • take reasonable steps to avoid any conflict of interest; and
  • promptly and fully disclose any conflict that does arise to the client.

6. Managing Broker Responsibilities

RESA requires that the rights and duties of every brokerage be performed by one or more managing brokers. The role of the managing broker is critical in the operation of the brokerage to ensure that the brokerage carries out the duties imposed by RESA. The managing broker acts for the brokerage for all purposes under RESA.

The real estate services that are permitted to be provided under the licence of the managing broker are the only real estate services that may be conducted by a brokerage.

RESA and the Rules set out specific responsibilities for a managing broker.

(a) Supervision

The managing broker is responsible for the supervision of the associate brokers and representatives who are licensed in relation to the brokerage. Section 3-1 of the Rules requires that the managing broker be actively engaged in the management of the related brokerage and ensure that there is an adequate level of supervision for the associate brokers and representatives and for the employees and others in the brokerage.

In a well-managed office, where the activities of licensees and other staff/employees are adequately supervised, the Council would expect that:

  • The managing broker ensures that all associate brokers, representatives, the brokerage, and the managing broker, are currently and properly licensed. A managing broker who allows unlicensed individuals to perform activities that require licensing is subject to disciplinary action by the Council (section 3 of RESA).
  • Training/professional development assistance/guidance is provided for associate brokers and representatives.
  • The managing broker is able and available to assist and advise associate brokers and representatives and other employees as they encounter problems in their day-to-day activities. When the managing broker is not at the office, the managing broker should be available to the office by other electronic means.
  • The managing broker follows up on the activities of associate brokers and representatives who are absent for prolonged periods from the office.
  • Although the managing broker is not expected to review all advertisements, the managing broker should ensure that associate brokers and representatives are made aware of sections 4-64-7, and 4-8 of the Rules which relate to advertising, as well as advertising guidelines and policies established by the Council.
  • The managing broker should periodically discuss examples of appropriate and inappropriate advertising with associate brokers and representatives.
  • A brokerage procedures manual has been read and acknowledged by its associate brokers and representatives clearly disclosing to them the rules and office policies of the brokerage.
  • There is a means of communicating with associate brokers and representatives in writing respecting policy matters or changes in the law. It is recommended that the brokerage keep copies of these communications on file.
  • The managing broker holds office meetings with associate brokers and representatives engaged by the brokerage.
  • The managing broker ensures that associate brokers and representatives are aware of and comply with the Rules, including the application of RESA to the provision of all real estate services by a licensee, and the requirements for disclosure, including the need to provide certain disclosures in writing.
  • The managing broker ensures that associate brokers and representatives obtain a written service agreement that includes a general description of services and that the services are in accordance with the policies of the brokerage.
  • Where a brokerage engages associate brokers or representatives who conduct business outside of the brokerage’s usual market area, the managing broker must ensure the following procedures are in place:
    • Listing, buyer agency, rental property, and strata management contracts, amendments thereto, and Contracts of Purchase and Sale are, as soon as possible after their execution, faxed, couriered, delivered, or e-mailed to the brokerage’s office in order that the managing broker can review the documentation, and that a legible true copy is maintained on file in the office (section 3-2 of the Rules).
    • In order for funds received on behalf of clients (e.g., trust deposits, rental funds, security deposits, etc.) to be deposited in trust upon receipt, arrangements must be made for associate brokers and representatives to either courier, deliver, or electronically transfer these funds immediately to the brokerage (section 27 of RESA).

(b) Accounts and Records

Section 3-1 of the Rules also provides that the managing broker is responsible to ensure that the trust accounts and records of the brokerage are maintained in accordance with RESA, the Real Estate Services Regulation, Rules, and Bylaws, and that there is appropriate management and control of documents related to the licensing requirements.

A managing broker must be a signing authority on each trust account maintained by the brokerage. Additionally, a managing broker or someone designated by the managing broker, must review, date, and initial the monthly trust asset and liability reconciliation (section 7-4 of the Rules).

(c) Action in the Event of Improper Conduct

If the managing broker has knowledge of conduct that the managing broker considers to be professional misconduct, conduct unbecoming a licensee, or may be improper or negligent conduct, section 3-1 of the Rules requires that the managing broker must take reasonable steps to deal with the matter.

(d) Notices Regarding Deposits

A managing broker is required by section 3-1(4) of the Rules to ensure that all parties to an agreement giving effect to a trade in real estate are immediately notified if a deposit that was to be held by the related brokerage is not received or if the deposit cheque or other negotiable instrument is not honoured.

A managing broker must give the notice in writing or confirm in writing that the notice has been given.

7. Associate Broker/Representative Responsibilities

In addition to a managing broker or an associate broker, a representative provides real estate services on behalf of a brokerage. When providing real estate services under the supervision of a managing broker, an associate broker’s duties and obligations are the same as a representative’s. For the purposes of this review, the reference to ‘‘representative’’ includes a reference to ‘‘associate broker’’.

RESA and the Rules set out a number of duties that a representative must meet in the course of providing real estate services.

One of the most important obligations of a representative is the manner in which the representative handles funds. RESA requires that all money held or received from or on behalf of a principal in relation to real estate services be paid or delivered to the brokerage. Additionally, any money received on account of remuneration for real estate services must be paid to the brokerage whether or not the remuneration has already been earned. As a result of this provision, even though the funds may have been received after a transaction completes, the funds must still be paid to the brokerage.

RESA also provides that a representative may only provide real estate services on behalf of the brokerage to which the representative is licensed. Additionally, the representative must not accept remuneration in relation to real estate services from any person other than the brokerage in relation to which he or she licensed.

RESA defines ‘‘remuneration’’ as including any form of remuneration, including any commission, fee, gain, or reward, whether the remuneration is received, or is to be received, directly or indirectly.

The broad definition of ‘‘remuneration’’ means that rewards such as referral fees, bonuses, or travel points that are paid in relation to the provision of real estate services must be paid through the brokerage to which the representative is licensed.

The Rules contain a number of obligations and duties that a representative must satisfy, including requirements relating to advertising, signing documents on behalf of clients, home offices, and various disclosures that a representative must make.

In order for representatives to fulfill their responsibilities under RESA, they must ensure that:

  • they do not perform any licensed activity unless they are properly licensed at the time;
  • their licence is current at all times;
  • all real estate services are conducted in the name of the brokerage to which the representative is licensed;
  • they have current knowledge of issues that relate to the area of real estate in which they practice. They should participate in opportunities for training/development that are relevant to their specific area of practice;
  • they keep the managing broker informed of the activities being performed (section 3-2 of the Rules). They should seek guidance from their managing broker in situations where there is uncertainty about the proper course of action;
  • they promptly provide copies of all disclosures as required under sections 9-19-2 or 9-3 of the Rules to the managing broker;
  • they immediately notify the managing broker if a deposit which the brokerage is required to hold as stakeholder is not received (section 3-2 of the Rules);
  • they advise the managing broker when they intend to be absent from the office for prolonged periods of time, and should ensure that clients and customers are aware of intended absences;
  • they promptly respond to any inquiries addressed to them by the managing broker (section 3-2 of the Rules);
  • they act honestly and with reasonable care and skill when providing real estate services (section 3-4 of the Rules).

Representatives should also ensure that they:

  • carry out the following duties to a client (section 3-3 of the Rules):
    • act in the best interests of the client,
    • act in accordance with the lawful instructions of the client,
    • act only within the scope of the authority given by the client,
    • advise the client to seek independent professional advice on matters outside of their expertise,
    • maintain the confidentiality of information respecting the client,
    • disclose to the client all known material information respecting the real estate services, and the real estate and the trade in real estate to which the services relate,
    • communicate all offers to the client in a timely, objective, and unbiased manner,
    • use reasonable efforts to discover relevant facts respecting any real estate that the client is considering acquiring,
    • take reasonable steps to avoid any conflict of interest; and
    • promptly and fully disclose any conflict that does arise to the client;
  • make certain that all advertisements, including websites, meet the requirements of RESA and specifically sections 4-64-7, and 4-8 of the Rules, and Council advertising guidelines and policies;
  • obtain the written authorization of the client before signing a contract on the client’s behalf (section 5-3 of the Rules);
  • make certain that all signed offers to acquire or dispose of real estate are promptly communicated to the relevant party to the trade in real estate unless otherwise directed by a client (section 5-3.1 of the Rules);
  • promptly deliver a copy of any signed acceptance of an offer to each of the parties to the trade (section 5-2 of the Rules);
  • are familiar and current with communications from their related brokerage, the local real estate board/association, or other trade organizations to which they belong and the Council respecting policy matters or changes in the law;
  • attend office meetings as a means of ensuring ongoing competency and familiarity with current issues and market conditions;
  • do not induce any party to break an agreement for the purpose of entering into an agreement with another party (section 5-5 of the Rules);
  • advise their managing broker of any intention to purchase or dispose of real estate for themselves or an associate and ensure that they have complied with section 5-9 of the Rules. They must ensure a completed ‘‘Disclosure of Interest in Trade’’ Form is provided to the opposite party before an agreement for the acquisition or disposition is made and that a copy is promptly provided to the managing broker;
  • disclose, in writing, all remuneration received as a result of providing real estate services to or on behalf of a client and that a copy of the written disclosure is provided to the managing broker (section 5-11 of the Rules);
  • disclose any known material latent defect to other parties before any agreement is entered into and that a copy of the written disclosure is provided to the managing broker (section 5-13 of the Rules);
  • familiarize themselves with the brokerage’s procedures manual and conduct their business in accordance with the requirements of RESA, the Regulations, and Rules;
  • promptly provide their related brokerage with the original or legible true copies of all general records, trading records, rental property management records, or strata management records related to transactions in which the brokerage is involved (section 3-2 of the Rules).

If the licensee has an unlicensed office in his or her home or in commercial space, he or she must ensure that he or she complies with section 4-3 of the Rules which requires:

  • a sign is not placed outside indicating that the licensee is doing business there as a real estate representative;
  • the telephone in the office is not answered in the name of the related brokerage;
  • the home or personal office address in not indicated on any advertising, business cards, letterhead, etc.; and
  • all employees and others who perform duties on behalf of the licensee are adequately supervised (section 3-2 of the Rules) and that any secretarial or other unlicensed staff working in the personal office of a licensee does not engage in any activity requiring a real estate licence.

(a) Independent Contractor Status

RESA permits a licensee to be engaged by a brokerage either as an employee or as an independent contractor. RESA provides that licensees are to be licensed to, and engaged by, a single brokerage. The definition of ‘‘engaged ’’ includes a licensee who is employed by the brokerage and a licensee who is acting in an independent contractor relationship with the brokerage to provide real estate services on its behalf.

Whether a licensee is an employee or an independent contractor, the duties and obligations of the licensee do not change. In other words, the obligations of a representative apply to every licensee licensed as a representative or an associate broker regardless of the manner in which they are engaged by the brokerage.

(b) Licensees Must Promptly Provide Records to Their Related Brokerage

[11/20/2012 The following section was added to the Professional Standards Manual]

Section 3-2 of the Rules details general responsibilities of licensees in relation to their brokerages. An important aspect of those responsibilities includes promptly providing the brokerage with the original or copies of records related to the real estate services provided by the licensees. The obligation to provide these records to a brokerage ‘promptly’ means they must be provided without delay.

This enables the brokerage to fulfill its obligation to maintain timely, accurate, and complete records, and enables the managing broker to fulfill his or her obligation to be in active charge of the business of the brokerage. For example, it is not acceptable to provide the brokerage with a copy of a Contract of Purchase and Sale only after subjects have been removed or the deposit is received; once it has been accepted by all parties, it must be provided to the brokerage without delay.

Licensees are generally aware that when they have, on behalf of their brokerage, entered into a listing agreement, they must promptly provide the original or a copy of the listing agreement to their managing broker. However, it has come to the attention of the Council that many licensees may not be aware that this provision also applies to buyer agency agreements. Buyer agency agreements are service agreements that are entered into by buyer-clients and licensees, on behalf of their brokerages. Therefore, licensees must also promptly provide the original or a copy of these agreements to their brokerage.
The records licensees are to provide to their related brokerage include all the records identified in sections 8-4, 8-5, 8-6, and 8-7.1 of the Rules that are in the possession of the licensee and were either

  • prepared by or on behalf of the licensee, or
  • received from or on behalf of a principal.

While the following list is not complete in terms of records that must be provided to the brokerage, it represents records related to trading services that some licensees have not promptly provided:

  • Written disclosure statements (e.g. Disclosure of Remuneration, Disclosure of Interest in Trade, etc.)
  • Written service agreements (e.g. listing contracts, buyer agency contracts, etc.) and other records that establish the scope of authority (e.g. fee agreements, etc.)
  • Contracts for the acquisition and disposition of real estate (e.g. Contracts of Purchase and Sale, Offers to Lease, Tenancy Agreements, etc.)
  • Information necessary to complete the Trade Record Sheet

Licensees who are uncertain about their obligations in this regard should review those sections of the Rules identified above. The current Rules are available at www.recbc.ca.

8. Licensing Information

(a) Applications for Licensing

Licensing is regulated by RESA, the Real Estate Services Regulation, Rules and Bylaws. RESA establishes the requirement of licensing, the qualifications for licensing, and the different levels and categories of licensing. RESA establishes the Real Estate Council as the licensing authority. The Regulations set out the exemptions from licensing. The Bylaws set out the process and information required in applications for licences or the reinstatement of licences. The Rules contain the qualification requirements for licensing.

All forms and information regarding applications for licensing can be found on the Council’s website at www.recbc.ca.

RESA creates the following four levels of licensing:

  • Brokerage — a licensee which must engage other licensees, including a managing broker.
  • Managing broker — a licensee responsible for a brokerage.
  • Associate broker — a licensee who meets the qualifications of a managing broker, but who provides real estate services under the supervision of a managing broker.
  • Representative — a licensee providing real estate services under the supervision of a managing broker. An individual may obtain any level of licence.

Section 2-1 of the Rules sets out the following categories of licence:

  • Trading services;
  • Rental property management services; and
  • Strata management services.

Licensees may be licensed in a single category or in any combination of categories. The licensing categories apply to each level of licensing. A licensee may, therefore, be licensed as a managing broker in relation to trading services, rental property management, strata management services, or any combination of categories.

RESA sets out the qualifications that an applicant for licensing must meet, which include satisfying the educational and experience requirements established by the Rules. In addition, RESA provides that all applicants must be determined to be fit to be licensed. An applicant’s fitness for licensing considers whether the applicant has been refused a real estate, insurance, mortgage broker, or securities licence in any jurisdiction; whether the applicant had a real estate, insurance, mortgage broker, or securities licence suspended or cancelled in any jurisdiction, or whether the applicant has been convicted of an offence.

Individuals who have some concern about whether or not they will be found to be fit for licensing may wish to obtain a decision from the Council in advance of registering for the pre-licensing course.

Section 2-8 of the Rules sets out the educational requirements for new licensees. Section 2-10 sets out the experience requirements for applicants for a managing broker’s or associate broker’s licence, and section 2-11 sets out the financial qualifications for applicants for a brokerage licence. Under section 2-11, an applicant for a brokerage licence must satisfy the Council that the applicant is in sound financial circumstances. The Council has established the following guidelines with respect to the meaning of ‘‘sound financial circumstances’’. An applicant for a brokerage licence is considered not to be in sound financial circumstances if the applicant:

  • is an undischarged bankrupt;
  • has outstanding judgments; and
  • is in arrears on several trade accounts.

In all cases, where the Council intends to refuse a licence, the Council must give notice to the applicant and provide the applicant with an opportunity to be heard respecting the matter. If the Council decides to refuse to issue the licence, the applicant can appeal the refusal to the Financial Services Tribunal.

(b) Personal Real Estate Corporation (PREC)

Individual real estate licensees are permitted to form a PREC. A PREC allows a licensee to take advantage of incorporation, which may permit better planning of income and tax streams. Detailed information about PRECs can be found at this link.

(c) Licence Renewals

Generally, licences are issued for a two-year period. RESA permits the Council to issue temporary licences that may be of a shorter duration. Before the end of the licensing period, the licensee must apply for a renewal of their licence. RESA provides that if the application for renewal is made before the end of the licence term, the licence continues in effect until the Council notifies the licensee of its decision with respect to the renewal application.

If a licensing period ends before a licensee submits an application for renewal, the licensee is no longer licensed and must cease carrying out any activity for which a licence is required until the Council issues a licence.

In the past, the period of time that a licensee could remain unlicensed and subsequently obtain a licence without being required to requalify was dependent on the length of time that the licensee had been licensed. Section 2-9 of the Rules requires that a licensee whose licence was suspended, inoperative, or surrendered within the first five years of continuous licensing must retake the pre-licensing examination and the applied course before a licence will be reinstated. The Rules contain limited exceptions to this requirement if the licensee had ceased to be licensed for less than 30 days, was on parental leave approved by the Council, or had been registered under the Mortgage Brokers Act.

(d) Other Licensing Applications

Information relating to licence transfers, change of licence level, reinstatements, and licence amendments is available on the Council’s website at www.recbc.ca.


Trading Services

1. Practice Standards

(a) General Requirements

(i) Competency in Practice Areas

Real estate is a diverse and frequently complex industry. For that reason, licensees often specialize in a particular type of real estate and/or a specific market area. This allows them to remain current and familiar with the unique nature of that market segment.

The Council, and no doubt the public, expects a licensee to maintain a state of competency, on an ongoing basis, in all areas in which the licensee renders service. A licensee who demonstrates incompetence may be found to have committed professional misconduct.

Section 35 of RESA provides that a licensee commits ‘‘professional misconduct’’ if the licensee:

    (a) contravenes this Act [RESA], the regulations, or the rules;

    (b) breaches a restriction or condition of their licence;

    (c) does anything that constitutes wrongful taking or deceptive dealing;

    (d) demonstrates incompetence in performing any activity for which a licence is required;

    (e) fails or refuses to cooperate with an investigation under section 37 [investigations by council] or 48 [investigations by superintendent];

    (f) fails to comply with an order of the real estate council, a discipline committee or the superintendent;

    (g) makes or allows to be made any false or misleading statement in a document that is required or authorized to be produced or submitted under this Act [RESA].

When issues related to a particular transaction arise that are outside of a licensee’s area of expertise, guidance should be sought from the licensee’s managing broker. It may be that these matters should be referred to an appropriate independent expert (e.g., a lawyer, accountant, building inspector, etc.).

However, sometimes it is the very nature of the real estate transaction that is beyond the scope of a licensee’s expertise. For example, a licensee whose licence allows rental property management activity, but who specializes in single-family home sales, may have no experience or knowledge in the area of rental property management. If the opportunity to provide rental property management services arises, and assuming the licensee’s related brokerage has the necessary systems available to provide competent rental property management services, the licensee would be well advised to discuss the opportunity with the licensee’s managing broker prior to offering to render service.

Similarly, while a real estate licence permits an individual to provide services related to trades in real estate throughout the province, that does not mean licensees are always competent to do so. The expertise necessary to market a waterfront home on Vancouver Island is not the same expertise necessary to assist in the purchase of a cattle ranch in the Cariboo. There are often situations where a prudent licensee should refer business to someone who is more knowledgeable in a particular market or to another licensee within the brokerage who has the knowledge and experience to assist.

The public relies on a licensee’s expertise. Therefore, licensees should not act in situations where they are unable to render competent service.

Section 43 of RESA provides for disciplinary action against a licensee who breaches section 35 by committing professional misconduct. As set out in section 35 of RESA, a licensee can commit professional misconduct in a variety of ways, including by demonstrating incompetence.

Standards of practice have been rising consistently and every licensee is expected to conform to the higher standards as they become the norm. In considering whether a licensee may have demonstrated incompetence and thereby committed professional misconduct, the accepted and normal standards of practice in the profession are taken into account by the Council. Although ‘‘incompetence’’ is not defined, in considering whether a licensee might have demonstrated incompetence, the normal standards of practice are taken into account.

As a general guide, it is suggested that licensees remember that they are paid remuneration for their expertise. Section 3-4 of the Rules requires them to act honestly and with reasonable skill and care.

A real estate licensee who extends or offers service or information, even at no charge, is required to comply with RESA and may be found to have committed professional misconduct, notwithstanding that the real estate services were provided for free.

The careless rendering of an opinion can be as damaging as a negligent or incompetent statement of fact, and the licensee who unknowingly leads the public into harm’s way, risks much. The penalties imposed by the Council and the courts can be severe.

(b) Agency

(i) Agency Disclosure

Section 5-10 of the Rules outlines the information which must be disclosed by a licensee about the nature of that licensee’s relationships with parties in a trade in real estate.  Section 5-10 of the Rules provides that:

    Before providing trading services to or on behalf of a party to a trade in real estate, a licensee must disclose the following to the party:

      (a) the nature of the representation that the licensee will provide to the party,

      (b) as applicable,

        (i) that the licensee, or a related licensee, is or expects to be providing trading services to or on behalf of any other person, in any capacity, in relation to the same trade in real estate,

        (ii) that the licensee, or a related licensee, is or expects to be receiving remuneration relating to trading services referred to in subparagraph (i) from any other person, and

        (iii) the nature of the licensee’s relationship or the relationship of the related licensee, with any person referred to in subparagraph (i) or (ii).

Effective July 1, 2013, section 5-8 of the Rules requires the nature of the representation that a licensee will provide to a party to be disclosed in writing. This disclosure must be made before providing trading services so that consumers understand the nature of the relationship being proposed by a licensee before they begin to share confidential information with that licensee.

If, during the course of providing real estate services, there is any substantive change to the nature of the licensee’s representation, the licensee must promptly disclose the change in writing as well.

One way for a licensee to meet this disclosure requirement is to provide potential sellers/landlords and buyers/tenants, at first substantial contact, with a copy of the Working With a REALTOR® brochure developed by the British Columbia Real Estate Association (available through real estate boards/associations). This brochure explains a variety of relationships that consumers may have with a brokerage and its related licensees. The brochure also describes:

  • the duties that a brokerage and its related licensees owe to a client, be that client a seller/landlord or a buyer/tenant;
  • limitations on these duties should a brokerage or a related licensee be given consent to act for more than one client in relation to the same trade in real estate;
  • how, with the agreement of a client, a brokerage may designate one or more licensees to act as designated agents to provide real estate services to or on behalf of a client; and
  • the types of services a customer might normally expect to receive when there is no agency relationship.

This information may assist licensees to describe the nature of the relationship being proposed, and to obtain the seller’s/landlord’s or the buyer’s/tenant’s informed consent to the relationship to be established.

It is important to stress that the seller’s/landlord’s or the buyer’s/tenant’s informed consent is required before a brokerage or any of its related licensees acts on their behalf. Obtaining informed consent before acting is also necessary if a brokerage or any of its related licensees wishes to alter an existing relationship; for example, to move from acting on behalf of only one party to a trade to acting as a limited dual agent on behalf of both parties.

 

(ii) Nature of the Relationship

When providing real estate services, the nature of the relationship that is created between the buyer/tenant or seller/landlord and the brokerage, including its related licensees, is important. The relationship may be either a sole agency, limited dual agency, or no agency relationship. These distinctions are important for both the brokerage (and its related licensees) and the buyer/tenant or the seller/landlord to consider, since the nature of the relationship that is established, whether sole agency, limited dual agency, or no agency, determines the duties and obligations of the brokerage and its related licensees, as well as the level of assistance and representation that the party will receive. Regardless of the type of relationship that has been established, under section 3-4 of the Rules, licensees must act honestly and with reasonable care and skill whenever they are providing real estate services.

Sole agency

There are different types of sole agency relationships. One type of sole agency, ‘designated agency’, occurs when the brokerage and the client agree that the brokerage will designate one or more licensees engaged by that brokerage to provide real estate services as sole agent for the client. In designated agency, the brokerage has contractual duties to the client but it is the designated agents who act as sole agent for the client. Another type of sole agency, the historical model of real estate agency, is referred to in this material as ‘brokerage agency’. In brokerage agency, it is the brokerage that is the agent of the client, and all licensees engaged by that brokerage automatically assume the same agency obligations as the brokerage in relation to that client. When the brokerage only represents one client in a particular transaction, this is referred to as ‘sole’ agency.

Section 3-3 of the Rules details the duties typically associated with brokerage agency, where a brokerage is the agent and all its related licensees assume the same duties in relation to the brokerage’s clients. In such circumstances, when they are engaged by a client to provide real estate services, the brokerage and its related licensees must:  

    (a)   act in the best interests of the client;

    (b)   act in accordance with the lawful instructions of the client;

    (c)   act only within the scope of the authority given by the client;

    (d)  advise the client to seek independent professional advice on matters outside of the expertise of the licensee;

    (e)   maintain the confidentiality of information respecting the client;

    (f)   without limiting the requirements of Division 2 [Disclosures] of Part 5 [Relationships with Principals and Parties], disclose to the client all known material information respecting the real estate services, and the real estate and the trade in real estate to which the services relate;

    (g)   communicate all offers to the client in a timely, objective and unbiased manner;

    (h)   use reasonable efforts to discover relevant facts respecting any real estate that the client is considering acquiring;

    (i)     take reasonable steps to avoid any conflict of interest;

    (j)   without limiting the requirements of Division 2 [Disclosures] of Part 5 [Relationships with Principals and Parties], if a conflict of interest does exist, promptly and fully disclose the conflict to the client.

A brokerage and client may agree to modify or make inapplicable one or more of these duties. This would happen, for example, when clients agree to limited dual agency, or other forms of limited duties arrangements.

Section 3-3.1 of the Rules identifies how such modifications are to be documented. The agreement to modify or make inapplicable duties must either be contained in a written service agreement (e.g. a listing contract, buyer agency contract, or limited dual agency agreement), or in a written disclosure (e.g. a Working With a REALTOR® brochure).

The agreement must identify what duties have been modified and how they have been modified, and what duties, if any, that have been made inapplicable.

Despite an agreement to modify these duties, the brokerage continues to have duties to supervise its related licensees and to not disclose confidential information.

Section 3-3.2 of the Rules identifies how the duties established by section 3-3 may be modified to create a designated agency relationship. In designated agency, the brokerage and the client agree that these duties - other than the duty shared with the designated agents to keep the confidences of the client, and the holding of money on behalf of the client - are the responsibility of the designated agents only. The brokerage and the client agree that no other licensees engaged by the brokerage have any of these duties to the client. The brokerage continues to have duties to supervise its related licensees and to not disclose confidential information, and it must treat the interests of all clients in an even handed, objective, and impartial manner.

Limited Dual Agency

Designated agency allows two clients who have engaged the same brokerage to have independent representation by their respective designated agents, eliminating the occurrence of ‘in-house’ limited dual agency where they wish to negotiate in relation to the same property. Designated agency does not eliminate the possibility of limited dual agency where the same licensee or licensees acting as designated agent(s) represent two clients who wish to negotiate in relation to the same property.

Where a brokerage, acting under brokerage agency, acts both for the buyer/tenant and for the seller/landlord, with their agreement, the nature of the relationship created by contract is one of limited dual agency. In brokerage agency, limited dual agency can occur when the same licensee engaged by the brokerage represents both the buyer/tenant and the seller/landlord, or when different licensees engaged by the same brokerage represent both the buyer/tenant and the seller/landlord. Before a brokerage may represent both the buyer/tenant and the seller/landlord, the buyer/tenant and the seller/landlord must consent to such a relationship. Before providing their consent, the buyer/tenant and the seller/landlord must be fully informed regarding the limits that will be placed on the agent’s (brokerage’s) duties and obligations to the buyer/tenant and the seller/landlord.

Where a limited dual agency relationship has been agreed to, it is not possible for the licensee (designated agent or the brokerage) to fulfill all of their duties to both parties. As a result, the duties are limited by contract (e.g. the Limited Dual Agency Agreement created by the British Columbia Real Estate Association) and the sole agent, whether the brokerage or its designated agents as the case may be, become limited dual agents, with their duties being limited as follows: 

  • the licensee must deal with the buyer/tenant and the seller/landlord impartially,
  • the duty of full disclosure is limited so that the licensee is not required to disclose what the buyer/tenant is willing to pay for the property, what the seller/landlord is willing to sell/rent the property for, or the motivation of either party, and
  • the licensee must not disclose personal information about the parties, unless authorized to do so in writing. 

Again, section 3-3.1 of the Rules identifies how such modifications are to be documented.

No Agency

A licensee may also agree with a buyer/tenant or a seller/landlord that they will provide real estate services to them but not act as an agent on their behalf in a transaction. In other words, there will be no agency representation. In such a case, the buyer/tenant or the seller/landlord will be the customer of the licensee, rather than a client. The section below entitled Obligations Related to Various Licensee Service Relationships describes the obligations that a licensee has when working with a person being treated as a customer, and the Working With a REALTOR® brochure also explains the services that a licensee can provide under a relationship that does not involve an agency.

Rather than acting as a limited dual agent, a licensee may choose to act as the agent of only one of the parties. The licensee can treat the other party, with their agreement, as a customer. The nature of the relationship does not affect the licensee’s ability to earn the remuneration to which it is entitled. It is not necessary for a licensee to act as a limited dual agent in order for the licensee to receive the full commission payable.

For example, a licensee that acts on behalf of a buyer in negotiations with a seller who is attempting to sell their home on their own can choose the nature of the relationship the licensee wishes to establish with the seller. If the seller agrees, the licensee can provide real estate services, including entering into a fee agreement with the seller, without creating an agency relationship with the seller.

A licensee should not simply assume that an agency relationship must be created, but should carefully consider the nature of the relationship they wish to establish prior to explaining the Working With a REALTOR® brochure to a buyer/tenant or a seller/landlord.

Adhering to the four ‘‘D’s’’ can prove helpful in fulfilling the disclosure requirements of section 5-10 of the Rules: 

  1. Decide which party you wish to represent and the nature of the representation, and obtain the consent of that party to do so;
  2. Disclose to all parties so they know who you are representing;
  3. Document the decision and disclosure; and
  4. Demonstrate actions that are consistent with what you have decided, disclosed and documented. 
(iii) Obligations Related to Various Licensee Service Relationships

The following chart outlines the various obligations that a brokerage and/or its related licensees have depending on the nature of the relationship that is established. It should be noted that brokerages and their clients and customers may agree to modify or make inapplicable one or more of these obligations.

The ‘TO CLIENT DESIGNATED AGENCY’ column outlines the duties of a licensee who has been designated by their related brokerage to provide real estate services as a designated agent to or on behalf of a client. Under designated agency, it is the designated agent who has these duties while the brokerage, through its managing broker, has certain contractual duties; i.e. the brokerage must

  • handle all monies received in accordance with the Real Estate Services Act
  • supervise their related designated agents to ensure they fulfill their duties to their respective clients,
  • treat the interests of clients in an even handed, objective and impartial manner, and
  • not disclose any confidential information concerning the clients to any other person unless authorized to do so by the client, or required by law.

The ‘TO CLIENT BROKERAGE SOLE AGENCY’ column describes the obligations that a brokerage and all of its related licensees owe to their clients in a brokerage agency relationship when acting as a sole agent.

The ‘AS LIMITED DUAL AGENT’ column describes the duties that a brokerage under brokerage agency, or a designated agent under designated agency, would have to both clients if those clients have agreed that the brokerage or the designated agent, as the case may be, are able to act on their behalf as a limited dual agent in relation to the same trade.

The ‘TO CUSTOMER NO AGENCY’ column outlines the duties in a relationship in which there is no agency representation. A licensee’s obligations to customers are the same regardless of the relationship the licensee may have with the other party to the transaction. For example, a brokerage or a designated agent may act as a sole agent on behalf of one party (e.g. a seller) while treating the other party (e.g. the buyer) as a customer. In that example, they would have the duties identified under the ‘TO CLIENT’ column (either the BROKERAGE SOLE AGENCY or the DESIGNATED AGENCY column, as the case may be) with respect to the seller, and the duties identified under the ‘TO CUSTOMER NO AGENCY’ column with respect to the buyer.

  SOLE AGENCY    

GENERAL OBLIGATIONS

TO CLIENT DESIGNATED AGENCY TO CLIENT BROKERAGE AGENCY AS LIMITED DUAL AGENT TO CUSTOMER NO AGENCY
1. Perform mandate Yes Yes Yes No
2. Obey instructions Yes Yes * No
3. Act in person Yes Yes Yes No
4. Honesty Yes Yes Yes Yes
5. Act in impartial, objective manner No No Yes No
6. Exercise care and skill Yes Yes Yes Yes
7. Disclose information concerning:        
  7.1 Other party’s maximum/minimum price or terms Yes Yes No No
  7.2 Other party’s motivation Yes Yes No No
  7.3 Material defects in the seller’s property Yes Yes Yes Yes
  7.4 Buyer’s financial ability to complete transaction Yes Yes No No
  7.5 Other confidential information obtained from other party Yes Yes No No
8. Provide confidential advice on any or all relevant matters Yes Yes No No
9. Help negotiate and draft favourable terms Yes Yes No No
10. Recommend relevant ‘‘experts’’ (appraisers, surveyors, inspectors, etc.) Yes Yes No No
11. Present, in a timely manner, all offers, counter-offers, etc. Yes Yes Yes Yes
12. Convey in a timely manner all information that party wishes to have communicated Yes Yes Yes Yes
13. Keep fully informed regarding the progress of the transaction Yes Yes Yes Yes
FIDUCIARY OBLIGATIONS        
14. Loyalty Yes Yes No No
15. Avoid all conflicts of interest        
  15.1 Not act for both parties Yes Yes N/A No
  15.2 Not make secret profit Yes Yes Yes No
  15.3 Not buy client’s property Yes Yes N/A No
  15.4 Not sell own property to client Yes Yes N/A No
  15.5 Not act for parties whose interests conflict Yes Yes N/A No
16. Not misuse confidential information Yes Yes Yes No
17. Disclose all personal (brokerage’s) conflicts of interest Yes Yes Yes No
STATUTORY DUTIES        
18. To account Yes Yes Yes Yes
19. Other miscellaneous statutory duties Yes Yes Yes Yes
VICARIOUS LIABILITY        
20. Client vicariously liable for misconduct of brokerage Yes Yes ** No
NON-AGENCY SERVICES (May also be provided in agency relationships)        
21. Provide real estate statistics, including general market information, etc. Yes Yes Yes Yes
22. Provide standard form contracts and other relevant documents Yes Yes Yes Yes
23. Act as a scribe in the preparation of standard form contracts, etc. Yes Yes Yes Yes
24. Provide the names of ‘‘experts’’ (appraisers, surveyors, inspectors, etc.) Yes Yes Yes Yes

 

* Yes if no conflict of interest
** Not known at the present time

(iv) How an Agency Relationship Is Created

An agency relationship may be created by means of a written contract, orally or by conduct.

Where the client is the seller, typically the listing contract establishes the agency relationship. As indicated above, a licensee has a duty of undivided loyalty to a client. However, it is common for a licensee to act for more than one seller at a time and to act for more than one buyer at the same time they act for sellers. Therefore, the duty of undivided loyalty is typically limited in order to permit the licensee to act on behalf of other buyers and sellers at the same time. In order to do this without breaching their obligations, the service agreement should include limitations on the duties that the licensee will owe to their client. The British Columbia Real Estate Association standard form Multiple Listing Contract contains the limitations that permit licensees to conduct business with multiple sellers and buyers concurrently without being in breach of their duties to their clients.

When representing buyers, some licensees use an Exclusive Buyer’s Agency Contract. Where such a contract is used, the contract sets out the terms of the agency relationship. If a written contract is not used, the party to the trade may orally agree that the licensee is the client’s agent. Where the agreement is oral, the licensee should obtain the client’s agreement that they are permitted to act for other buyers and sellers and that they will not disclose confidential information obtained through other agency relationships.

In some cases, however, the courts have found that an agency relationship has been created as a result of the conduct of the parties. Such agency relationships are often referred to as ‘‘implied agency’’. A licensee acting on behalf of a person who is not otherwise represented may be found to be acting as the party’s agent if their actions would lead the party to believe that the licensee was acting as their advocate. An implied agency relationship may be found to exist, even where the licensee did not intend to act as the party’s agent. In any transaction which involves an unrepresented party, if the licensee does not intend to act in an agency relationship, it is very important for that licensee to confirm with that party that he or she is being treated as a customer, not a client. It is also important that the conduct of the licensee is consistent with such statements.

(v) Documenting the Agency Relationship

Sections 5-8 and 5-10(a) of the Rules, when taken together, require that the nature of representation that a licensee is providing must be disclosed in writing. As indicated above, while the nature of the representation is normally documented with a seller/landlord by way of a listing contract, the use of written buyer’s agency contracts, particularly in residential real estate, has not been as common.

Section 3-3.2 of the Rules requires that there be an agreement between a brokerage and a client if the intention is that designated agents, not the brokerage and all its licensees, are to be responsible for the agency duties owed to the client. This agreement must either be a written service agreement or, if there is no written service agreement, preceded by written disclosure of the nature of the relationship. The Working with a REALTOR® brochure is useful in disclosing both the nature of representation to be provided, and matters addressed in section 3-3.2, but prudent brokerages/designated agents will want to confirm the relationship with a buyer/tenant in writing at the earliest opportunity by completing a written buyer’s agency contract.

(vi) Teams and Agency

Some licensees operate as teams. Whether under designated agency or brokerage agency, members of these teams typically share information with respect to the various persons to whom they provide real estate services. That is the essence of the team concept. As a result, these teams are not able to separate their agency relationships, whether under brokerage agency or under designated agency. For example, if John Smith and Wendy Chang are a team, John cannot act as designated agent for the seller and Wendy as designated agent for the buyer in relation to the same trade. The team may be able to treat one or the other as a customer so long as an agency relationship hasn’t already been established with that person. Otherwise, the team will have to seek the consent of both clients to act as limited dual agents.

(vii) Commercial Trading Services and Agency

There are many differences between residential and commercial trades in real estate, one of the more common being that the parties involved in a commercial trade are often thinking about the investment value of real estate more so than its value as shelter. They may have either in-house or independent professional advisers, such as accountants and lawyers, assisting them in analyzing this investment value, and determining the best way to structure ownership and use to maximize that value. The relative sophistication of the parties may affect the types of services or level of advice expected from licensees. With this in mind, the nature of representation the brokerage and licensee are providing to the parties involved in a commercial trade in real estate, and what duties are owed to those parties by the brokerage and licensee, can sometimes be misunderstood.

In providing trading services, whether those services are related to commercial or residential real estate, it is important for the brokerage and licensee and the party to whom the services are being provided, whether that is the seller/landlord, or the buyer/tenant, or both, to understand the nature of the relationship between them because the duties and obligations of the brokerage and the licensee are determined by that relationship. The preceding table of obligations applies equally to commercial trading services relationships.

(viii) Conflicts of Interest

When a licensee is engaged by a client to provide real estate services, certain duties are owed to that client. Section 3-3(a) of the Rules requires licensees to ‘‘act in the best interests of the client’’. Section 3-3(i) requires licensees to ‘‘take reasonable steps to avoid any conflict of interest’’. Where a conflict of interest, which cannot be reasonably avoided, does exist, section 3-3(j) requires the licensee to ‘‘promptly and fully disclose the conflict to the client’’. A fully informed client may then choose to allow the licensee to continue to act in that conflict by modifying or making inapplicable the obligations which can’t be fulfilled because of the conflict. 

(ix) Conflicts of Interest - Limited Dual Agency

Whenever a licensee attempts to act for more than one party whose interests conflict, a potential conflict for the licensee can arise. While the law does not prohibit acting for more than one party, it is not possible for a licensee to act as the agent for more than one client whose interests may conflict without being in breach of their fiduciary duties (see Sole agency above) to each client. Accordingly, a licensee wishing to act for more than one client whose interests may conflict must first obtain the informed consent of both parties before acting on their behalf.

In this context, informed consent means that the licensee must disclose to both parties, in a timely manner:

  • the nature of the conflict of interest that would arise if the licensee were to represent both parties; and
  • what is being proposed by the licensee and the implications of giving their consent.

The above disclosure must occur before the licensee begins to act for both parties and before any potential conflict of interest has arisen.

A common conflict that arises is where a licensee is representing both the seller and the buyer in the same transaction. These situations are the ones that generally come to mind when the term ‘‘limited dual agent’’ is used.

Under designated agency, a brokerage and its clients agree that different licensees engaged by that brokerage may be designated to act as sole agents on behalf of clients whose interests may conflict. When different licensees are designated to act on behalf of different clients who are negotiating the same transaction, dual agency is avoided. The conflicts of limited dual agency continue to exist, however, if the same designated agents are acting on behalf of a seller and a buyer in relation to the same transaction, or acting on behalf of two buyers who are interested in buying the same property.

If operating under brokerage agency, this conflict exists either when two different licensees engaged by the listing brokerage work with the seller and the buyer respectively, or when one licensee (or a team of licensees) engaged by the listing brokerage to act on behalf of the seller/landlord is the same licensee (or team of licensees) who brings the buyer/tenant to the trade, i.e. a double-ender). It is important to remember that under brokerage agency practice, when a licensee engaged by a brokerage lists a property for sale, the brokerage is appointed as the agent of the seller, and all of the brokerage’s related licensees assume the agency obligations of the brokerage in relation to that seller. Similarly, under brokerage agency, when a licensee engaged by a brokerage acts as a buyer’s agent, the brokerage is appointed as the agent of the buyer, and all of its related licensees assume the agency obligations of the brokerage in relation to that buyer.

In order to act as a limited dual agent, a licensee (whether the brokerage in brokerage agency or the designated agent in designated agency) must have the agreement of the two clients as to how the duties owed to those clients are to be modified or made inapplicable. Under section 3-3.1 of the Rules, this agreement must either be in a written service agreement, such as a Limited Dual Agency Agreement, or preceded by written disclosure. The agreement must indicate the duties that have been modified and how they have been modified, and the duties that have been made inapplicable.

Licensees who are members of real estate boards, and access WebForms® should be aware that there are now two Limited Dual Agency Agreement forms available, one for use when a licensee wishes to enter into a limited dual agency agreement with a seller and a buyer [the Limited Dual Agency Agreement (Buyer/Tenant and Seller/Landlord) form], and the other for use when a licensee wishes to enter into a limited dual agency agreement with two different buyers who are each interested in making an offer on the same property [the Limited Dual Agency Agreement for Competing Buyers/Tenants form].

Licensees must also keep in mind that the definition of a ‘‘trade in real estate’’ includes a transaction for the leasing of real estate. If a brokerage acts for both the landlord and the tenant, particularly in the arranging of commercial leases, the brokerage may wish to act as a limited dual agent. Designated agency is, of course, an alternative to ‘in-house’ limited dual agency in commercial transactions as well as residential transactions.

There are many other situations where a licensee may be involved in more than one aspect of a trade in real estate and wishes to act as a limited dual agent. Whenever a brokerage is involved in more than one aspect of a trade in real estate, the situation can give rise to conflicts of interest. For example, a brokerage that provides strata management services to a strata corporation might be asked by the owner of a strata lot within that strata corporation to list the strata lot for sale. As an agent for the strata corporation, the strata manager may have access to information that is confidential to the strata corporation and is not intended to be shared with individual strata lot owners or potential buyers (e.g., specific details concerning current legal action, including settlement negotiations, hardship cases, or concerns regarding a rogue strata lot owner). The strata manager has an obligation to keep the confidence of the strata corporation. Yet, as an agent for the seller of the strata lot, that same brokerage would have a duty to disclose all known facts that may affect or influence the seller’s decision.

Another example could be where a licensee is acting as an agent for a seller and as a mortgage broker for a buyer in the same trade. That licensee may become aware of personal, confidential information regarding the buyer that would be of interest to the seller.

Additionally, licensees are occasionally in a position where they act as an agent for various buyers, all of whom wish to make an offer on the same property. Under designated agency, a brokerage, with the agreement of these buyers, may appoint different licensees as the designated agents to act on behalf of these buyers who are interested in purchasing the same property. With proper practice, including not sharing the confidential information of their respective clients, designated agents engaged by the same brokerage are able to avoid many of the conflicts that can arise under limited dual agency with respect to these types of ‘in-house’ transactions.

Whenever a licensee attempts to act for more than one party in a trade as a limited dual agent, the licensee is in a potential conflict of interest. In every case, the licensee must disclose the conflict to their clients and obtain the informed consent of their clients before acting or continuing to act on their behalf.

The disclosure must be timely, and, where possible, made before either client has disclosed confidential information to the licensee. This is important because one of the most significant challenges for a licensee in limited dual agency, where there are two clients, is the conflict between the obligation to disclose to each client all known material information respecting the real estate services, the real estate itself, and the trade in real estate [subsection 3-3(f) of the Rules], and the obligation to maintain the confidentiality of information respecting each client [subsection 3-3(e) of the Rules]. Often, the confidential information of one client would be material to the interests of the other client. Without these clients agreeing to modify these conflicting obligations, the licensee is placed in the untenable position of being obliged to disclose information they are obliged not to disclose. In other words, they are not able to fulfill their obligation of undivided loyalty to both clients at the same time.

In order to comply with the disclosure requirements of section 5-10 of the Rules, appropriate disclosure of the limited dual agency relationship must be made at the first reasonable opportunity and, where possible, made before either client has disclosed confidential information to the agent. Those agents not using the Working With a REALTOR® brochure for this purpose must ensure that they are using an appropriate alternative that provides complete and accurate disclosure of the relationships.

Both clients have to be fully aware of the existence of a limited dual agency relationship. The courts are increasingly imposing an obligation on the limited dual agent to inform both clients of the ‘‘full implications of representation by a limited dual agent’’. This obligation has been extended by the courts to disclosure of the implications and benefits of sole representation, and the parties’ entitlement to choose sole representation. The courts have held that clients have the right to make a fully informed choice as to the nature of the representation they wish to receive.

Although, generally speaking, the informed consent of the client to a limited dual agency relationship is sufficient, there are some cases where a brokerage practicing brokerage agency should not represent both parties in a trade. In those circumstances where a licensee related to a brokerage is acquiring or disposing of property on their own account or when the licensee is providing real estate services to an associate (as defined in section 5-7 of the Rules), the licensee should not also be acting for the other party. In such circumstances, a licensee could not remain objective or neutral.

Even though a licensee has complied with section 5-9 of the Rules, which requires disclosure of their interest in the trade, the licensee should also resist creating a conflict of interest by agreeing to have their related brokerage, if operating under brokerage agency, also represent the other party. In such circumstances, so long as an agency relationship has not been created with the other party, the licensee and their related brokerage may wish to treat the other party as a customer instead of entering into a limited dual agency relationship. In this way conflicts may be avoided.

This conflict may not exist under designated agency if the other party is able to obtain independent representation through their own designated agent, and if the client’s confidential information has not and will not be shared with the licensee who is acquiring or disposing of the real estate or a licensee who is representing that licensee.

It is important for licensees to keep in mind, however, that the determination of the relationship or a change in the relationship must be agreed to by the client/customer. A licensee who wishes to change from one type of relationship to another must first obtain the informed consent of their client/customer. Making such a change is not simply a matter of the licensee advising the client that the relationship has changed. 

(x) Duty of Disclosure by a Limited Dual Agent

Limitations to a licensee’s usual duties and obligations may be agreed to that permit the licensee to represent clients who have conflicting interests. As noted above, under section 3-3.1 of the Rules, this agreement must either be in a written service agreement, such as a Limited Dual Agency Agreement, or preceded by written disclosure. The agreement must indicate the duties that have been modified and how they have been modified, and the duties that have been made inapplicable.

When acting as a limited dual agent for a buyer and a seller, the licensee’s duty of full disclosure is modified to allow the licensee to keep information in three areas confidential:

  • the price or other terms a client is willing to accept or pay (other than what is contained in the offer);
  • the motivation of either client; and
  • either client’s personal information.

The licensee is also required to deal impartially with both clients, and must disclose to the buyer any known material latent defects affecting the property (see section 5-13 of the Rules).

Licensees entering into limited dual agency contracts with clients often do so by using the Limited Dual Agency Agreement made available by their real estate board. In order to avoid potential misunderstandings, and prior to acting as a limited dual agent, licensees should review with each party the limitations placed on a licensee’s usual duties by this contract.

In cases where a licensee is acting as a limited dual agent in a situation other than for a buyer and a seller, the limitations with respect to disclosure by the licensee will change. For example, where the licensee is both the strata manager and the listing agent, the limitation may be that the licensee will not disclose the personal or otherwise confidential information about either the strata corporation or a strata lot owner unless authorized in writing. Similarly, when a licensee is both the agent for the seller and the mortgage broker for the buyer, the limitation may be that the licensee will not disclose any personal information to the seller about the buyer.

An important point for brokerages and their related licensees to keep in mind is that their clients must agree to the limitations placed on a licensee’s usual duties before the licensee acts as a limited dual agent.

Additionally, licensees must keep in mind that the limited dual agent is still the agent of both parties and, subject to the limitations agreed to by the clients, must ensure that full disclosure respecting the subject matter of the contract is made to both clients. In addition, any action taken by the licensee in regard to the trade must be consented to by both parties.

As a limited dual agent, a licensee who is acting on behalf of both clients should remember the key elements to correct conduct as a limited dual agent:

  • impartiality;
  • disclosure; and
  • consent.

Limited dual agents have a duty to treat the buyer and the seller impartially, and other than the exceptions set out in the Limited Dual Agency Agreement, they must disclose everything material to both the buyer and the seller.

Remember, the test of what is material is an objective one and if such information is not disclosed, the licensee may face disciplinary and/or civil action.

One of the leading cases regarding disclosure is the decision of the B.C. Court of Appeal in Ocean City Realty v. A&M Holdings Ltd.

In that case, the Court of Appeal stated that:

The duty of disclosure is not confined to these instances where the agent has gained an advantage in the transaction or where the information might affect the value of the property or where a conflict of interest exists. The agent certainly has a duty of full disclosure in such circumstances, they are commonly occurring circumstances which require full disclosure by the agent. However, they are not exhaustive.

The obligation of the agent to make full disclosure extends beyond these three categories and includes ‘‘everything known to him respecting the subject matter of the contract which would be likely to influence the conduct of his principal, or ... which would be likely to operate on a principal’s judgment’’. In such cases, the agent’s failure to inform the principal would be material non-disclosure.

The Court of Appeal emphasized that an agent cannot arbitrarily decide what would likely influence the conduct of their principal and thus avoid the consequence of non-disclosure. If the information pertains to the transaction with respect to which an agent is engaged, any concern or doubt that the agent may have can readily be resolved by disclosure of the facts to their principal.

(xi) Conflicts of Interest Related to Licensees Buying and Selling Real Estate

Complications arise when a licensee attempts to act as a principal and as an agent for the other party in the same transaction. Not only can that licensee not be impartial and objective, but they are likely unable to meet another fundamental obligation of an agent: the duty to not allow their own personal interest to prejudice their client’s interest. Whether a licensee is selling their own property to a client, or buying their client’s property, there is a very significant risk that their own personal interest will be in conflict with, and therefore will prejudice, their client’s interest. Where the client is a party to a Limited Dual Agency Agreement, it must be established, on the particular facts and circumstances of each case, that the client gave their informed consent to that relationship.

In the case of D’Atri v. Chilcott, the Court found that the following principles are applicable where a licensee is buying a client’s property:

  • that the relationship between a real estate agent and the person who has retained him or her to sell their property is a fiduciary and confidential one;
  • that there is a duty upon such an agent to make full disclosure of all facts within the knowledge of the agent which might affect the value of the property;
  • that not only must the price paid be adequate, but the transaction must be a righteous one, and the price obtained must be as advantageous to the principal as any other price that the agent could, by the exercise of diligence on his principal’s behalf, have obtained from a third person; and
  • that the onus is upon the agent to prove that those duties have been fully complied with.

Expanding on these principles, the Court referred to other cases involving the obligations of a fiduciary when transacting with its own clients. In Brown et al. v. Premier Trust Co. et al. it was found that ‘‘the onus is cast on them to establish the perfect fairness and equity of the transaction. They must show that Dr. Brown (the client) entered into the transaction, not through the operation of any acts on the part of Holmes (the fiduciary), but ‘‘after full and sufficient deliberation, and with all the information which it was material for him to have in order to guide his conduct; and that he had either independent and disinterested advice, or as ample protection as such advice could have given him. In other words, they must show that they had given all reasonable advice against themselves that would have been given to Dr. Brown against a third party’’.

In Charles Baker Ltd. v. Baker and Baker, the Court found that ‘‘the onus is upon the agent to prove that the transaction was entered into after full and fair disclosure of all material circumstances and of everything known to him respecting the subject-matter of the contract which would be likely to influence the conduct of his principal. The burden of proof that the transaction was a righteous one rests upon the agent, who is bound to produce clear affirmative proof that the parties were at arm’s length, that the principal had the fullest information upon all material facts, and that having this information he agreed to adopt what was done.’’

Similar principles would apply where a licensee is selling their own property to a client.

If a licensee decides to take such a very significant professional risk, it would appear from the Brown case that one way to deal with this obligation that might reduce a licensee’s risk is to ensure the other party has the opportunity and time to obtain any and all independent advice they desire. This may include advice about value, the legal effect of terms or conditions, tax considerations, or any other matter about which the other party has questions. This may also result in the client deciding they want to be independently represented by a licensee engaged by another brokerage. Clients may choose to not allow a licensee to continue to represent them when that licensee is in a conflict of interest.

Buying a Property Listed by Your Related Brokerage

If a licensee decides to take a substantial professional risk and make an offer to buy their own listing or, in the case of brokerage agency, any property listed with their brokerage, they are advised as follows:

    Before Negotiations: Prior to the commencement of any negotiations with the seller to purchase their property, advise their managing broker of their intentions. If their managing broker approves of proceeding with the proposed purchase, continue to involve the managing broker or their designate throughout the buying process.

    Full Disclosure: Promptly and fully disclose their conflict of interest position to the seller as summarized above and confirm such disclosure in writing.

    Option To Cancel Listing: Give the seller the option to cancel the service agreement (listing) and the opportunity to seek independent representation.

    Withdraw as Representative: If the seller chooses not to cancel the service agreement, fully withdraw as the brokerage representative acting for the seller, with the managing broker or their designate then undertaking to act as an alternate representative of the brokerage when dealing with the seller.

    Cease All Communication: Cease all direct communication with the seller. All contact with the seller should be indirectly through the managing broker or their designate.

    Disclosure of Interest in Trade: Ensure that a ‘‘Disclosure of Interest in Trade’’ form is fully completed and presented to the seller, prior to the presentation of their offer. A clause should be included in the contract confirming their delivery of the required disclosure, e.g., The Seller acknowledges having received a signed ‘‘Disclosure of Interest in Trade’’ form which disclosed the licensee’s interest in the transaction before the receipt of this offer.

    Condition Requiring Independent Advice : Make their offer subject to the Seller, on or before [a specific date which should ensure sufficient time is provided for the seller to obtain all required professional advice], receiving and being satisfied with, such professional advice as they deem appropriate, including but not limited to legal advice as to the terms and conditions of this Contract, appraisal advice as to the current fair market value of the Property and tax advice.

 

Selling a Licensee’s Real Estate Through Their Related Brokerage

If a licensee decides to take a substantial professional risk to sell their own property through their brokerage, they are advised as follows:

    Before Listing the Property: Prior to listing their property through their brokerage, advise their managing broker of their intentions and continue to involve the managing broker or their designate throughout the selling process.

    Appoint Brokerage Listing Representative: Do not act as the client’s designated agent for the listing, rather arrange for another licensee in their brokerage to act as the designated agent for the client. The designated agent engaged should take all steps that are customary when taking a listing, including measuring the property, obtaining a site plan and survey, checking title, checking the municipal file, preparing the listing contract, inputting property information into the Multiple Listing Service®, preparing all advertising and promotional material, etc.

    Do Not Act for Buyers: The brokerage, if acting under a brokerage agency relationship, should, where possible, not act as agent for a potential buyer of the related licensee’s property. Should a buyer wish one of the brokerage’s licensees to act for them, such licensee should promptly and fully disclose the brokerage conflict of interest to the potential buyer and confirm such disclosure in writing. It is preferable that the listing representative for the brokerage (along with all other brokerage representatives) acts as agent for the seller only and no agency representation is provided to a buyer of the property. Any brokerage licensee who has entered into a buyer agency contract with a buyer who becomes interested in buying the property should offer the buyer the option to cancel such contract and give the buyer the opportunity to seek independent representation. This precautionary measure may not be necessary under designated agency so long as the buyer is able to have their own independent representation and no confidential information of either party is shared with the other

    Do Not Communicate Directly with Buyer: Do not at any time communicate directly with the buyer. All communication with the buyer or the buyer’s agent should be indirectly through the listing representative for the brokerage.

    Disclosure of Interest in Trade: Ensure that a ‘‘Disclosure of Interest in Trade’’ form is fully completed and presented to the buyer, prior to the presentation of the buyer’s offer. If an offer is received prior to having made the required disclosure, the prospective buyer must be given the opportunity to rescind their offer prior to you accepting it. It is not sufficient to accept the offer subject to the disclosure. The disclosure is required to be made before any agreement is entered into. A clause should be included in the contract confirming your delivery of the required disclosure, e.g., The Buyer acknowledges having received a signed ‘‘Disclosure of Interest in Trade’ form which disclosed the licensee’s interest in the transaction before the making of this offer.

    Independent Advice: If the buyer does not have independent representation, the buyer’s offer should be made Subject to the Buyer, on or before [a specific date which should ensure sufficient time is provided for the buyer to obtain all required professional advice], receiving and being satisfied with, such professional advice as they deem appropriate, including but not limited to legal advice as to the terms and conditions of this Contract, appraisal advice as to the current fair market value of the Property and tax advice. 

(xii) The Conflict in Brokerage Agency of Representing Two Buyers Who Want To Buy the Same Property

A second example of a licensee acting for two clients with potentially conflicting interests is where the same brokerage represents two buyers who are interested in buying the same property. This conflict may be avoided under properly practiced designated agency. Under designated agency, the brokerage and each competing buyer agree that the brokerage may designate one or more different licensees engaged by the brokerage to separately represent each buyer as their designated agent. The designated agents are able to fully represent the interests of their respective buyer clients, while the brokerage must treat the interests of the competing clients in an even handed, objective and impartial manner, and not disclose any confidential information concerning any of the clients to any other person unless authorized to do so by the client or required by law. The brokerage, through its managing broker, must also supervise its designated agents to ensure they are fulfilling their obligations to their respective clients.

If, however, the same licensee has the consent of competing buyers to act as a designated agent on their behalf, this would be an example of limited dual agency and there would be a similar limitation of duties necessary as described above. The use of a Limited Dual Agency Agreement for Competing Buyers/Tenants form would be appropriate to document the consent of the competing buyers to the limitation of duties.

Under brokerage agency, the brokerage is the agent of the client and all of the brokerage’s related licensees assume the agency obligations of the brokerage, so there is a conflict in licensees engaged by the same brokerage acting as agents for different buyers when those buyers become interested in buying the same property. Under brokerage agency, this conflict is essentially the same whether it is one licensee trying to represent two competing buyers, or two licensees engaged by the same brokerage trying to represent two competing buyers. How can the brokerage, being the agent, act in the best interests of both buyers at the same time?

The situation may be a bit less complicated if the brokerage has entered into written buyer agency contracts, or some other form of buyer agency acknowledgment agreement, with each of these competing buyers. In the ‘‘standard’’ Exclusive Buyer Agency Contract, a buyer agrees that it is not a conflict for the brokerage, or its designated agents as the case may be, to act as an agent for other buyers. There is similar wording in ‘‘standard’’ listing contracts vis-à-vis the brokerage or its designated agents, as the case may be, representing other sellers. There is also a clause that states the brokerage or its designated agents is not required to disclose confidential information obtained through any other agency relationship. The Buyer Agency Acknowledgement form available through WebForms® also addresses these issues.

If a licensee has not entered into a written contract with respect to these limitations of duties it would otherwise have, the safest approach may be for the licensee to seek the consent of both clients to only act for one of these competing buyers, perhaps the one to whom they first showed the subject property, and suggest the second buyer seek representation from another licensee. The licensee still requires the agreement of the buyer they will be representing that the licensee is not required to disclose any confidential information they may have acquired as a result of acting for the competing buyer. This would avoid the conflict and allow the licensee to continue to act in the best interests of the first buyer.

If that is not a reasonable step, the licensee must promptly and fully disclose the conflict to both buyer clients. This would be a prudent thing to do, even if the licensee has the written agreement, through an Exclusive Buyer Agency Contract or otherwise, to represent other buyers.

Licensees must remember that it is the client’s right to decide whether it is prepared to continue to allow the brokerage or any of its related licensees to represent them in a conflict such as this. If both buyers are prepared to allow the brokerage or its related licensees to represent them in their respective negotiations, and there is no written buyer agency contract or acknowledgment, the brokerage and each buyer client must agree in writing how the duties under section 3-3 of the Rules are to be modified or made inapplicable. For example, in brokerage agency, the brokerage’s and its related licensees’ duty of absolute loyalty would need to be modified. Presumably neither buyer would want the brokerage to disclose the terms of their offer to the other, which the brokerage would otherwise be obliged to do under its obligation to disclose to each client everything it knows about the trade in real estate.

The need to detail these limitations of duties for licensees acting for two buyers is just as important in this situation as it is when a licensee is acting for a seller and a buyer in the same trade. Real estate boards have created a “limited dual agency” agreement for licensees representing competing buyers.  If it is not common practice for a brokerage and its related licensees to enter into written buyer agency contracts with their buyer clients, brokerages should obtain independent legal advice to assist in preparing an appropriate contract respecting limitation of duties for use by its related licensees when they are working with competing buyers under a brokerage agency relationship.

(xiii) Co-Listing Agency Obligations

What is the agency status of ABC Realty Ltd. and XYZ Realty Ltd. in the following scenario?

ABC Realty Ltd. is a small brokerage with only one licensee: Ms. Brown. They enter into a ‘‘standard’’ Multiple Listing Contract with Mr. Seller for the sale of his home. Ms. Brown is to go on vacation during the term of the listing. When the home has not been sold as Ms. Brown’s vacation approaches, Mr. Seller and ABC Realty Ltd. agree that a co-listing contract should be entered into with another brokerage so that marketing efforts would continue during Ms. Brown’s vacation. A listing amendment is created adding XYZ Realty Ltd. as a co-listing agent. There is nothing in the amendment to suggest that XYZ Realty Ltd.’s obligations are in any way different than the obligations of the original listing brokerage, ABC Realty Ltd. During Ms. Brown’s vacation, a licensee engaged by XYZ Realty Ltd. finds a buyer who is interested in making an offer to purchase Mr. Seller’s home.

Unless an amendment to the service agreement has expressly created different obligations, where two brokerages co-list a property for sale, they are acting in concert in marketing the property and would jointly owe all fiduciary and other obligations to the seller. It follows then that if one brokerage enters into a limited dual agency relationship with the seller and a buyer, the other brokerage should also be seen as being in limited dual agency.

To suggest otherwise would be to view the relationship of the two brokerages as simply being the equivalent of ‘‘cooperating’’ brokerages — a relationship already typically permitted by most brokerage’s listing contracts — and this arrangement would require no amendment to that contract. But the brokerages and the seller wished to create a closer relationship than this; they wished XYZ Realty Ltd. to market the property for sale during Ms. Brown’s vacation. The two brokerages jointly agreed to act in concert representing the seller as their client, and this was reflected in the listing amendment.

One might ask whether, through the listing amendment, XYZ Realty Ltd. was being appointed as a ‘‘sub-agent’’ of ABC Realty Ltd., even though that term was not used in the amendment. The result would likely be the same as the initial agent and the sub-agent would owe the same duties to the seller. 

See also Co-Listing Conundrum: How Does Designated Agency Affect Your Co-Listing Agreement? (Report from Council, December 2014)

(xiv) Continuing Duty of Confidentiality

William Foster, a noted authority on real estate agency matters, suggests:

The fiduciary relationship of broker and client persists until the agency agreement expires or the purpose of the agency has been accomplished (i.e., the transaction has completed). Therefore, where a broker has obtained an offer that has been accepted by the client the fiduciary relationship remains in effect until the transaction is completed or the agency agreement terminates.

However, even when an agency agreement and, thus, the fiduciary relationship between broker and client has been terminated, some fiduciary duties persist thereafter - thus, for example, on termination of an agency relationship, brokers cannot use confidential information acquired while representing a client for their own or a third party’s benefit.

Two licensees were reprimanded by the Council for breaching a continuing duty of confidentiality to a seller they represented in the listing of the seller’s property.

The listing had expired and the plaintiff commenced a lawsuit against the seller which was related to the subject property. The lawyer acting for the plaintiff approached the licensees and requested that they provide affidavits containing information about the listing of the property.

The licensees claimed that the lawyer for the plaintiff made it clear to them that if they did not provide the affidavits voluntarily, he would either subpoena them as witnesses to give evidence before the judge, or he would obtain a court order pursuant to the Rules of Court compelling them to give their evidence.

The licensees provided the requested affidavits, as they believed that they had no choice in the matter.

The seller complained to the Council that the information in the affidavits was confidential. The Council found that there was a continuing duty of confidentiality on the part of the two licensees after the expiration of the agency relationship and that the licensees, by providing the affidavits, had breached their duty of confidentiality.

Licensees should be aware of the following guidelines with respect to the continuing duty of confidentiality:

1. Licensees should not volunteer to disclose confidential information about their clients at any time.

2. Before agreeing to provide any information to a lawyer or any other third party, licensees should advise the lawyer or third party that they intend to seek the consent of their clients to the disclosure of the information.

3. Licensees should obtain the consent of their clients in writing. If the client is not prepared to consent to the disclosure of the information, licensees should advise the lawyer or third party accordingly. The lawyer may then take legal steps to compel disclosure of the information either by issuing a subpoena to licensees to attend a proceeding as a witness or by obtaining a court order pursuant to the Rules of Court compelling the licensee to give their evidence.

4. Licensees may wish to obtain their own legal advice as to whether the disclosure of information consented to by their clients may result in a possible claim against licensees by another party.

5. Licensees should be aware that they are relieved from any duty of confidentiality owed to a client when communicating with the Council or the Real Estate Errors and Omissions Insurance Corporation in regard to a complaint or claim by virtue of section 123 of the Real Estate Services Act, which states as follows:

Communications privileged

123. (1) Subject to (2), all information supplied and all records and things produced to the real estate council, a hearing committee, the superintendent, the insurance corporation or the compensation fund corporation with respect to a licensee, a former licensee or an applicant for a licence are privileged to the same extent as if they were supplied or produced in proceedings in a court, and no action may be brought against a person as a consequence of the person having supplied or produced them.

(2) Subsection (1) does not apply to a person who supplied information or produced records or things maliciously.”

6. Licensees should also be aware that when acting as a limited dual agent in a transaction where the parties to a contract have entered into a limited dual agency agreement, that agreement specifically modifies the duty of confidentiality and provides that licensees have a duty to disclose information to both parties in a transaction, subject to three exceptions as follows:

(a) the brokerage will not disclose that the buyer/tenant is willing to pay a price or agree to terms other than those contained in the offer, or that the seller/landlord is willing to accept a price or terms other than those contained in the listing;

(b) the brokerage will not disclose the motivation of the buyer/tenant to buy or lease or the seller/landlord to sell or lease unless authorized in writing by the buyer/tenant or the seller/landlord; and

(c) the brokerage will not disclose personal information, not otherwise necessarily disclosed in the transaction documentation, about the buyer/tenant or the seller/landlord to the other party unless authorized in writing.

A brokerage that is providing trading services to a client who is disposing of real estate must disclose to all other parties to the trade, promptly but in any case before any agreement for the acquisition or disposition of the real estate is entered into, any material latent defect in the real estate that is known to the brokerage. Section 5-13 of the Rules contains a definition for ‘‘material latent defect’’. 

(xv) Example of the Continuing Duty of Confidentiality

A seller has listed a property for sale with a brokerage and the seller advises the licensee handling the listing on behalf of the brokerage that there is a material latent defect affecting the property. The seller instructs the licensee not to disclose the latent defect to any potential buyer.

The licensee advises the seller of their obligation to disclose a known material latent defect under section 5-13 of the Rules and that, pursuant to section 3-3(b) of the Rules, they can only act in accordance with the lawful instructions of the client. The licensee’s brokerage subsequently withdraws from its agency relationship with the seller as the seller refuses to change their instructions in this regard.

Sometime later, the said licensee is approached by a potential buyer who is interested in buying the same property and wants the licensee’s brokerage to become their buyer’s agent to do so.

Can the licensee disclose this material latent defect to the buyer?

The answer to the question is ‘‘No’’. A licensee’s responsibility to maintain their client’s confidentiality continues beyond the termination of an agency relationship. The least risky course of action for the licensee may be to not represent this potential buyer; however, if the licensee wishes to provide agency representation they would first have to advise the buyer that they had previously represented the seller and that they cannot disclose confidential information obtained in that earlier relationship concerning such matters as:

  • seller’s motivation for selling;
  • personal information concerning the seller; or
  • the condition of the property,

and can only represent the potential buyer on the understanding that the licensee will not disclose any such information.

Essentially, the licensee must place the buyer in the position to make a fully informed decision as to whether the buyer wishes to be represented by the licensee’s brokerage in such circumstances.

The difficulty of reconciling the ongoing obligation of retaining a former client’s confidentiality with the obligation of full disclosure to a current client can be problematic. Licensees who face situations such as this should consult with their managing brokers, and consider obtaining independent legal advice before acting in a way that could expose them to a claim for breach of duty. 

(c) Trading Services Licensing Exemptions

Part 2 of the Real Estate Services Regulation under RESA establishes a number of exemptions in relation to trading services. It should be noted that under section 2 of RESA, a person who is licensed to provide real estate services is not able to act under any of these exemptions. This means that a licensee providing the services identified in any of these exemption sections must do so in the name of and on behalf of their related brokerage, and any remuneration received for providing these services must be paid to and received from that brokerage. The following are the exemptions that generate the most inquiries to the Real Estate Council.

Exemption for employees of principal (Section 2.1 of the Real Estate Services Regulation)

An individual is exempt from the requirement to be licensed under RESA in respect of real estate services if all of the following apply:

    (a) the services are provided to or on behalf of a principal in relation to those services;

    (b) the individual is the employee of the principal; and

    (c) the individual is not providing real estate services to or on behalf of anyone other than this principal.

A principal in relation to trading services is a party to a trade in real estate, including a potential trade. An individual wishing to act under this exemption must be an employee, as that term would typically be applied for taxation and employment standards purposes.

This exemption does not apply in respect of the provision of trading services if those services are provided with respect to a development unit, as that term is defined in the Real Estate Development Marketing Act, and the principal is a developer, as defined in that legislation, of the development unit. See the exemption below.

Exemption for employees of developers (Section 2.5 of the Real Estate Services Regulation)

Individuals who are employees of developers are exempt from the requirement to be licensed in respect of trading services if a number of conditions are met. The services must be provided with respect to a development unit, as defined in the Real Estate Development Marketing Act, on behalf of one or more developers of that development unit. The individual must be an employee of one or more of these developers, or a holding corporation of one or more of the developers, and the individual may not provide real estate services to or on behalf of any other person. An individual acting under this exemption must disclose to other principals (i.e., potential buyers of the development unit) that the individual is not licensed under RESA, who the individual is employed by, and that the individual is acting on behalf of the developer(s) and not on behalf of the buyer. This disclosure must be in writing and separate from the Contract of Purchase and Sale and any disclosure statement required under the Real Estate Development Marketing Act, and must be made promptly but in any case before any sales agreement has been entered into. The Real Estate Development Marketing Act may be accessed through www.bclaws.ca.

Exemption for notaries (Section 2.6 of the Real Estate Services Regulation)

A person who is a member in good standing of the Society of Notaries Public of BC is exempt from the requirement to be licensed in respect of negotiating the price or terms of a trade in real estate and receiving deposit money paid in respect of the real estate. These services must be provided in the course of and as part of the provision of services permitted under section 18 of the Notaries Act.

Exemption for accountants in relation to purchase and sale of business (Section 2.7 of the Real Estate Services Regulation)

A Chartered Accountant, Certified General Accountant, or Certified Management Accountant who is authorized to practice public accounting is exempt from the requirement to be licensed in respect of trading services if the trading services relate to the purchase or sale of a business, the transaction arises in the course of the practice of public accounting, and the trading services are provided in the course of that practice.

Exemption for appraisers and property inspectors (Section 2.8 of the Real Estate Services Regulation)

A person who provides trading services only by providing an appraisal of value of real estate and consulting services relating to the value of real estate, or by inspecting and reporting on the condition of real estate, is exempt from the requirement to be licensed if those services are provided in the course of the person’s business as an appraiser or real estate inspector.

Exemption for auctioneers (Section 2.9 of the Real Estate Services Regulation)

An auctioneer is exempt from the requirement to be licensed in relation to the provision of trading services respecting the auction of real estate if all of the following apply:

    (a) the auctioneer does not show the real estate;

    (b) the auctioneer does not engage in a discussion with or provide information to a potential buyer respecting any aspect of the real estate or any aspect concerning its disposition, other than to explain the auction procedure;

    (c) advertising of the auction specifies, if there is no licensee acting on the seller’s behalf, the name and contact information of the seller, or, if a licensee does act on behalf of the seller, the name and contact information of the licensee; and

    (d) no deposit or other money related to the acquisition of the real estate is paid to the auctioneer by the buyer.

Exemption for person providing information only (Section 2.10 of the Real Estate Services Regulation)

A person who provides trading services by providing information only is exempt from being licensed. Examples include the provision of material and other information of a general nature that is produced to assist owners to dispose of their own real estate by themselves, and the publication of information contained in an advertisement of specific real estate. This exemption allows publishers, such as local newspapers, to advertise real estate for sale or rent, as well as to publish general real estate information articles, without the need to be licensed.

Exemption for persons providing referral services (Section 2.11 of the Real Estate Services Regulation)

A person who provides trading services only by referring a party to a trade in real estate to a licensee, or by referring a licensee to a party, for the purpose of the licensee providing trading services is exempt from the requirement to be licensed if

    (a) the person does not engage in activities to solicit the names of persons who may be interested in acquiring or disposing of real estate; and

    (b) the practice of making referrals and receiving referral fees is incidental to the main business of the person.

(i) Common Licensing Scenarios - Trading Services

Scenario #1

Mr. Jones is an employee of ABC Investments Ltd. which owns an apartment block it is trying to sell. Mr. Jones acts on behalf of ABC by advertising for sale the apartment block, showing potential buyers the building, and eventually negotiating a Contract of Purchase and Sale between Mr. Chan and ABC for the purchase and sale of the building. During the negotiation, Mr. Chan asks Mr. Jones if he would assist Mr. Chan in marketing a vacant piece of land for sale on his behalf. Is Mr. Jones able to assist Mr. Chan in this way?

As an employee of ABC Investments Ltd., Mr. Jones is able to act on behalf of ABC under the exemption from licensing provided by section 2.1 of the Real Estate Services Regulation. However, under this exemption, Mr. Jones is not able to provide real estate services to or on behalf of any person other than ABC. He may not, therefore, assist Mr. Chan without becoming licensed.

Scenario #2

XYZ Real Estate Ltd. is a licensed brokerage. The company has also developed a new 50 unit townhouse project and it is beginning the marketing of the individual development units. It plans to hire unlicensed employees to assist in the marketing of this development.

Under section 2.5 of the Real Estate Services Regulation, a developer may have unlicensed employees who provide trading services to or on behalf of the developer. However, because XYZ is a licensed brokerage, section 2 of RESA applies, meaning that XYZ may not act under any of the exemptions available to those who are not licensed. It may not, therefore, use unlicensed employees to market development units which it owns. It may list the units for sale with another brokerage or market the units through licensees engaged by XYZ, although it may wish to consider the real estate errors and omissions insurance ramifications of having its own licensees market these development units.

Scenario #3

Lakefront Development Ltd. has created a 20 unit waterfront strata title project in the Okanagan and is ready to commence marketing. Lakefront has been approached by an unlicensed marketing company which is offering to provide several marketing services to Lakefront, on an independent contractor basis, during the initial public awareness stages, then to bring in licensees engaged by a number of brokerages in the market area to assist in a gala opening marketing launch.

The exemption under section 2.5 of the Real Estate Services Regulation is only available for individuals who are employees of developers; therefore, the unlicensed marketing company is not able to act under this exemption both because it is not an ‘‘individual’’, and because the proposed relationship with the developer is that of an independent contractor rather than an employee. This means that the unlicensed marketing company is not able to provide any trading services to or on behalf of the developer. The company would only be able to provide related services that do not fall within the definition of trading services, e.g., assisting in the development of marketing material, etc. With respect to bringing in licensees engaged by a number of local brokerages to assist in the gala opening, licensees are only able to provide real estate services in the name of and on behalf of their related brokerage. Licensees are able to represent a developer in their marketing efforts, but these services must be provided in the name of and on behalf of their related brokerage. They are also required to provide their related brokerage with all of the usual documentation regarding any trades they are involved in negotiating. Their business cards and all other forms of advertising must include the name of their related brokerage in a prominent and easily identifiable manner.

Licensees cannot act as an exempt employee of a developer while they are licensed. If a licensee wishes to become an exempt employee of a developer, their licence must first be surrendered to the Council. Independent of their related brokerage, licensees would only be able to provide the developer with related services that do not fall within the definition of trading services.

Scenario #4

Ms. Brown is licensed with M&M Real Estate Ltd. to provide trading services. Ms. Brown is also an appraiser, providing appraisals on behalf of Pricepoint Appraisal Services Ltd., a company which is not licensed under RESA.

Fee-based appraisal services that are provided in relation to a trade in real estate are activities that require licensing if they include advising on the appropriate price for real estate, or making representations about the real estate. Both of these activities are included in the definition of trading services. Section 2.8 of the Real Estate Services Regulation does provide an exemption from the requirement to be licensed for those who provide trading services only by providing an appraisal of value of real estate and consulting services relating to the value of real estate. Therefore, many appraisers provide their services under this exemption and are not licensed under RESA. However, as noted in scenario #2 above, section 2 of RESA prohibits a licensee from acting under any of these exemptions which are available to unlicensed people. This means that Ms. Brown may only provide appraisal services in the name of and on behalf of her related brokerage, M&M Real Estate Ltd., not the unlicensed Pricepoint Appraisal Services Ltd. Therefore, so long as she is licensed under RESA, Ms. Brown must provide, and be paid for, her appraisal services through M&M.

Scenario #5

Mr. Good has written a book entitled ‘‘How to Sell Your Own Home’’. He also operates a website which provides general tips for people who wish to sell real estate they own without the assistance of a licensee. The website includes a section where property owners can advertise their home for sale and provide their contact information for follow- up enquiries.

Section 2.10 of the Real Estate Services Regulation provides an exemption for those who provide trading services by providing general information only. This includes providing material and information to assist owners to dispose of their own real estate by themselves, and the publication of information contained in an advertisement of specific real estate. The services that Mr. Good provides, including the advertising section of his website, fall within the parameters of this exemption.

Scenario #6

Data Mining Ltd. is an unlicensed company that operates a service which assists people, who want to buy or sell real estate, to find a real estate licensee in the particular market area in which they are interested. Data Mining operates a website which allows people to indicate the market areas of interest, if they are potential buyers, or the location of the real estate they are interested in selling. Once the person using these website services provides their contact information, this is forwarded to a real estate licensee in that particular market area, who pays Data Mining for these leads.

Section 2.11 of the Real Estate Services Regulation provides an exemption for a person who provides trading services by referring people to real estate licensees for the purposes of those licensees providing real estate services. A person may receive a referral fee for this if that person satisfies the requirements of this exemption section. Data Mining Ltd. does not meet these requirements for two reasons. Firstly, through its website, it is engaging in activities to solicit the names of persons who may be interested in acquiring or disposing of real estate. Secondly, the practice of making referrals and receiving referral fees is not incidental to Data Mining Ltd.’s main business. Data Mining Ltd. needs to be licensed to receive these referral fees. Any licensees paying Data Mining for these leads would be contravening section 6-1 of the Rules by paying remuneration to Data Mining in relation to real estate services when Data Mining is required to be licensed in relation to those services but is not.

(d) Licensee’s Assistants

On a regular basis, the Council receives inquiries from licensees as to whether or not they can employ assistants. The answer, of course, is ‘‘Yes’’, but there are restrictions on the activities the assistant may perform depending upon whether or not the assistant is licensed under RESA. As a licensed assistant is considered exactly the same as other licensed individuals, all remuneration for licensed activity must be paid to a licensed assistant by the brokerage and not by the assisted licensee. If a licensee is providing unlicensed assistance to another licensee, e.g., typing, bookkeeping, etc., the licensee performing the unlicensed activity may be paid directly by the assisted licensee for these unlicensed activities. If an unlicensed assistant is employed, this individual may be paid directly by the assisted licensee, however, extreme caution should be exercised to ensure that everyone involved complies with RESA; in particular, an unlicensed person’s activities must be confined to those which do not require licensing.

With regard to Trading Services, an unlicensed assistant may:

  • answer the telephone, take messages, and forward calls to a licensee;
  • schedule appointments for the licensee (this does not include making telephone calls, telemarketing, or performing other activities to solicit business on behalf of the licensee);
  • secure public information from a courthouse, municipality, regional district, or other source of public information;
  • place or remove signs on property;
  • submit listings and changes, as approved by a licensee, to a multiple listing service;
  • have keys made for a brokerage’s listing;
  • unlock a property in order that it may be shown by a licensee;
  • draft advertising copy, promotional materials, and correspondence for approval by a licensee (correspondence must be signed by the licensee);
  • place advertising;
  • prepare and distribute flyers and promotional information under the direction of and with approval by a licensee;
  • act as a courier to deliver documents, pick up keys, etc.;
  • be in attendance at a property during a licensee tour which is not open to the public so long as the unlicensed assistant does not answer any questions or offer any information beyond what has been provided, in writing, by the seller’s brokerage;
  • gather feedback from licensees on showings;
  • complete contract forms with business and factual information at the direction of and with approval by a licensee;
  • witness signatures;
  • assemble documents for a closing;
  • follow up on a trade in real estate after a contract has been signed by
    • arranging and/or allowing access to property for a property inspector or appraiser, or
    • providing other similar facilitation services that would not other wise require licensing;
  • perform bookkeeping or office functions, including
    • record and deposit trust funds, including transaction deposits, security deposits and rents,
    • compute remuneration cheques and perform bookkeeping activities,
    • monitor licences and personnel files, and
    • office filing; or
  • perform other administrative, clerical, and personal activities for which a licence under RESA is not required.

With regard to Trading Services, an unlicensed assistant may not:

  • host open houses, kiosks, or home show booths;
  • solicit buyers, sellers, landlords, or tenants;
  • show property;
  • respond to questions from anyone outside the related brokerage about information concerning listings or other contracts, titles, financial documents, closing documents, or other information relating to a transaction;
  • explain or interpret a Contract of Purchase and Sale or any form of service agreement (e.g., listing contract) with or to anyone outside the related brokerage;
  • negotiate or agree to any commission, commission split, or referral fee on behalf of a licensee;
  • present or negotiate an offer or any form of service agreement; or
  • perform any other activity for which a licence under RESA is required.

These activities fall within the definition of trading services and require a licence before they may be performed on behalf of others in expectation of remuneration. A licensee who pays an unlicensed assistant to perform these activities breaches section 6-1 of the Rules, which prohibits a licensee from paying an unlicensed person who performs real estate services for which a licence is required.

(e) Solicitation of Listings and Conduct of Open Houses

The definition of trading services includes finding real estate for a party to acquire, finding a party to acquire real estate, and showing the real estate. As a result, only licensees may solicit listings and hold open houses.

Licensees handling a volume of listings and facing the heavier traffic of prospective buyers on evenings and weekends are tempted to use unlicensed persons to represent them at open houses. Similarly, there have been occasions where a licensee has sought such help in soliciting listings, notably by telephone.

An unlicensed assistant may be in attendance during a licensee tour, but only if the tour is not open to the public. An unlicensed assistant may not host open houses for the public. Additionally, an unlicensed assistant may not solicit buyers or sellers, by telephone, or in any other manner.

(f) Telemarketing

In some cases, individuals have attempted to establish telemarketing centres for the purpose of contacting members of the public. The individual may wish to set up an appointment for a particular licensee to provide a free market evaluation, gather statistics, or pass on leads to licensees.

The definition of trading services, which includes finding people to acquire real estate and finding real estate to be acquired, results in the need for a real estate licence before conducting such activities. Any attempt to contact the public for the specific purpose of making a referral would fall within the definition of trading services. The attempt to obtain a referral is the primary reason for the telephone call and cannot not be considered incidental to any other business or activity.

However, telemarketing by way of a tape recording can be conducted by an unlicensed person. In this case, a licensee hires an announcer to record information about the licensee’s services. Various homes would be called and the tape played over the telephone. There is no opportunity for the person answering the telephone to talk to the caller. Where there is no opportunity for interaction between the caller and the person answering, the activity is considered to be another form of advertising similar to the distribution of personal brochures and flyers delivered door-to-door.

(g) Strata Document Review Services Required To Be Licensed

Licensees should be aware that any person who provides strata document review services is required to be licensed under RESA. Strata document review services include reviewing strata council meeting minutes, general meeting minutes, bylaws, insurance certificates, the ‘‘Form B’’, operating budget, financial statements, strata plans, unit entitlement, parking, limited common property and exclusive use areas, leasing or renting of units, pets, engineering reports, restrictive covenants, etc., and then providing buyers with opinions based on these documents.

The Council and the Office of the Superintendent of Real Estate have reviewed this matter and agree that strata document review services fall within the definition of trading services under RESA. As such, any individuals or companies that offer this kind of service must be licensed with the Real Estate Council.

The Council reminds any current licensees who may be providing this kind of service that all real estate services must be provided in the name of and on behalf of the licensee’s related brokerage. It is not permissible to provide any licensed real estate services independent of a licensee’s brokerage.

These types of strata document review services, which may have significant value for sellers and buyers of strata lots, require specialized expertise. Licensees intending to provide such services must ensure they are adequately qualified to do so. They should also discuss with their brokerage, in advance, the provision of these services.

(h) Paying and Receiving Referral Fees

Some licensees pay or receive referral fees. Typically, referral fees are paid by a licensee for receiving a ‘‘lead’’ which results in the licensee earning remuneration. A licensee might receive a referral fee for referring a client to another licensee or service provider if that client uses the services of that other person. The following are issues that licensees should be aware of related to the payment or receipt of referral fees.

Paying a referral fee to an unlicensed person

A licensee may pay an unlicensed person a referral fee as long as

  • the unlicensed person does not solicit, for the purposes of making a referral, the names of persons who may want to acquire or dispose of real estate;
  • the practice of making referrals is not the main business of the unlicensed person making the referral; and
  • the unlicensed person making the referral does nothing else that would require them to be licensed (refer to the definition of ‘‘real estate services’’ in section 1 of RESA).

Those who intend to pay a referral fee to an unlicensed person have an obligation to first ensure that person satisfies the above criteria. Section 6-1 of the Rules prohibits the payment of any remuneration to an unlicensed person in relation to real estate services if that person is required to be licensed. For this reason, it is important that a brokerage has clear policies, and advises its licensees accordingly, with respect to the payment of referral fees. It may also be useful to obtain independent accounting advice with respect to any tax implications that may be associated with the payment of referral fees to unlicensed persons.

See also Don’t Play Follow the Leader:  Paying Referral Fees to Unlicensed Lead Generation Businesses is Prohibited (Report from Council, December 2014)

Paying a referral fee to another licensee

Licensees must only receive remuneration related to the provision of real estate services from the brokerage with which they are engaged. Therefore, any form of remuneration, including referral fees, must be paid to the related brokerage for disbursement to the licensee. No remuneration may be paid directly to the licensee. The definition of ‘‘remuneration’’ is very broad and includes any commission, fee, gain, or reward.

Disclosure that a referral fee is to be paid

Section 3-3(1)(f) of the Rules requires a licensee to disclose to a client ‘‘all known material information respecting the real estate services’’ being provided. If a licensee has agreed to pay a referral fee, that is a material fact which must be disclosed to the client. This is true whether the referral fee is to be paid to a licensee or to an unlicensed person.

The Council does not consider internal remuneration sharing arrangements to be matters which require disclosure under section 3-3(1)(f) of the Rules. This is true whether these internal arrangements relate to the manner in which remuneration is shared between a brokerage and its related licensees, or the manner in which remuneration is shared between licensees or with unlicensed employees of the same brokerage.

Example

Mr. Seller, who wants to sell his home, is referred to Licensee Good by Ms. Referrer. Licensee Good would like to pay Ms. Referrer a referral fee for the ‘‘lead’’. Licensee Good must disclose to Mr. Seller the intention to pay a referral fee to Ms. Referrer, and the amount of that referral fee.

Receiving referral fees

[06/19/2012 The following section was added to the Professional Standards Manual]

Section 5-11 of the Rules requires a licensee to disclose in writing to a client any remuneration the licensee anticipates receiving that is not to be paid directly by that client. Therefore, if a licensee is to receive a referral fee for referring a client to another service provider, be that another licensee or another person providing services related to real estate (e.g., a mortgage broker, appraiser, etc.), the licensee is required to disclose to the client the details of this referral. Those details include:

  • the source (who is paying the referral fee);
  • the amount, or if the amount is unknown, the likely amount or method of calculation of the amount; and
  • any other relevant facts related to the referral fee.

Remuneration is a very broadly defined term, and includes any form of benefit, whether it be money or otherwise (e.g., mortgage points). All referral fees, benefits, and other forms of remuneration must be received through the brokerage with which the licensee is engaged.

Further, section 3-3 (1)(e) of the Rules requires a licensee to maintain the confidentiality of information respecting a client. This is consistent with privacy law which requires that a licensee not provide a client’s personal information to a third party without that client’s consent, or unless otherwise required by law to do so. In the course of making a referral, the type of information a licensee may be asked to provide to another licensee or service provider will vary. Some referrals may involve basic contact information (e.g. name and telephone number or email address) whereas some may require details concerning the client’s real estate, mortgage or appraisal requirements.

In all cases, the information must be treated as confidential and cannot be released to a third party without first obtaining the consent of the client. Licensees may find more detailed information on this matter at www.cio.gov.bc.ca/local/cio/priv_leg/documents/pipa/guidepipaview.pdf

Example

Mr. Seller, a client of Licensee Good, wants to purchase a home in the market area worked by Licensee Best. Licensee Good refers Mr. Seller to Licensee Best on the understanding that Licensee Best agrees to pay Licensee Good a referral fee if Mr. Seller buys a home through Licensee Best. In order to comply with section 5-11 of the Rules, Licensee Good must disclose to Mr. Seller that he anticipates receiving a referral fee from Licensee Best if Mr. Seller buys a home through Licensee Best. He must also disclose the amount or the method of calculation of the amount. In addition, Licensee Good must also obtain Mr. Seller’s consent to providing Mr. Seller’s personal information to Licensee Best.

Referring a person who is not a client

Kelowna licensee Betty Best receives a call from Sally Seller about a home Betty has listed for sale. This is the only time Betty and Sally talk. During the course of the discussion, Sally tells Betty that she wants to sell her home in Fernie before moving to Kelowna. Sally asks Betty if she knows a good real estate agent in the Fernie area. Betty tells Sally about Jim Lister, a licensee friend in Fernie. Betty calls Jim to advise him of this, and the two agree that Betty will receive a $2,000 referral fee if Sally lists her home with Jim, and it subsequently sells. Sally lists her home for sale with Jim, the home sells, and Jim sends a $2,000 referral fee to Betty’s brokerage.

Must Betty disclose to Sally that she will receive a referral fee from Jim?

No. Both the common law and section 5-11 of the Rules require that a licensee must disclose to a client remuneration received as a result of providing real estate services to or on behalf of a client, whenever that remuneration is not paid directly by that client. ‘‘Client’’ is defined in section 1-1 of the Rules as ‘‘Client’’ means, in relation to a licensee, the principal who has engaged the licensee to provide real estate services to or on behalf of the principal. In this scenario, Sally is not a client of Betty or her related brokerage. She has not engaged Betty or her related brokerage to provide any real estate services. During the course of a single conversation, she has asked Betty if she knows a good real estate agent in Fernie.

Under these circumstances, Betty’s obligation to Sally is to act honestly and with reasonable care and skill (see section 3-4 of the Rules). Betty has no obligation to disclose to Sally that she will receive a referral fee from Jim if Sally lists her home for sale with Jim and the home sells.

Must Jim disclose to Sally that he intends to pay a referral fee to Betty?

Yes. Section 3-3(1)(f) of the Rules requires a licensee to disclose to a client all known material information respecting the real estate services being provided. By listing her home for sale with Jim and his related brokerage, Sally becomes a client who has engaged them to provide real estate services. Jim has agreed to pay a referral fee to Betty; that is material information which he must disclose to Sally. He must make this disclosure at a time when the information is relevant to Sally — that is before Sally agrees to enter into the listing contract. This timing is important because Sally does not have to agree to the payment of this referral fee. She may agree, or she may choose to list her home for sale with another licensee.

Receiving an unanticipated referral fee

Eileen Lots has a client, Dave Doer, who has just sold his home using Eileen and her related brokerage as his listing agent. Dave is interested in buying a property in White Rock, a market area that is not familiar to Eileen. He asks Eileen if she knows a good real estate agent in White Rock. Eileen refers Dave to Fred Finder and calls Fred to advise him of this referral. There is no discussion about a referral fee; Eileen neither requests nor expects to receive one. Several months later, a cheque from Fred’s brokerage arrives at the office of Eileen’s brokerage, accompanied by a note from Fred to Eileen saying ‘‘Thanks for the lead on Dave. He bought two properties through me. I appreciate the referral’’.

Must Fred disclose to Dave that he intends to pay a referral fee to Eileen?

Yes. Dave has engaged Fred and his related brokerage to provide real estate services to help him acquire properties in White Rock. Fred and his related brokerage have an obligation to disclose to Dave all known material information respecting the real estate services being provided. Therefore, Fred must disclose to Dave the fact that he intends to pay a referral fee to Eileen. He must do so before paying the referral fee. Dave may not agree, and may even suggest that if Fred is prepared to share his commission with someone, that someone should be Dave himself.

What, if anything, must Eileen disclose to Dave?

That depends. Assuming Dave has agreed to Fred’s payment of the referral fee, the answer to this depends on two factors: whether Eileen knew, or should have known, she was going to receive the referral fee, and whether Dave is still considered Eileen’s client when the referral is received.

A licensee can only disclose what he or she knows, or reasonably ought to have known at the relevant time. For example, if Eileen regularly referred clients to Fred and received referral fees for doing so, even though she did not discuss a referral fee with Fred on this occasion, she could reasonably expect to receive one. She must disclose that to Dave at the time she provides him with Fred’s name.However, if this was a ‘‘one off’’ referral to Fred, and, as the scenario suggests, Eileen had no reason to anticipate receiving a referral fee, there would be nothing to disclose at the time the referral was made.

If a referral fee is unexpectedly received, whether disclosure is required at that time is dependent on whether Dave is still considered Eileen’s client at the time of receipt. If the answer is ‘‘no’’; that is, neither Eileen nor her brokerage have been engaged to provide real estate services to Dave in the intervening period, nor is there an ongoing client relationship with Dave, then disclosing receipt of the unexpected referral fee is not required. However, if Eileen or her brokerage have been engaged by Dave to provide real estate services in the intervening period or they have an ongoing client relationship with Dave, disclosure of this referral fee, even though it was not expected, is required at the time of its receipt.

If Fred has made the required disclosure, Dave will have already agreed to the payment of this referral fee to Eileen, regardless of whether Eileen is required to disclose having received it. Eileen’s disclosure, if required, will verify information Dave has already been told by Fred.

If the situation dictates that Eileen must also disclose, this may seem an example of ‘‘too much disclosure’’. Why should Dave receive the same information from two different licensees? It is important to realize that Fred and Eileen have to disclose for different reasons. Fred’s obligation, both at common law and as described in section 3-3(1)(f) of the Rules, is to disclose to his client Dave everything material about the real estate services being provided. The fact that he intends to pay a referral fee to Eileen is material.

Eileen’s obligation, both at common law and as described in section 5-11(1) of the Rules, is to disclose to her client Dave remuneration she has received as a result of providing real estate services to or on behalf of him, when that remuneration has been paid by someone other than Dave.

(i) Directing Business to Other Professionals

Frequently, licensees are asked by the public to recommend other professionals. Making specific recommendations can put the licensees at risk for liability if something goes wrong (e.g., if the buyer or seller is not satisfied, or is even harmed, if the cost is inappropriate, or if other issues arise). Such professionals include, but are not restricted to, lawyers, notaries public, mortgage brokers, home inspectors, trades people, etc. The safest way to handle this situation is to provide a list, preferably of at least three professionals with whom the licensee or others he or she knows have dealt and have the buyer or seller call, interview and select them independently. Even though a licensee may provide the client with a list of referrals, if any of the professionals have agreed to pay the licensee a referral fee or other form of remuneration, section 5-11 of the Rules requires written disclosure.

(j) Relocation Companies

A relocation company typically performs a variety of activities and does not act as an agent on behalf of the homeowner. Its activities must be restricted to those areas which do not require a real estate licence under RESA. The relocation company may receive fees from an employer in order to provide relocation services to its employees, but only by referring the actual listing to a licensee (not marketing the property itself). In some cases, the relocation company may require that the licensee’s related brokerage discount the commission payable on completion by a specified percentage, which becomes the fee payable to the relocation company. This is an acceptable practice under RESA. Similarly, the referral of a buyer to a licensee in another jurisdiction may precipitate a fee payable by the licensee’s brokerage to the relocation company, as long as the only action by the relocation company is the referral itself. Since the referral is incidental to the relocation company’s primary business activities, it does not require licensing.

(k) Inducements To Enter into a Real Estate Transaction

The use of any inducements for a party to acquire or dispose of real estate is addressed in section 5-6(1) of the Rules. This Rule provides that the licensee must deliver, in writing, any promise made to a person at the time of making the representation.

A licensee may not, except in writing, induce any person to acquire or dispose of real estate by promising or representing that the licensee or any other person will:

    (a) acquire or re-sell, or other wise dispose of, the real estate or any other real estate;

    (b) procure a lease or an extension of a lease;

    (c) procure financing or an extension of financing; or

    (d) purchase or sell rights under financing.

If a licensee makes such guarantees, the licensee can be held liable to fulfill such commitments.

(l) Lotteries

From time to time, licensees hold raffles or draws for marketing purposes. Raffles and draws are defined in the Criminal Code as a lottery and are illegal unless authorized and licensed. Gaming event licences must be obtained from the Gaming Policy and Enforcement Branch of the Ministry of Public Safety and Solicitor General in order to hold a lottery and are generally only issued to recognized charities.

The following three elements comprise to form a lottery:

  • payment of consideration;
  • chance, or mixed chance and skill; and
  • prize or reward.

If a real estate licensee offered a chance to win a vacation trip to the first 100 purchasers of condominiums in a development the licensee was marketing, such a draw would be in contravention of section 206 of the Criminal Code. The requirement to purchase the condominium satisfies the need for the payment of consideration; the drawing of the winner’s name would be the chance, and the awarding of the trip would be the prize or reward. To avoid contravening section 206 of the Criminal Code, the draw would have to be open to anyone who wished to enter.

Licensees should keep in mind that the body that will determine whether a licensee is in contravention of the Criminal Code is the Gaming Policy and Enforcement Branch. When considering offering a prize, a licensee should always confirm with the Gaming Policy and Enforcement Branch that the activities proposed do not require a gaming licence. For further information, visit www.pssg.gov.bc.ca/gaming/.

(m) Inducements To Breach a Contract

A licensee is prohibited, by section 5-5 of the Rules, from inducing any party to a contract for the sale or rental of real estate to break a previous contract for the purpose of entering into a new contract with another principal. It is recommended that licensees take care not to induce a member of the public to breach an existing service agreement. In addition, licensees should take care not to induce a party to breach any contract as this could be grounds for a civil lawsuit.

(n) Trades

From time to time, licensees will have clients who indicate a willingness to think about alternative compensation for property. Land, time shares, vehicles, boats, and jewellery may be offered and considered. Licensees should treat such offers with the same precautions or qualifications as they would traditional transactions and with added considerations depending upon the nature of the property being offered in trade.

A primary concern must be the ownership of the property being offered in trade. It may be a simple thing to do a title search on land in BC but searching the title of a time share in Florida or the registration of a Harley-Davidson motorcycle may prove a challenge. Semi-precious gems, while looking like a million dollars, are usually of relatively low value, even by the handful. If the chattel is valuable and saleable, why not consider a clause that allows the buyer to sell the item in question?

Similar to clauses that permit the buyer to sell its property, a clause can be used that permits the buyer time to sell the chattel. Such a subject clause should include a time clause that permits the seller to force the decision of the buyer once a certain amount of time has passed or an acceptable offer has been received.

Tax on chattels is frequently ignored in the sale of property, but there may be an obligation for the parties to remit. If a property owner takes a car as partial proceeds, the question of responsibility for the tax, transfer costs, etc., must be clearly identified between the parties. The prudent licensee might suggest the agreement for the transfer of a chattel be separate from the Contract of Purchase and Sale. Whether a real estate licence and its attendant Errors and Omissions Insurance will allow a licensee to engage in the sale of property other than real estate is not a matter to consider lightly.

If land in BC is being offered in trade, then who will pay the cost of conveyance, including the Property Transfer Tax? Are there GST considerations for the party receiving the trade who will in effect be the buyer? Is a real estate remuneration payable on the trade property? If there is no cash, how will the commission be paid? Should there be one Contract of Purchase and Sale or more? Is the property owned without financial encumbrances or will some debt be assumed?

Among many considerations, the value of the item being offered may be the most troublesome for the licensee. The licensee must not allow a client to accept a valuation put for ward by the person making the offer without strongly recommending that independent appraisal advice be sought.

When it comes time to draft a contract, the simplest way may be to treat a trade item other than land as though it were cash. In the case of real estate being offered in trade, it is strongly recommended that one Contract of Purchase and Sale be used for each property involved because of the preprinted aspects contained in the standard Contract of Purchase and Sale. Each contract would be written conditional upon the two transactions completing at the same time. Licensees must seek competent advice in drafting and always recommend in writing, if not as a ‘‘subject to’’ clause of the contract, that the parties seek independent legal and appraisal advice.

NOTE: The negotiation details for the purchase of the buyer’s property must be set out in a separate Contract of Purchase and Sale.

Seller Taking Buyer’s Property in Trade Clause

Subject to the Seller entering into an unconditional Contract of Purchase and Sale with the Buyer for the purchase of the Buyer’s property described as (describe property) on or before (date) .

This condition is for the benefit of both the Buyer and the Seller.

Ω If not using the standard form Contract of Purchase and Sale, refer to ‘Contracts under Seal’.

(o) Foreclosures

NOTE: Licensees who have limited experience in foreclosure transactions should seek guidance from their managing broker. This is a complex area of real estate where unforeseen hurdles can cause serious problems for the licensees and the public.

**Alert**

In many cases, the party that has conduct of sale in the foreclosure requires that many of the standard clauses in a Contract of Purchase and Sale be amended. The amended clauses are generally contained in a Schedule to the contract. The Schedule may provide, for example, that the buyer is purchasing the property on an ‘‘as is, where is’’ basis as of the completion date. Licensees acting on behalf of buyers should review the Schedule of amendments carefully with the buyer to ensure that the buyer understands the implications of the amendments on their purchase.

Once a property is subject to foreclosure proceedings, any party who may be potentially affected by the foreclosure proceeding may apply to court for conduct of sale. Licensees need to be careful as the court can order any party it sees fit to have conduct of sale, with the right to list or sell the property in a certain manner. This type of order could have the effect of denying a registered owner from listing a property or, perhaps, voiding an existing listing agreement. This court appointment allows the party having conduct of sale to put the property up for sale and it may prevent anyone else from listing the property (even the owner).

It is important all licensees recognize that where they have a listing on a property that may be subject to foreclosure proceedings, their listing may be voided by a court order at any time. It is also important to note that the court process involving the manner in which offers are presented in court and the court’s consideration of offers may differ considerably from the licensee’s usual practice. Licensees are urged to be careful when acting for buyers and sellers to ensure that any offer, subject to court approval, is in acceptable form, including the manner in which the potential buyers wish to be shown on title (tenants in common or joint tenants). It is costly to have an Order Approving Sale amended after it has been pronounced. Licensees should also have their buyers and sellers consult their lawyers about dates — both as to court approval and completion — as the time required to have orders for sale approved may have increased as a result of changes to rules regarding foreclosure practice. Licensees should also be alerted to the fact that orders of the court could be appealed to a higher court.

(p) Duties of Disclosure under Court-Ordered Sales

Licensees should be aware that the Schedule ‘‘A’’, which typically forms part of Contracts of Purchase and Sale for court-ordered sales, often contains a clause that may read as follows:

    The purchasers expressly agree that neither the seller nor its agents or representatives have any liability, responsibility, duty or obligation to disclose to the purchasers any information or knowledge that they have with respect to the condition of the lands and premises or any latent or patent defects thereto.

The wording of this clause may change, depending on who has drafted the Schedule ‘‘A’’, however, the intent of the clause remains the same; to relieve the seller and the seller’s agents and representatives from any liability or responsibility for disclosure to the purchaser, about defects that may exist in the property. Licensees are reminded that, despite any clause such as the example above, contained on a Schedule ‘‘A’’ or otherwise included in a Contract of Purchase and Sale, licensees are not able to contract out of their obligation of written disclosure of latent defects, as required under section 5-13 of the Rules. Section 5-13(2) of the Rules sets out a licensee’s positive obligation, when providing trading services to a client who is disposing of real estate to ‘‘… disclose to all other parties to the trade, promptly but in any case before any agreement for the acquisition or disposition of the real estate is entered into, any material latent defect in the real estate that is known to the licensee’’. Section 5-8 of the Rules requires that the disclosure be made in writing, prior to the acceptance of an offer.

Further, section 5-13(3) of the Rules requires that, in the event that a client instructs a licensee to withhold disclosure, the licensee must refuse to provide further trading services to or on behalf of the client, relating to the trade. It is important that licensees explain to all of their seller clients the licensee’s obligation to disclose known material latent defects, to a buyer, prior to any agreement being entered into. This explanation to sellers is particularly crucial in court-ordered sales where a seller may be relying on a clause, like that set out in our example, to relieve the licensee of his or her obligation of disclosure. Licensees must ensure that their sellers are advised and fully understand that licensees cannot contract out of their obligations of disclosure under section 5-13 of the Rules, and if they are instructed by a seller not to disclose, they must withdraw and cease acting for that seller.

(q) Fictitious Sales

The Council warns licensees and their managing brokers that creating fictitious sales to earn MLS® points is unacceptable.

(r) Custody and Handling of Documents

It is preferable that each seller or buyer appears before his or her own lawyer or notary public for execution of conveyance documents. The notary public or lawyer will, at that time, give an undertaking as to the use of the documents and the disbursement of money after registration of the said documents.

A licensee may be required to take documents to a seller and/or buyer for execution under unusual circumstances and such documents must be taken to a seller and/or buyer accompanied by a letter of undertaking from the conveyancing notary public or lawyer confirming arrangements for registration and payment of money.

The documents must be returned to that lawyer or notary public after execution, but the letter of undertaking must be left with the title transfer.

NOTE: Under no circumstances should documents be given directly to a buyer after they have been executed by a seller.

(s) Remuneration

Provisions covering remuneration are dealt with in RESA and in the Rules. The provisions are summarized as follows:

    (a) net remuneration agreements (i.e., remuneration based upon the difference between the listed price and the actual sale price) are prohibited and no licensee is entitled to receive remuneration computed on this basis (section 5-14 of the Rules);

    (b) a licensee shall not accept remuneration in relation to real estate services from any person other than the brokerage to which they are licensed (Section 7(3)(b) of RESA); and

    (c) no licensee shall pay remuneration to a person in relation to real estate services if the person is required to be licensed in relation to those services but is not licensed (section 6-1 of the Rules).

(See section on ‘‘Referral Fees’’.)

(t) Assignment of Licensee’s Remuneration

A licensee may assign his or her remuneration to a third party, if so desired. A brokerage which, if so directed by a licensee, pays the licensee’s earnings directly to a third party, would not be in breach of section 6-1 of the Rules.

The stipulation in assigning a licensee’s remuneration is that the person to whom the remuneration is assigned must not be paid for acting as a licensee. In other words, the earnings cannot be assigned as a means of paying an unlicensed individual. Remuneration can be assigned to creditors for example. The brokerage’s records must continue to show the remuneration as being earned by and paid to the licensee. It should be understood that there is no suggestion that any income tax advantage will result.

(u) Holiday Relief: Covering Another Licensee’s Business

Section 7 of RESA requires that a managing broker may only be licensed to and engaged by a single brokerage, unless the brokerages are affiliated.

It is not acceptable for a managing broker seeking holiday relief coverage to invite a licensee from another brokerage to handle the brokerage’s business unless co-listing documentation has been signed by both brokerages and the client.

This concept applies similarly to a mini-franchise operator whose office may be physically within a larger franchisee’s office. Co-listing documentation is required if a representative from another brokerage is going to handle the business during absences. The underlying concern is that, without authorization in writing from the client, the second brokerage has no contract with the client and, therefore, no right to provide real estate services to or handle trust money on behalf of that client.

Any co-listing agreements would, of course, require the signs of both brokerages to be displayed on the property for open houses, etc., to avoid any appearance of misleading the public, although double signage may contravene municipal or real estate board/association bylaws.

When a consumer attends an open house, that consumer is entitled to expect to deal with licensees from the brokerage whose sign is on the property. If a co-listing licensee is conducting an open house, the co-listing brokerage’s sign should be on the property during that open house. Co-listing agreements permit that procedure.

The Council is of the opinion that a licensee may conduct an open house only if that licensee’s brokerage’s sign is on the property and only if authorization exists to which the owner, the listing brokerage, and the co-listing brokerage are parties.

(v) Proper Identification of Licensees on Contracts

It has come to the attention of the Council that some licensees are drafting listing agreements, Contracts of Purchase and Sale, and other contractual forms in the name of another licensee. For example, a licensed assistant prepares documents in the name of the team’s lead licensee who has no real involvement in the transaction. Questions arise as to whether appropriate agency disclosure is being made, whose name ought to appear on such documents, particularly the Contract of Purchase and Sale, and which licensee is ultimately accountable, both in terms of the preparation of the document and the client/agent relationship.

Licensed assistants may believe that they are not accountable if they write a Contract of Purchase and Sale in the name of the lead licensee.

The duties and responsibilities of the licensed assistant are considered the same by the Council as the lead licensee.

Section 5-10 of the Rules requires that before providing trading services to or on behalf of a party, a licensee must disclose to that person the nature of the assistance or representation the licensee will provide to that person. If the ‘‘licensed assistant’’ is providing any assistance or representation such as writing up the Contract of Purchase and Sale, it should be clear on the contract as to who is providing this assistance or representation — the licensed assistant, the lead licensee, or both.

If the lead licensee has no involvement in the transaction, then the licensed assistant must only include his or her own name (name of licensed assistant) where it states ‘‘prepared by:’’ at the top of the Contract of Purchase and Sale. In addition, his or her name must also be included in the agency disclosure section of the contract along with the name of his or her related brokerage.

If both the lead licensee and the licensed assistant are providing assistance and/or representation to the buyer but the licensed assistant is writing up the contract on behalf of the lead licensee, then the licensed assistant should include his or her own name where it states ‘‘prepared by:’’ at the top of the contract and the words ‘‘On behalf of (include the name of the lead licensee)’’. In this circumstance, both the name of the licensed assistant and the name of the lead licensee must appear in the agency disclosure section of the contract along with the name of the employing agent.

In this way both the seller and the buyer will know who is providing the assistance and/or agency representation. It also protects licensees who have no involvement in the transaction.

2. Acting For Sellers

(a) Title Search

It is essential that licensees obtain a search of title on all listings. Some real estate boards/associations provide a surface search to the listing brokerage on MLS® listings. If a surface search is not available from this source, one may be obtained online through the Land Title and Survey Authority, by registering for a myLTSA account or directly from the appropriate Land Title Office, at a cost. An alternative to a surface search is to obtain a State of Title Certificate from the Land Title Office.

The following title search clause should be used to enable a buyer to search for any charges or other features.

Title Search Clause

Subject to the Buyer, on or before(date) searching and approving title to the property against the presence of any charge or other feature, whether registered or pending, that reasonably may affect the property’s use or value.

This condition is for the sole benefit of the Buyer.

Ω If not using the standard form Contract of Purchase and Sale, refer to ‘‘Contracts under Seal’’.

It is important to realize that the title search will reveal only those charges that are on title. It will not provide any information as to the terms and conditions of those charges. If there are charges such as covenants, easements, rights-of-way, etc., it may be necessary to obtain a full search of title to determine the impact they may have on the property. Full searches of title may be obtained through title search companies, a lawyer or notary, or from the appropriate Land Title Office.

Any physical encumbrance noted on the title should be described in adequate detail on the Contract of Purchase and Sale, notwithstanding the boilerplate of the Contract of Purchase and Sale. Legally Speaking, column #267, (April 1997) describes what can happen when such details are not investigated adequately. It is advisable for a licensee to use a ‘‘subject to’’ clause to allow the buyer time to research the encumbrance adequately. Since most charges on title are complex legal documents, it is prudent practice to have Contracts of Purchase and Sale conditional upon the buyer obtaining satisfactory independent advice as to the charges registered against title.

Physical encumbrances are covered by Clause 9; however, it is wise for a licensee to disclose in writing and provide a copy of the details to the buyer. Any physical encumbrances (i.e., non-financial) not covered by Clause 9 need to be spelled out in the contract itself. This would include, but would not be restricted to, issues such as private easements for shared driveways and private roads encroaching on a neighbour’s land through a friendly agreement which may not pass with the title. Legally Speaking, column #267, describes a case where failure to provide details resulted in a serious outcome for all concerned:

Legally Speaking, #267, April 1997

A decision involved section one of the Contract of Purchase and Sale, which allowed a buyer to avoid completing the purchase of a $1,223,000 property because the seller was unable to provide title clear of a restrictive covenant in favour of the Canadian Pacific Railway. The 1945 restriction required approval of the architectural and site designs by the CPR. The CPR had agreed to provide a release, but it was unavailable for registration on the closing date.

The conclusion reached by the judge was that the CPR, at least in respect of this particular restrictive covenant, was not a utility. Therefore, it did not fall within the restrictive covenants in favour of utilities and public authorities, which are permitted by section one to remain on title.

The seller had argued that this was a minor defect of title, which would not seriously interfere with the buyer’s use and enjoyment of the property. The judge disagreed and using the analysis discussed in column #245 (of ‘‘Legally Speaking’’), stated that any restrictive covenant requiring the approval of a third party as to how and what to build is neither minor nor insubstantial. He placed the onus squarely upon the seller to know his own title and to know what needed to be cleared from it.

The reasons for judgment do not indicate whether a real estate licensee was involved in the sale of the property. If a licensee is acting in these circumstances and has searched the title, it would be prudent for the licensee to draw to the seller’s attention the existence of encumbrances which need to be cleared from title.

Chen v. Hsu, S.C.B.C., Reasons for Judgment, February 29, 1997

(Cited with the kind permission of Gerry Neely, B.A., LL.B., Pearlman & Lindholm, Victoria, B.C.)

The standard Contract of Purchase and Sale requires the seller to deliver title to the buyer clear of all encumbrances except those permitted by the agreement. This is informally called the seller’s obligation to deliver clear title.

Though the seller can remove financial charges like mortgages, judgments and liens, non-financial charges usually stay on title despite changes of ownership. Many of these non-financial charges affect how an owner can use the property. Statutory rights-of-way, easements, and building schemes are good examples.

The standard Contract of Purchase and Sale automatically takes account of some exceptions to a seller’s obligation to provide clear title. The contract reads, in part:

    The Buyer agrees to purchase the Property from the Seller on the following terms and subject to the following conditions:

    9. TITLE: Free and clear of all encumbrances except substituting conditions, provisos, restrictions, exceptions and reservations, including royalties, contained in the original grant or contained in any other grant or disposition from the Crown, registered or pending restrictive covenants and rights-of-way in favour of utilities and public authorities, existing tenancies set out in Clause 5, if any, and except as other wise set out herein.

Notice that the preprinted wording in the Contract of Purchase and Sale does not except easements or building schemes and such from the seller’s obligation to deliver clear title. If the title contains non-financial charges which are not caught by the exceptions in the standard contract, the licensee must ‘‘otherwise set out’’ those charges in the agreement.

A convenient way to otherwise set out charges in the contract is to attach a current title search printout to the agreement and use the following clause:

Acknowledgement of Title Clause A

The Buyer acknowledges and accepts that on Completion the Buyer will receive title containing, in addition to any encumbrance referred to in Clause 9 (TITLE) of this contract, any non-financial charge set out in the copy of the title search results that is attached to and forms part of this contract.

Sometimes, a utility with a registered charge against the seller’s title may assign an interest in the utility’s charge as security for the payment of a loan or the performance of some other financial obligation payable by the utility. For example, this occurs where a utility with a right-of-way gives a mortgage of its right-of-way to a lender. In that case, the lender will register the mortgage of the right-of-way against title to the property. In this case, in addition to providing, as an exception to clear title, that the buyer will receive title containing the utility’s right-of-way, the contract should also record the utility’s mortgage of its right-of-way, being a financial charge payable by the utility. In a case where a utility that owns a non-financial charge has assigned its charge to secure a loan or some other financial obligation, a licensee may attach a current copy of the title search results to the Contract of Purchase and Sale and use the following clause:

Acknowledgement of Title Clause B

The Buyer acknowledges and accepts that on Completion the Buyer will receive title containing, in addition to any encumbrance referred to in Clause 9 (TITLE) of this contract:

1. Any non-financial charge, and

2. Any financial charge payable by a utility on its right-of-way restrictive covenant, easement or other interest

set out in the copy of the title search results that is attached to and forms part of this contract.

Buyer’s Approval of Title Search To Be Incorporated into Contract Clause

Subject to the Buyer on or before (date) obtaining and approving a copy of the title search results against the presence of any charge or other feature, whether registered or pending, that reasonably may adversely affect the property’s use or value.

If this condition is waived or declared fulfilled, the copy of the title search result will be incorporated into and form part of this contract and the Buyer acknowledges and accepts, despite any other provision in this contract, that upon completion the Buyer will receive title containing any non-financial charge set out in the copy of the title search results that is attached to and forms part of this contract.

This condition is for the sole benefit of the Buyer.

The following clause should be used when the buyer wants a lawyer to look at the physical encumbrances and explain the consequences of them:

(b) Legal Advice Clause

Legal Advice Clause

Subject to the (select either Buyer or Seller) obtaining legal advice satisfactory to the Buyer or Seller concerning (select easement, builders’ lien, financing or define applicable issue)__________ on or before (date) .

This condition is for the sole benefit of the Buyer.

Ω If not using the standard form Contract of Purchase and Sale, refer to ‘‘Contracts under Seal’’.

(i) Obtaining Title Searches

Licensees acting on behalf of buyers often rely on title search documents provided by the seller or, alternatively, request that the seller make such documents available for the buyer’s review.

Buyers should be advised that it is possible for an unscrupulous individual to manipulate the title information obtained from the Land Title and Survey Authority (LTSA). Licensees should therefore be very cautious when relying on title information provided by a party that the licensee does not know or trust and should advise buyers to rely only on documents from a reliable source such as the buyer’s agent or lawyer.

The licensee should not provide incomplete copies of the encumbrances to the buyer because of the legal liability of doing so. Any error or omission or attempted interpretation of the documentation which misled the buyer could lead to serious consequences for the licensee. It is, therefore, best to have the buyer’s lawyer or the buyer himself or herself obtain and analyze these documents.

Approval of Documentation Clause

Subject to the Buyer’s(select either lawyer or accountant) approving the form of the documentation on or before (date) .

Ω If not using the standard form Contract of Purchase and Sale, refer to ‘‘Contracts under Seal’’.

Licensees should be aware that there may be restrictions on the property that may affect its use or value that are not registered against the title. For example, restrictions relating to Riparian Areas Regulation under the Fish Protection Actor archaeological sites under the Heritage Conservation Act and others that are not currently registered on title may have substantial impact on use or value.

The title search clause, as set out above, should be used to enable the buyer to search for any charges or other features that may affect the property’s use or value.

(c) Property Measurements

(i) Computation of Square Area

Licensees should be aware that a common area of complaint is inaccurate measurement of property. Caution is recommended when measuring any type of property.

(ii) Measurement of Single-Family Homes

One area that causes ongoing problems for licensees is the calculation of single-family dwelling square footage and room measurements. Particularly troublesome areas for measuring are oddly-shaped rooms, upper-storey rooms that are under the slope of the roof, and basement areas.

There is more than one standard that can be applied. In making measurements, it is important that licensees be consistent with how they are typically done for the particular market and for the given property type.

As an example, one such standard is as follows:

Floor Area:

Floor area calculations are based on the exterior dimensions of the building at each floor level and include all interior walls. For attached units, the outside dimension is the centre line of the common walls. Internal room dimensions aren’t used in this system of measuring, other than to net out such areas as garages that are part of the footprint of the structure.

Finished Area:

Finished area is defined as ‘‘an enclosed area in a house suitable for year-round use, embodying walls, floors, and ceilings that are similar to the rest of the house’’. Measurements must be taken to the nearest inch or tenth of a foot, and floor area must be reported to the nearest square foot. Garages are specifically excluded.

Generally, when indicating room sizes, all bedrooms, the living room, dining room, kitchen, eating area, family room, den and special-use rooms (such as the laundry room, finished and heated workshop, playrooms, etc.), must be measured. Bathrooms, hallways, foyers and stairways are not usually measured unless they represent special features of the house or are of a significant size.

Some interior dimensions may be of particular importance to certain buyers who have specific furniture which must fit comfortably within the confines of a room. If aware of these specific requirements, the buyer’s agent should, for certainty, independently undertake to verify the measurements provided by the listing agent.

Some licensees, as part of their due diligence in taking a new listing, have found it useful to engage a company that specializes in measuring properties.

(iii) Measurement of Strata Lots

Developers, in order to increase the apparent size of strata lots, have in many cases included areas such as balconies, large patios, and even parking stalls in the strata lot measurements. When obtaining these figures from the Land Title Office, licensees should study the plan for the strata lot for any qualifying descriptions. For example, a square area measurement will be indicated on the strata lot; however, occasionally there is a statement on the plans to the effect that, ‘‘Areas shown within lots are total areas, including patios, carports, and storage rooms’’. In that event, it is necessary to search further. The licensee should find the plans giving the measurements for the ‘‘included’’ areas and deduct these areas from that shown on the strata lot. This will provide buyers with a correct area of the living accommodation.

In general, it is preferable to define a strata lot by reference to the walls of the building. Any area outside a strata lot which is for the private use of the owner of that strata lot may be regulated, either having been designated by the strata corporation as limited common property (LCP) or its use governed by a Short-Term Exclusive Use Agreement. A Short-Term Exclusive Use Agreement may provide for the exclusive use of a part of the common property by a strata lot owner or tenant on certain terms and, in some cases, conditions. The seller cannot assign a Short-Term Exclusive Use Agreement to a buyer without the consent of the strata corporation. For further information regarding LCP and Short-Term Exclusive Use Agreements, see index headings for Limited Common Property and Short-Term Exclusive Use Agreements.

The strata lot itself is usually defined by the area resulting from measurements taken from the centre line of the demising walls. In multilevel strata lots, the area of each floor would be added. This area should coincide with the square area of the strata lot as represented in the Strata Plan and, if confusion exists, the figures may be obtained from the Land Title Office.

In advertising or representations made by licensees about the size of a strata lot, it is suggested that the square area of the strata lot, together with any exclusive-use areas that have been designated LCP for that strata lot, be set out in similar manner to the following example:

    Strata lot of 1,400 square feet and the exclusive use of balcony, large patio and two parking spaces which have been designated as limited common property.

Such a statement clearly defines for the buyer what is being offered and eliminates much of the confusion existing in measurement of strata lots. Due to the uncertainty about continuing use, care must be taken about any reference to common property that is the subject of a Short-Term Exclusive Use Agreement.

**Alert**

The measurements and square footages of strata lots obtained from plans on file in the Land Title Office have occasionally been found to be incorrect. This can occur, for example, when a builder, for some reason during the construction process, deviates from the original set of plans filed with the Land Title Office in the initial approval and registration stage. Licensees should check all measurements obtained from the Land Title Office by physically measuring the strata unit. Licensees should always declare the source of measurements, both in the listing and sales contracts. Quoting measurements from inaccurate plans has been the cause of some licensees incurring substantial financial damages.

(iv) Measurement of Commercial Properties

[04/03/2012 The following information replaced previous information on measurement of commercial properties]

Commercial properties primarily consist of industrial warehouse, retail and office space. Licensees involved in establishing floor measurements of commercial properties should be aware of the numerous measurement methods available.

Survey records should be available describing the legal lot and the placement of the building situated on the lot. The size (either metric or imperial) of the perimeter of the building is also included in the survey. For a multi-level building, the size should be described for all levels, including below grade. This is sometimes referred to as Construction Area, Gross Building Area or Exterior Gross Area. In general terms, these descriptions reflect the square footage of the building based on perimeter measurements. Review the legal survey notes to determine the treatment of space, such as Balcony, Terrace, Deck, Roof Terrace and Loading Bay areas. Should the legal survey be outdated or unreadable concerning the building measurements, an alternative approach, such as a recent Architectural Design Drawing, Construction Drawings, Working Drawings or Building Plans, can be used so long as the measurements are verified and deemed reliable. Caution must be applied since concept drawings do not necessarily reflect the existing “true built” condition.

In the event the parties agree to a full building spatial audit for the purposes of determining total leasable area, then several other options are available. The Building Owners & Managers Association (BOMA) publishes six Measurement Standards to help a cross section of commercial real estate professionals. As well, the BOMA BC Office or their website, www.boma.bc.ca, can provide resources and publications with information concerning area measurements and calculations, and is recommended by the Council. BOMA Measurement Standards are known for their consistency and also the thoroughness of addressing all forms of space within a building.

When referring to the square footage of the leasable area of the property, it should be disclosed as to the source for this data and how it was determined. Should the method of measurement be absent of any recognized Measurement Standard, refer to the Lease Agreement for any specific description, or guideline, within the Agreement that establishes a procedure to determine the leasable area. If such guidelines exist, carefully consider the wording in declaring the square footage. Using ambiguous terms, such as “Gross Rent” or “Total Net Lease”, etc., can result in confusion due to the wide range of definitions used in the industry.

The Common Areas described in the Lease Agreement may be classified into two distinct forms; one for the share of common areas referencing all areas within the building itself, and the other concerns the Common Area amenities related to exterior space, such as landscaping, parking, waste containers, etc. Common Areas outside of the building area are rarely incorporated into the Leasable Area and are typically addressed to clarify other maintenance and tax expenses. The current rent roll should be examined and may reveal the square footage that the current rent rate is based upon. The rent roll typically describes the square footage and rent rates for each of the tenanted areas. It may also include detailed adjustment factors for the pro-rated share of common areas.

Due to the complexities in preparing the disclosure of reliable leasable space for commercial properties, the Council recommends a Registered Land Surveyor or a Professional Measurement Service with proven knowledge, experience and expertise in this area to provide assistance when necessary.

(d) Listing Information

[updated October 2015]

[caption id="" align="alignright" width="150"] The New Listing Checklist is available as a pdf, or use the online version below.[/caption]

As a listing agent, you are expected to act with reasonable care and skill, and to use your professional judgement to ensure that the listing information is as accurate and complete as possible. You are responsible for the accuracy of any representations you make, whether verbally or in any form of real estate advertising.  

Before listing a property, start by reviewing the items on this checklist. Use the links to find further information.

Since every listing and every client relationship is unique, and as there may be issues that are specific to the particular property location, this checklist may not cover everything you need to know. For example, commercial or investment properties may require further specialized research. Ask the seller if there are any other issues that you should be aware of concerning the property, and be sure to document that conversation. If you are unsure about any issues, discuss them with your managing broker.

Keep in mind that you may need to update your listing, as information can change during the course of the listing.

In all cases, ensure that you have complied with any FINTRAC obligations, and that you have made the appropriate agency disclosures. The Working with a REALTOR® brochure from the British Columbia Real Estate Association explains the various types of relationships consumers may have with a brokerage and its related licensees.

As a buyer’s agent, it is best practice to verify listing information. In particular, you should verify any information your client has indicated is important to their purchase.

 

LISTING INFORMATION CHECKLIST  

Title Issues

 Property Owners

❑  Have you conducted a title search and verified the legal description for the property?
❑  After reviewing the title search, have you determined if the duplicate indefeasible title is still at the Land Title Office? If it is not there, have you determined where it is, and why?
❑  Have you determined who is the registered owner of the property?
❑  Does anyone not registered on title to the property have an interest in the property (e.g. a divorcing spouse or common law spouse, a tenant, or a person holding a crop lease)?
❑  Have all the property owners signed the listing agreement?
❑  Have you determined with the client(s) who you will be taking instructions from?
❑  In the case of a corporate entity, has the person from whom you are taking instructions confirmed they have the authority to act on behalf of the corporation?
❑  Is this an estate sale where an executor or administrator will be signing the listing agreement and other contracts?
❑  Does the executor or administrator have the legal authority to sign those agreements?
❑  Does the client appear to suffer from memory impairment, dementia or some other form of mental disability or other capacity issues?
❑  Will a Power of Attorney be used on behalf of the seller? 

Find more information
Obtaining Title Searches
• Land Title and Survey Authority electronic search: myLTSA 
 Family Law Act  

 

Registered Encumbrances

❑  Did your title search disclose any:

❑  restrictive covenants, statutory rights of way, easements, leases, caveats, Certificates of Pending Litigation, tax notices, legal notations, or other notices or endorsements; or
❑  financial encumbrances, such as mortgages, strata liens, judgments, builder’s liens or other financial charges on the title of the property? 

❑  Have you reviewed any of the encumbrances with your client and, if applicable, determined how much is owing?
❑  In the case of a mortgage, have you determined whether the mortgage can be assumed by a buyer?
❑  Have you  determined whether any of the encumbrances may:

❑  restrict the seller's ability to sell the property?
❑  pose any difficulties clearing the title?

 Find more information 

Mortgage Covenants affected by Property Law Act 
Property Law Act, section 24: No personal liability if new purchaser approved by lender 

 

Property Issues

Physical Features of the Property

❑  Have you ascertained the following:

❑ what is the property type? (e.g. house, townhouse, industrial, commercial, agricultural, bare land) 
❑  what is the lot size?
❑  what are the property boundaries?
❑  have you asked the seller if they are aware of any non-registered encroachments or rights of way on the boundaries?
❑  whether the property contains or is adjacent to any watercourse (e.g. stream, pond, lake, ditch, wetland, ocean foreshore)?

 

❑  Have you:

❑  asked for a current survey?
❑  viewed the property and premises in person?

❑  Have the floor area and individual rooms been measured?

❑  Has there been recent construction, renovations or improvements?

If so,

❑  were the necessary building and/or occupancy permits obtained?
❑  has final inspection and approval of any renovations or improvements been obtained?
❑  if the construction or renovations took place within the past 10 years, have you reviewed the requirements of the Homeowner Protection Act?

Find more information
Measurement of Commercial Properties 
Measurement of Strata Lots 

 

Other Issues Affecting the Property  

❑  Have you ascertained the following:

❑  what is the current use of the property and does it comply with zoning (e.g. home-based business, secondary accommodation)?
❑  what were the prior uses of the property (e.g., marijuana grow-operation)?
❑  are there any material latent defects as defined in section 5-13 of the Rules
❑  are there any access issues?
❑  are there site restrictions on the building footprint?
❑  what utilities are available (e.g. electricity, natural gas, telephone, cable, internet, trash collection, water licence)?
❑  what is the quantity and quality of the water supply?
❑  is the property connected to a public sewer system or is there an onsite wastewater treatment system?
❑  has the onsite wastewater treatment system been inspected and/or approved by the proper authority?
❑  are there any underground or above-ground oil storage tanks?
❑  will use of the property be affected by the Heritage Conservation Act?

Find more information :
Items Affecting a Property
Health and Environmental Concerns - Special Knowledge Areas 
Special Concerns with Rural Land 

 

Property Disclosure Statement 

❑  Have you ascertained the following:

❑  has the correct Property Disclosure Statement been used?
❑  have you discussed the Property Disclosure Statement with the seller? 
❑  have you informed the seller about their obligation to disclose any known material latent defect in the property even if they do not complete a Property Disclosure Statement?

 

Strata Properties

❑  Are you  aware of information contained in, and attached to, the Form B Information Certificate that may affect the use of the property, such as:   

❑  parking stalls
❑  storage lockers
❑  special levies
❑  Depreciation Report

❑ Are you familiar with, or aware of, information contained in the bylaws and rules

❑ Have you obtained and reviewed other key documents?

❑  Have you determined if there are any restrictions on use, such as:

❑  age restrictions
❑  rental restrictions
❑  sales restrictions
❑  pet restrictions
❑  miscellaneous restrictions (such as barbeques, hot tubs, window coverings, signage, satellite dishes, etc.)?

 

Find more information
Additional Issues for Listing Licensees
Documents to Request and Their Significance
Strata Property Act [SBC 1998] c. 43

Court Ordered Sales

❑  If the property is being sold under a court order (e.g. a foreclosure or a divorce), have you:

❑  obtained a copy of the court order (e.g. conduct of sale order)? 
❑  determined whether there are any specific conditions in the court order that may determine how the property is listed or can be sold?
❑  reviewed the Schedule "A" (in the case of foreclosures)?

Tenant-Occupied Properties

❑  Have you determined whether there are any tenants occupying the property?
❑  If so, have you received a copy of the tenancy agreement?
❑  Have any amendments or variations been made to the original tenancy agreement (e.g. rent abatements or pets permitted)?

Find more information
Residential Tenancy Branch

Residential Tenancy Act

Other Issues To Be Aware Of

Taxes

❑  Have you obtained the current property tax information (e.g. property tax notice, BC Assessment)?
❑  Are there any special municipal levies that have been included, or will be included, in the property taxes?
❑  Have you asked the seller if they are a non-resident of Canada?
❑  Have you advised the seller to obtain independent professional advice on any potential tax issues (e.g. GST)?

 

Zoning

❑  Have you determined:

❑  the current land use zoning and any potential zoning changes with municipal or regional district authorities?
❑  whether the property falls within the Agricultural Land Reserve?
❑  for properties within the Gulf Islands, whether the Islands Trust development and land-use restrictions apply?

New Homes

❑  Is the residential property a new home as defined under the BC Homeowner Protection Act?
❑  Was the home built by a residential builder licensed by the Homeowner Protection Office?

❑  if so, is the home covered by home warranty insurance and have you obtained a copy of it?

❑  Was the home built by an Owner-Builder?

❑  if so, have you obtained the owner-builder declaration and disclosure notice?

Find more information
Homeowner Protection Act Matters 

Manufactured Homes

❑  Does the manufactured home have a valid CSA sticker as required under section 21 of the Electrical Safety Regulation of the BC Safety Standards Act?

❑  Have there been any alterations to the electrical system?

❑  if so, have you reviewed the requirements of the BC Safety Standards Act?

❑  If the manufactured home is located in a mobile home park, have you obtained and reviewed the park rules, regulations, or any tenancy approval processes?

Find more information
Sale of New or Used Manufactured Homes 

 

Leased Equipment

❑  Have you determined what, if any, equipment or other items are leased, and indicated this on the listing? (e.g. water coolers, alarm systems, propane tanks, hot water tanks, furnaces, etc.)?

  

 

(e) Closing Dates

With the introduction of the Electronic Filing System for land title documents, lawyers and notaries are now able to electronically submit Land Title documents between the hours of 6 a.m. and 8 p.m. Monday to Saturday. However, notwithstanding the availability of the filing system, conveyancing staff and the lending staff at many financial institutions may not be available on Saturdays. This can create a problem for a Saturday closing. Although clients can specify any closing date they choose, licensees should advise clients of the potential problems associated with a Saturday closing.

(f) Deposits

Section 27 of RESA requires that all money received by a licensee from, for or on behalf of a principal in relation to real estate services, and all money received on account of remuneration including remuneration received from another brokerage, must be promptly paid or delivered to the brokerage. Similarly, subject to the exceptions detailed in section 27 of RESA requires the brokerage to promptly pay all such funds into a brokerage trust account.

An exception to this requirement is set out in section 27(4) of RESA and is described in greater detail below under the heading ‘‘Deposits Held by Third Parties’’.

Section 28 of RESA provides that, other than in limited cases, such as where the funds are rent or security deposits or the parties agree in writing otherwise, the brokerage holds the funds as a stakeholder and not as an agent for one of the parties.

(i) Need for a Deposit

Contract law does not require that there be a deposit in order to create a binding Contract of Purchase and Sale. The requirement that a contract include some form of consideration is satisfied by the mutual exchange of promises by the seller and the buyer. However, it has long been recognized that including a deposit, often an amount between 5% and 10% of the offered price, represents an expression of the serious intention of the buyer.

The Council is aware that some buyers’ agents are drafting offers that do not provide for any deposit to be paid until after subject removal. One reason stated is a concern that the seller will not authorize the release of the deposit to the buyer if the buyer does not remove the subject clauses.

Some consumers, and perhaps even some licensees, are under the misconception that a Contract of Purchase and Sale is not binding on the parties until all subjects have been removed. The obligations under a contract are created once there has been an offer and acceptance (including counter-offers, if any). Some buyers believe that not including a deposit makes it easier for them to not proceed, if they choose, with their obligations under the agreement.

Buyers’ agents need to be cautious that buyers do not assume that, by not providing an initial deposit, they have somehow diminished their responsibility to make best efforts to satisfy the terms and conditions of the contract and to remove subject clauses.

It is the Council’s view that listing brokerages, in situations where buyers offer no deposit until removal of subject clauses, should advise sellers of the merits of a deposit being received from buyers. Increasing a deposit can be accomplished by way of a counter-offer from the seller.

(ii) Deposits and the ‘Standard Form’ Contract of Purchase and Sale

[06/15/2010 The following information added to Professional Standards Manual]

The ‘standard form’ Contract of Purchase and Sale (the “CPS”)1 available for the use of real estate board members in relation to common residential trades contains pre-printed wording which identifies a wide variety of acceptable forms of deposit. It also allows sellers and buyers to determine by mutual agreement what form a deposit may or must take.

If a brokerage is not prepared to accept deposits in one or more of the forms identified in the CPS, that brokerage and its related licensees should make sure that their clients are, at the commencement of the relationship, aware of and consent to the brokerage’s policy of not accepting those forms of deposit. 

Where a buyer wishes to pay the deposit in a manner other than by the methods described in Section 2 of the CPS (e.g. wishes to pay by wire transfer, credit card2, or money order), the buyer’s representative should insert that method of payment in the “terms” portion of Section 2.

The following table lists the different forms of deposits allowable under the CPS, with a brief description of each.

Form of Deposit Benefits of Form of Deposit Potential Issues With Form of Deposit
Uncertified (personal) cheque Convenient, readily available. Must be cleared by issuer’s financial institution. Potential for issuer to ‘stop payment’ after it has been deposited but prior to being cleared. Uncertainty whether funds are available until cheque has cleared.
Certified cheque Verifies funds are available at time of issue. Creates certainty. Requires attendance at issuing financial institution. No longer available at some institutions.
Bank draft Verifies funds are available at time of issue. Creates certainty. Requires attendance by issuer at issuer’s financial institution.
Cash Certainty. Potential FINTRAC reporting requirements. Greater risk of theft.
Lawyer/notary/brokerage trust cheque Not used for deposits – more for tender on completion.  

Based on the foregoing, it might be considered ‘best practice’ to encourage deposits to be by way of certified cheque or bank draft, as they create the most certainty with little risk of theft. In researching with various financial institutions, the Council was advised that many financial institutions consider certified cheques and bank drafts to be very similar. They are treated as if they are cash in the sense that, when they are issued, the money is taken out of the account. The only way they will not be ‘honoured’ is if they are physically returned to the institution to be re-deposited. Once they are handed over (for example, to the brokerage that will be holding it in accordance with the CPS), the institution will not accept a request to stop payment. If they are lost, the financial institution will likely require a statutory declaration, or similar statement, verifying that loss. One financial institution advised the Council that it no longer issues certified cheques.

Licensees should be aware, however, that financial institution policies can and do change over time, and policies may vary between financial institutions. For example, the time required to clear a personal cheque may be different between types of institutions (e.g. credit unions, trust companies, chartered banks) and depending on where the cheque is drawn (e.g. local, regional, national, or international institution). For this reason, brokerages are strongly advised to check with their own financial institution as to their cheque handling and clearing policies, and have their institution confirm its policies in writing.

1 Licensees should be aware that BCREA produces various ‘standard form’ contracts of purchase and sale for use depending on the type of real estate involved; e.g. commercial, business assets, manufactured homes, etc. These versions of the CPS do not all treat deposits in the same manner described in this article, or in the BCREA articles to which this information refers. Standard forms are also created by others to meet their own needs. For example, some developers produce their own contracts for use in the sale of their projects; some commercial brokerages create their own contracts for use in the sale of commercial properties; brokerages that are not members of a board may also create their own contracts of purchase and sale. Licensees using these other forms of contracts of purchase and sale should familiarize themselves with the differences and advise clients to seek independent legal advice wherever there is concern about any aspect of a particular form.

2 The use of credit cards for payment of deposits is rare. Not only must the parties to the trade agree in the contract that the deposit is to be paid by credit card, but the brokerage that is to hold the deposit must be a ‘merchant’ with respect to the use of that credit card. Brokerages considering accepting deposits by credit card must first satisfy themselves as to the terms and conditions of acting as a ‘merchant’ in this way, and must ensure that such deposits, in the full amount required by a contract of purchase and sale, (i.e. without service charges being deducted) are deposited promptly and retained in the brokerage trust account.

(iii) Cash Deposits

Cash deposits, regardless of their size, can pose problems for licensees. Section 27 of RESA requires that all monies received by a licensee in relation to real estate services must be promptly paid or delivered to the licensee’s brokerage and the brokerage must promptly pay the funds into a brokerage trust account.

The Council has seen situations where licensees have deposited cash deposits into their own personal accounts, then transferred these funds into their brokerage’s trust account or had a bank draft payable to the brokerage drawn on these funds. While the intention may have been to reduce the risk of loss or theft, this is not an acceptable practice. The licensee’s account is not a trust account and is therefore not protected from attachment by creditors. In certain cases, this was done to avoid an administration fee charged by the brokerage for dealing with cash.

Cash deposits are not common in sales transactions but they may occur in the form of rent or security deposits in property management. Brokerages should develop a company policy with respect to dealing with cash deposits, including what actions are to be taken if a cash deposit is received after business hours. This policy should include strategies to reduce the risk of loss or theft. Due to this risk, brokerages may wish to encourage non-cash forms of payment such as cheques or bank drafts.

If a buyer insists on providing a cash deposit in conjunction with an offer to purchase and this is taking place after regular office or bank hours, it may be advisable to make the deposit payable within a certain time frame after acceptance, coinciding with when the brokerage’s financial institution is open. This would facilitate the brokerage not receiving the cash until it can immediately be deposited. Alternatively, it could be suggested that the buyer obtain a bank draft, made payable to the brokerage, from his or her own financial institution.

(iv) "Promptly Pay" Means Immediately

Section 27 of RESA provides that a licensee shall, upon receipt, promptly pay or deliver all funds received from a principal or as remuneration to the brokerage and that the brokerage must promptly pay the funds into a brokerage trust account.

Council’s auditors frequently have found that:

    1. Cheques have been held and not deposited until either certification or acceptance of the relevant offer. Section 27 of RESA requires that a licensee promptly deliver to the brokerage all money held or received from, for or on behalf of a principal. The brokerage must promptly pay this money into a brokerage trust account. Money that is received should not be held by a licensee or a brokerage pending some future event.

    2. Cheques from related companies (e.g., a subsidiary company or a private company owned by the licensee) acknowledged on Contracts of Purchase and Sale were never drawn and accordingly no payment was made into the brokerage’s trust account.

    3. Rental collections were being deposited into the general account when they should have been deposited into a brokerage trust account.

The Council will not accept practices of this nature.

(v) Buyer’s Failure To Pay Deposit

The following wording has been added to the first page of the Contract of Purchase and Sale:

Default on Deposit Clause

If the Buyer fails to pay the deposit money as required by this contract, the Seller may, at the Seller’s option, terminate this contract.

WARNING: If licensees are not using the standard Contract of Purchase and Sale developed by the BCREA, they should check the contract to ensure that this wording is present. Older versions of the standard Contract do not contain this wording and it must be added.

(vi) When To Deposit

The Council has obtained a legal opinion as to whether or not, in all cases, a cheque for a deposit must be deposited into a brokerage’s trust account or whether it was acceptable, if the offer accompanying the deposit cheque was rejected, to give the cheque back to the person who had made the offer. The following is an excerpt from the lawyer’s opinion.

    If a cheque is received accompanying an offer made on a Friday evening, it is sometimes impossible to pay it immediately into the bank. It cannot be deposited until Monday morning… If an offer made on a Friday evening is rejected that evening or before the banks open Monday morning, it would seem to defy reason that the cheque could not be returned… to the offeror, and

    … that such a return of the cheque would be a proper course and not leave the agent open to criticism or to a charge of breach of the Act. Once the offer is rejected, no one has any rights in the cheque other than the offeror and I do not see how there could be any wrongdoing in returning the cheque to him or her.

    If, on the other hand, a cheque is received during banking hours or it is possible to deposit the cheque in the bank before the offer is rejected, then in my view, the cheque should be deposited even though the offer may still be open and in spite of the inconvenience in obtaining certification and so on.

(vii) Deposit Payable on Acceptance or Within a Stated Time Period

Section 27 of RESA requires that when a deposit is given to a licensee, that licensee must promptly deliver it to the licensee’s related brokerage, and, in turn, the brokerage must promptly place it in the brokerage’s trust account. Sometimes, the seller and buyer agree that a deposit will be payable on acceptance or within a stated time period. The following alternative methods of providing for the payment of a deposit are common:

    (a) the Contract of Purchase and Sale may provide that the deposit is payable within a specified period of time after the acceptance of an offer. In this case, the following clause should be used in the contract:

Deposit Payable Within a Specified Period Clause

Deposit to be payable within(number of hours) hours of acceptance of this offer.

    (b) the Contract of Purchase and Sale may provide for a small initial deposit payable within a specified period of time after the acceptance of an offer, which is to be increased to a specified amount upon removal of conditions precedent. In this case, use the following clause in the contract:

Increase of Deposit Clause

The deposit will be increased to $ (amount) upon removal of all conditions precedent. 

Pursuant to section 28 of RESA, a brokerage which receives a deposit holds that deposit as a stakeholder once there is an agreement between the parties for the acquisition and disposition of the real estate. Once there is this agreement, the brokerage does not hold the funds as an agent for one of the parties to the transaction. Therefore, once this agreement is in place, the brokerage can then only return the deposit to one of the parties to the transaction by express agreement between the parties.

If the buyer advises the brokerage that he or she has stopped payment or intends to stop payment on the deposit cheque before it has been deposited, the brokerage should advise the buyer that it is obligated under RESA to deposit the cheque as soon as possible. In this situation, the brokerage must deposit the cheque and then inform the seller or the seller’s agent of the situation without delay. The brokerage should advise the seller to obtain legal advice as to their position vis-a`-vis the buyer.

(viii) NSF Deposit Cheques

If a buyer’s deposit cheque is returned NSF (not sufficient funds) or is otherwise dishonoured, there are three possible explanations. The first is that there has been an honest mistake by either the buyer or the buyer’s bank. The second possibility is that the buyer has no money or, finally, the buyer is engaged in some improper scheme.

Section 3-2 of the Rules requires an associate broker and a representative to immediately notify the managing broker if an anticipated deposit cheque has not been received or has not been honoured. Section 3-1 of the Rules requires the managing broker to ensure that all parties to the agreement are immediately notified if a deposit cheque is not received or is not honoured. Provided the seller agrees, it is permissible to contact the buyer and to allow the buyer a very short period of time within which to provide a certified cheque, a bank draft or money order. Where the deposit money is not replaced, the seller must be fully advised of the situation and advised to obtain legal advice as to whether or not the contract is still binding and whether or not the seller has a claim against the buyer.

(ix) Deposit To Bear Interest

As licensees are aware, the wording in the Contract of Purchase and Sale states ‘‘Deposits to be held in trust in accordance with the provisions of the Real Estate Services Act’’. As not all consumers may be aware that the intent of this wording means that interest is paid to the Real Estate Foundation, licensees should ensure that they familiarize themselves with their brokerage’s policy with respect to interest on trust deposits. Further, licensees should have a discussion with their clients with respect to this policy and, where a client requests that the deposit is to be placed in an interest bearing trust account, the following clause should be added to the Contract of Purchase and Sale.

Deposit To Bear Interest Clause

This deposit is to be placed in an interest-bearing trust account with interest accruing to the benefit of the (select either Buyer or Seller) .

Licensees should check with their managing broker as to the minimum amount and time frame which their company requires in order to pay interest. Also, the buyer’s Social Insurance Number (SIN) should be obtained for income tax purposes.

(x) Deposits Held by Third Parties

If a deposit is to be held by someone other than a real estate brokerage, a licensee acting for a party to that trade should advise that party to obtain legal advice to ensure there is no concern about either how the deposit is to be held, or the terms upon which it may be released.

If a licensee is to hold or receive the deposit for the purpose of delivering it to a third party, the parties must sign a separate written agreement that disapplies sections 27(1) and (2) of RESA insofar as that licensee is concerned.

If a deposit is related to a trade involving a development unit subject to the requirements of the Real Estate Development Marketing Act, a licensee acting for a party to that trade should determine that the person holding that deposit, whether that be their own related brokerage or someone else, is aware that it is being held under the provisions of the Real Estate Development Marketing Act, not RESA.

Section 27(1) of RESA requires that licensees promptly deliver to their related brokerage any monies they hold or receive from, for or on behalf of a principal in relation to real estate services. Section 27(2) of RESA requires the brokerage to promptly deposit these monies into a brokerage trust account. It is important to understand that section 27 of RESA applies whenever a licensee holds or receives this money. However, there are scenarios where the parties to a trade wish someone other than a brokerage involved in the trade to hold the deposit.

(xi) Deposit To Be Held by Someone Not Regulated under RESA

[updated September 2015]

The parties may agree that one of the parties’ lawyers, a notary public, accountant, or indeed anyone that the parties mutually agree upon, is to receive the deposit. This agreement should be detailed in the Contract of Purchase and Sale. However, if a cash deposit is to be given to a licensee so that that licensee can deliver the cash to the person who is to hold it, another step is necessary.

Section 27(4) describes that additional step. It requires that the seller and buyer enter into a separate written agreement which essentially relieves the licensee and the related brokerage of their obligation to deposit the money into the brokerage’s trust account. Once this separate written agreement has been executed, and the deposit clause in the Contract of Purchase and Sale has been properly amended, the licensee must ensure that the deposit is delivered to the person who is supposed to receive it.

    NOTE: Following amendments to RESA in 2015, unless the money received is cash, a separate written agreement is no longer required, so long as the brokerage takes no action in relation to the money other than to deliver it to the person to whom it is payable. If the money is cash, a separate written agreement is still required.

To demonstrate, assume that the seller and buyer have agreed that a deposit of $1,000 is to be held by the seller’s lawyer Joe Smith. Randy Ready of ABC Realty, the buyer’s agent who is drafting the contract on behalf of the buyer, has agreed to deliver the deposit to Joe Smith. Paragraph 2 of the ‘‘standard’’ Contract of Purchase and Sale states, in part, the following:

‘‘2. DEPOSIT: A deposit of $1,000, which will form part of the Purchase Price, will be paid on the following terms:All monies paid pursuant to this section (Deposit) will be delivered in trust to [Name of the Party to Hold the Deposit] and held in trust in accordance with the provisions of the Real Estate Services Act.’’

The seller’s lawyer is not licensed under RESA and takes his instructions from the seller. He is not obliged to hold the deposit "in trust in accordance with the provisions of the Real Estate Services Act." Therefore, the deposit clause should be amended as follows:

‘‘2. DEPOSIT: A deposit of $1,000 which will form part of the Purchase Price, will be paid on the following terms: within 24 hours of acceptance of this offer.

All monies paid pursuant to this section (Deposit) will be delivered in trust to the Seller’s lawyer, Joe Smith. The Seller will provide irrevocable instructions to Mr. Smith to hold the Deposit in trust in accordance with the provisions of the Real Estate Services Act.’’

In this scenario, the deposit cheque should be made payable to ‘‘Joe Smith, In Trust.’’ No separate written agreement is necessary if the licensee is only to deliver the deposit cheque to the lawyer. If  the deposit in this scenario is in the form of cash, a separate written agreement under section 27(4) of RESA is still required, and that separate written agreement should contain the following components:

Agreement Under Section 27(4) of the Real Estate Services Act (where money is to be held by someone who is not a licensee)

Dated:

Re:(‘‘Property’’)

Between:(‘‘Seller’’)

and:(‘‘Buyer’’)

and:(‘‘Brokerage’’)

With respect to the Contract of Purchase and Sale dated(Contract) in respect of the Property, the Seller and Buyer agree that(Licensee), is not required to deliver monies received from the Buyer or Seller pursuant to the Contract to the Brokerage pursuant to section 27(1) of the Real Estate Services Act nor is the Brokerage required to deposit those monies in its brokerage trust account pursuant to section 27(2) of the Real Estate Services Act.

Signed:

Seller

Buyer

Licensee on behalf of the Brokerage

Deposit To Be Held by Another Licensed Brokerage Not Otherwise Involved in the Trade

Some brokerages have entered into service agreements with another brokerage whereby the second brokerage (the ‘‘Holding Brokerage’’) agrees to hold deposits in relation to trades involving the first brokerage — the ‘‘Service Brokerage’’. In these circumstances, section 7-1.1 of the Rules requires that there be a separate written agreement under section 27(4) of RESA wherein the parties agree that the deposit will be paid to the ‘‘Holding Brokerage’’. Section 7-1.1 of the Rules also requires that the ‘‘Holding Brokerage’’ deposits the money into a separate brokerage trust account maintained in the name of the ‘‘Service Brokerage’’.

To demonstrate, Randy Ready is licensed with ABC Randy Realty, which has entered into an agreement with ABC Big Realty to provide trust accounting services for ABC Randy Realty. When Randy writes offers, the deposit clause reflects this, but Randy typically agrees to deliver the deposit cheque when received.

In this scenario, because the deposit is to be held by another brokerage, that brokerage is governed by RESA. If other deposit details are the same as in the first scenario, the Deposit clause should read as follows:

‘‘2. DEPOSIT: A deposit of $1,000 which will form part of the Purchase Price, will be paid on the following terms: within 24 hours of acceptance of this offer.’’

‘‘All monies paid pursuant to this section (Deposit) will be delivered in trust to ABC Big Realty and held in trust in accordance with the provisions of the Real Estate Services Act.’’

In this scenario, the deposit cheque should be made payable to ‘‘ABC Big Realty, In Trust’’. The separate written agreement required by section 27(4) of RESA should contain the following components:

Agreement Under Section 27(4) of the Real Estate Services Act (where money is to be held by a holding brokerage)

Dated:

Re:(‘‘Property’’)

Between(“Seller”)

and:(‘‘Buyer’’)

and:(‘‘Brokerage’’)

With respect to the Contract of Purchase and Sale dated(‘‘Contract’’) in respect of the Property, the Seller and Buyer agree that(‘‘Licensee’’), is not required to deliver monies received from the Buyer or Seller pursuant to the Contract to the Brokerage pursuant to section 27(1) of the Real Estate Services Act nor is the Brokerage required to deposit those monies in its brokerage trust account pursuant to section 27(2) of the Real Estate Services Act but that the monies will be delivered to(‘‘Holding Brokerage’’) for deposit in a trust account established by the Holding Brokerage.

Signed:

Seller

Buyer

_ Licensee on behalf of the Brokerage

Deposit To Be Held Pursuant to the Real Estate Development Marketing Act

When the trade involves a development unit, as defined under the Real Estate Development Marketing Actsection 18 of that legislation applies. Section 18(1) of the Real Estate Development Marketing Act states that: ‘‘A developer who receives a deposit from a purchaser in relation to a development unit must promptly place the deposit with a brokerage, lawyer, notary public or prescribed person who must hold the deposit as a trustee in a trust account in a savings institution in British Columbia.’’

Deposits are held as a trustee under the Real Estate Development Marketing Act, which is different from how they are held as a stakeholder under RESA. One of the significant differences is that there are certain triggering events which, when they occur, oblige the trustee to release the deposit to the developer. This release takes place without the type of signed agreement of the parties required under RESA.

There is a link in the wording between RESA and the Real Estate Development Marketing Act with respect to the treatment of deposits. RESA requires that deposits received by a brokerage under section 18 of the Real Estate Development Marketing Act be dealt with in accordance with the Real Estate Development Marketing Act.

If the ‘‘standard form’’ Contract of Purchase and Sale is used for a trade related to a development unit that is subject to the provisions of the Real Estate Development Marketing Act, the phrase in the deposit clause shown in scenarios 1 and 2 above that states the deposit will be ‘‘… held in trust in accordance with the provisions of the Real Estate Services Act’’ essentially means the deposit must be held in accordance with the Real Estate Development Marketing Act.

Therefore, brokerages which hold deposits related to trades that are subject to the Real Estate Development Marketing Act should familiarize themselves with the requirements of that legislation. Further information is also available on the Financial Institutions Commission website www.fic.gov.bc.ca by following the links ‘‘Real Estate > Frequently Asked Questions’’.

It is also important to recognize that scenarios 1 and 2 above also apply to trades that are subject to the Real Estate Development Marketing Act. If a licensee is going to hold or receive a deposit which the parties have agreed will be delivered to and held by someone other than that licensee’s related brokerage, a separate written agreement must be obtained.

Other Requirements Where the Deposit Will be Held by Someone Other Than a Licensed Brokerage

One other issue was that licensees had not advised their clients to seek legal advice where the deposit was not to be held by a brokerage under RESA. The Council recommends that licensees advise clients to obtain such advice in any circumstance where a deposit is going to be held by a third party other than a real estate brokerage, including by one of the parties to the transaction.

Licensees should confirm such a recommendation to the seller or buyer by inserting one of the following clauses into the Contract of Purchase and Sale:

Legal Advice re: Deposit Clause

(name of Seller or Buyer) hereby acknowledges that (name of licensee) has advised them to obtain independent legal advice before signing or accepting this contract with respect to the arrangements for holding the deposit money in this transaction.

OR

Lawyer Approval of Deposit Arrangement Clause

Subject to the (select either Seller’s or Buyer’s) lawyer approving on or before (date) the arrangements for holding the deposit money in this transaction.

This condition is for the sole benefit of the (select either Seller or Buyer) .

Ω If not using the standard form Contract of Purchase and Sale, refer to ‘‘Contracts under Seal’’.

If the deposit is not in the trust account of a brokerage but rather in the account of a lawyer/notary, then the licensee must confirm in writing, with the signatures of all parties to the contract, that the deposit is being held by the lawyer/notary as a ‘‘stakeholder’’ and not in trust for one of the parties to the transaction.

Licensees should be aware that some developers have created their own form of Contract of Purchase and Sale for specific projects. Some of these contracts contain specific clauses directing that a buyer’s deposit is payable directly to the developer or their legal representative and not to the brokerage’s trust account.

If the developer is to hold the deposit, licensees should advise buyers that a developer governed by the Real Estate Development Marketing Act is not permitted to hold a deposit and the clause should be amended accordingly.

Refer to the sections entitled ‘‘Real Estate Development Marketing Act and New Construction’’ for further information.

Authorization To Pay Trust Money to Conveyancing Lawyer or Notary

The ‘‘standard’’ Contract of Purchase and Sale addresses deposits and states, in part:

    The party who receives the Deposit is authorized to pay all or any portion of the Deposit to the Buyer’s or Seller’s conveyancer (the ‘‘conveyancer’’) without further written direction of the Buyer or Seller, provided that: (a) the conveyancer is a Lawyer or Notary; (b) such money is to be held in trust by the conveyancer as stakeholder pursuant to the provisions of the Real Estate Services Act pending the completion of the transaction and not on behalf of any of the principals to the transaction; and (c) if the sale does not complete the money should be returned to such party as stakeholder or paid into court.

The effect of this wording is to allow the brokerage that holds a deposit in trust as a stakeholder to for ward these funds to the conveyancer, without having to obtain a separate written release from both the seller and the buyer. The following sample clause is intended for use in contracts that are not drafted on the ‘‘standard’’ form.

Conveyancer as Stakeholder Clause

The brokerage that receives money in connection with this transaction is authorized to pay such money to the Buyer’s conveyancer, provided that such money is to be held in trust by the conveyancer as stakeholder pursuant to the provisions of the Real Estate Services Act, pending the completion of the transaction and not on behalf of any of the principals to the transaction, and should the sale not complete, the money should be returned to the brokerage as stakeholder.

Agreed to by Seller:

and Buyer:

There are two important issues to note:

  • This pre-authorization only applies to a release of funds to a lawyer or notary. It does not apply to the release of funds from trust for any other reason or to any other party.
  • This clause does not bind the conveyancer to hold the funds in trust as a stakeholder pursuant to the provisions of RESA because the conveyancer is not a party to the Contract of Purchase and Sale. An agent who releases funds to a lawyer or notary under this authority must still clarify the stakeholder role directly with the conveyancer. This can be accomplished by using the following sample wording in a covering letter to the conveyancer:

Authorization To Pay Trust Money to Lawyer or Notary Clause

Enclosed is $ (amount) being the deposit money in the above-noted transaction. This money is to be held by you until completion on the following trust conditions:

1. you will hold this money as a stakeholder pursuant to the provisions of the Real Estate Services Act and not on behalf of any of the principals to the transaction;

2. upon completion you will disburse the money as provided in the Contract of Purchase and Sale and, should the sale not complete, you will, upon request, repay the money to us in trust as stakeholder; and

3. if you are unable to comply with these trust conditions, you will return the said money to our office.

Regardless of who is acting as the stakeholder, the following clause should be used to clarify the obligations of that stakeholder:

Third Party Holding Deposit Clause

The deposit will be held in trust by (name of third party, e.g., conveyancer/notary/builder) as a stakeholder pursuant to the provisions of the Real Estate Services Act pending the completion of the transaction.

(xii) Receipt of Deposits by Developers under the Real Estate Development Marketing Act

The Real Estate Development Marketing Act provides that when a licensee is selling new strata lots, new cooperative units, new time shares or new shared interests in land, the licensee must ensure that the buyer’s deposit is handled according to the Real Estate Development Marketing Act. A developer who receives a deposit from a purchaser must promptly place the deposit with a brokerage, lawyer, notary public or prescribed person.

Section 18 of the Real Estate Development Marketing Act provides that the deposit is held for the developer and the purchaser and not as an agent for either of them.

The Real Estate Development Marketing Act also provides when the trustee, who is holding the funds, may release them. See the section on Deposits in ‘‘New Construction’’ for more information on the release of deposits.

If the developer is not prepared to have the deposit held in trust in accordance with the Real Estate Development Marketing Act, the buyer should be advised to seek legal advice.

(xiii) Return of Deposits after Acceptance

Both contract law and RESA govern the return of a deposit where an offer or counter-offer has been accepted and the subject clauses are subsequently not removed.

Contract Law: If the offer or counter-offer is not accepted and there is no contract, the deposit may be returned to the buyer without the consent of the seller.

If, however, the offer or counter-offer is accepted and the subject clause(s) is (are) not removed, then contract law asks the question, ‘‘What did the parties to the contract intend would happen if the subject clause(s) is (are) not removed?’’

Real Estate Services Act: Section 28 of RESA provides that unless other wise expressly agreed to in writing, a brokerage that receives money in respect of a trade in real estate holds the money as a stakeholder and not as an agent for the buyer or seller. Therefore, when a subject clause is not removed, the brokerage must obtain a separate written release containing the consent of the buyer and the seller to release the deposit.

It is the obligation of the benefiting party to use his or her best efforts to remove the subject clause. If he or she does not do so, the other party may have a legal argument that the benefiting party did not use his or her best efforts.

If the parties to the contract do not both consent in writing to release the deposit, then the brokerage cannot release the deposit to anyone and it may remain stuck unless there is an adverse claim by the seller, in which case the deposit may be paid into court pursuant to section 33 of RESA.

(xiv) Obtaining Release Where There Is No Deposit

In instances where there is no deposit and subject clauses are not being removed, it is a wise practice to have the parties acknowledge that the contract has ended and the parties have been released of any further liabilities under the contract. While it may be difficult to get signed acknowledgements from both parties in every instance, it is a worthwhile practice that may avoid future problems.

(g) Unclaimed Trust Money

Many brokerages are unable to trace individuals whose money they hold in trust. Typically, the unclaimed amount will result from an accumulation of small deposits.

A brokerage is required to continue to hold such funds in trust, indefinitely, or, alternatively, to pay the funds into court pursuant to section 33 of RESA following the procedure outlined in the section on Discharging Stakeholder Obligations in a Conflict.

However, pursuant to section 32 of RESA, money in a trust account maintained in British Columbia is deemed to be unclaimed if the following conditions have been met:

    (a) the brokerage has made reasonable efforts to ascertain the identity of or to locate the person entitled to claim the money;

    (b) to notify that person about the money; and

    (c) the money has been unclaimed for longer than one year.

If the above three conditions have been satisfied, the unclaimed money may be paid to the B.C. Unclaimed Property Society pursuant to the Unclaimed Property Act.

Brokerages wishing to pay unclaimed trust money to the Society will be required to provide information respecting the identity of the person to whom the money is owed, the date of the transaction, and what efforts have been made to contact the person.

Information with respect to the procedure for paying funds to the B.C. Unclaimed Property Society may be obtained from:

    B.C. Unclaimed Property Society
    Suite 1200-555 West Hastings Street
    Box 12136 Harbour Centre, Vancouver, B.C. V6B 4N6
    Phone: 604-662-3518
    www.bcunclaimedproperty.bc.ca

A brokerage is not required to pay the unclaimed money to the B.C. Unclaimed Property Society. If unclaimed monies are not paid to the Society, the monies must be kept in the brokerage’s trust account.

(h) Offers

(i) Presentation of Offers

While many real estate boards/associations have rules on this topic, which are similar to the following guidelines, licensees are reminded that these are the minimum requirements. Board/association members should be familiar with their board’s/association’s procedures.

(ii) Attendance of Other Licensees

Unless the client instructs the licensee otherwise, there is nothing wrong with having the selling licensee who introduced the offer attend with the listing licensee and allow that selling licensee to explain the offer to the seller. While there is no real requirement to do so, it seems that the listing licensee and seller have nothing to lose by this procedure and it ensures that the selling licensee, who has introduced the offer, has a full opportunity to make the presentation.

When more than one offer is being presented, the listing licensee will allow only the licensee(s) who introduced the offer being dealt with at the time to be present.

(iii) Multiple Offers — Presentation Procedures

If more than one written offer on a specific property is made before the seller has accepted an offer, all written offers must be presented to the seller. The only exception would be if the listing licensee has specific written instructions from the seller on the listing not to present particular types of offers. Unless otherwise instructed by the seller, the listing licensee should ensure that any other representative involved knows there will be competitive offers.

**Alert**

Licensees should be aware that any written offers received prior to the Completion Date of an existing sale must be presented to the seller. If a seller wishes to consider a subsequent offer, the licensee should advise the seller to seek legal advice. This applies whenever the licensee acted as a seller’s agent in the first sale, and includes cases where the listing brokerage becomes aware of the possibility of a resale to a different buyer.

If the licensee acted as a buyer’s agent in the past sale, then he or she would not owe this fiduciary duty of disclosure to the seller but would be required to disclose any third-party interest to the first buyer.

(iv) Order of Presentation

If the listing licensee has more than one offer on a property ready to be presented, the first thing to do is to tell the seller how many offers may be presented so that there is no suggestion of accepting or countering an offer before all offers have been presented.

If there is any question about which offer should be presented first, the offers should be presented in the order in which they were received to avoid controversy. To minimize the significance of the order of presentation, the listing licensee should explain to the seller prior to the presentation of the first offer that there is a total of (so many) offers and they will be presented in the order in which they were received.

A licensee must always consider all expected agency obligations in offer presentations. An agent for the seller would be obligated to disclose that the buyer will pay more (if this is known to the agent). An agent for the buyer, or a limited dual agent, must not disclose that the buyer will pay more unless instructed to do so by the buyer.

After the seller has considered all of the offers, the listing licensee should advise the seller of the options available; i.e., the seller can reject them all, accept one, provide all buyers with the opportunity to submit new offers by a specific date with the understanding that there is a multiple offer situation, or counter-offer one of the offers. In discussing these options, the seller’s agent should discuss the relative merits and potential pitfalls of each.

Because countering more than one offer at a time is problematic and a potential source of lawsuits, the Council recommends that only one offer be countered at a time.

The Council advises that extreme care be taken when multiple offers over the listed price are received after short market exposure. In these situations, the seller may wish to consider refusing all the offers and inviting each of the potential buyers to submit a new offer. If this is considered, the seller should be made aware of the possibility that some or all of the potential buyers may not submit new offers.

(v) Referential Offers

In an environment of multiple offers, a listing agent might be presented with an offer containing what is generally referred to as a ‘‘referential purchase price clause’’ (RPPC). The RPPC is a means by which a buyer endeavours to establish a purchase price by reference to prices contained in competing offers. The thrust of the RPPC is for a buyer to piggyback on the next highest bona fide offer which is acceptable to the seller. Such a clause might read as follows:

    The purchase price is $1,000 above the price offered in the nearest competing bona fide offer acceptable to the seller to a maximum price of $350,000. The seller agrees to provide a copy of such nearest competing offer on acceptance of this offer.

A 1985 House of Lords decision from the United Kingdom held that a referential offer is an offer which does not stand on its own and which is not understandable without reference to another bid. The House of Lords held that referential offers were invalid.

The B.C. Court of Appeal, in the case of The Bank of Nova Scotia and Yoshikuni Lumber, held that an offer by one bidder which is dependent for its definition on the offers of others is invalid and unacceptable, as being inconsistent with and potentially destructive of the very tendering process in which it is submitted.

In order to avoid potential problems, a listing agent should consider the following guidelines when confronted with an RPPC clause in an offer:

  • the listing agent should review the referential offer with the seller very carefully as it might not be the best offer with respect to other terms besides price, such as the financial qualifications of the buyer, dates and any subject to clauses;
  • if this offer appears to be the best offer, the listing agent should advise the seller to counter the said offer by deleting the RPPC clause and inserting a fixed price for an identical amount in its stead;
  • this counter-offer should be open to the buyer who presented the referential offer for acceptance before the expiration of any other offer the seller may be considering;
  • if the buyer in question accepts the seller’s counter-offer, then it is no longer a referential offer as it is a contract for a fixed price;
  • if the buyer refuses to accept the seller’s counter-offer by the time it is open for acceptance, then the seller is free to counter or accept another offer as long as it has not expired; and
  • the listing licensee should be aware that if acting as a limited dual agent for both the buyer who wishes to present a referential offer and the seller, the usual principles of dual agency apply and the licensee should ensure that both parties understand the limitations of the licensee acting as a dual agent.
(vi) Date of Final Acceptance on the Contract of Purchase and Sale

Many Contracts of Purchase and Sale drafted by licensees contain a clause that the deposit is due within a certain time after acceptance of the contract. Therefore, the final acceptance date becomes important as to when the deposit is due for deposit in the brokerage’s trust account.

Licensees should consider the following guidelines when drafting contracts of this nature. This example assumes use of the BCREA’s ‘‘standard’’ Contract of Purchase and Sale:

    1. When the offer is initially made by the buyer, it will be open for acceptance until a certain time, for example, until midnight that day. This time should be inserted in paragraph 24 of the contract.

    2. If, for example, the seller accepts all of the terms of the contract, except the price, the seller will usually sign and date his or her acceptance in paragraph 25 of the standard contract and then counter the price by crossing out the price and adding in a new price. The seller will then initial the change. The seller’s counter-offer is open for acceptance by the buyer until a certain time; for example, until noon the next day. This time should be inserted in paragraph 23 and initialled by the seller.

    3. The buyer then reviews the seller’s counter-offer and decides to counter back to the seller with respect to the purchase price by crossing out the price and adding in a new price and initialling same. He leaves this counter-offer open until midnight, which time should be inserted in paragraph 24 and initialled by the buyer.

    4. The seller then reviews the buyer’s counter-offer and decides to accept it. He should initial the buyer’s change in price and time for acceptance, if the time has been changed, then insert a date and time beside his initials. This becomes the final date of acceptance and starts the clock ticking with respect to the requirement for the deposit.

Licensees should ensure that the dates in paragraph 24 in the standard contract with respect to when the offer or counter-offer is open for acceptance are changed and initialled each time there is a counter-offer, as noted above.

Licensees should also ensure that the contracts are clear and legible so that there is no confusion as to the terms and dates.

Section 3-2(2)(b) of the Rules requires a licensee to immediately notify the managing broker if a deposit contemplated by an agreement has not been received.

Section 3-1(4) of the Rules requires the managing broker to ensure that all parties to an agreement giving effect to a trade in real estate are immediately notified if:

    (a) a deposit contemplated by the agreement that, if received, would be held by the related brokerage as a stakeholder under section 28 of the Act has not been received, or

    (b) a deposit cheque or other negotiable instrument that the brokerage received in respect of a deposit referred to in paragraph (a) has not been honoured.

Section 3-1(5) of the Rules requires that a Notice under subsection (4) must be given in writing or confirmed in writing.

(vii) Advice of Acceptance

Section 5-4 of the Rules provides that a licensee who has obtained a signed acceptance of an offer to acquire or dispose of real estate must promptly deliver a copy of the signed acceptance to each of the parties to the trade in real estate and to the related brokerage of the licensee.

(viii) Identical Offers

A listing licensee should recommend one of the following three methods of handling seemingly identical offers:

  • accept one;
  • accept neither; or
  • accept both (with the less desirable one as a back-up, subject to the collapse of the first contract).

There is nothing wrong with the seller simply accepting one of the seemingly identical offers. No two offers are truly identical because of the differences in buyers’ capacities, the seller’s personal preferences, and many other factors.

(ix) Counter-Offers

If none of the offers is acceptable to the seller and the seller counter-offers one of the offers, the licensees representing the other buyers may be told, with the consent of the seller only, that there is a counter-offer; neither the terms of the original offer nor the counter-offer should be disclosed unless instructed to do so by the seller.

(x) Revocation of Offers and Counter-Offers

An offer or counter-offer can be revoked at any time prior to acceptance. Though an offer can be revoked orally, it is critically important to have written evidence of the revocation, as it is for any delivery of documents. Revocation is not effective until received by the offeree (i.e., the person to whom the offer was made) or the offeree’s licensee.

(xi) Offers after an Offer Has Been Accepted (Back-up Offers)

Once an offer has been accepted but before the conditions have been removed, a back-up offer that is accepted by the seller sits in second position waiting for the first offer to collapse or firm up. Back-up offers should always have a clause such as the following written into the contract:

Back-up Contract Clause

Subject to the Seller ceasing to be obligated in any way under the previously accepted Contract of Purchase and Sale on the subject property on or before (date) .

This condition is for the sole benefit of the Seller.

It happens, at times, that the seller/buyer of the first offer may seek to renegotiate terms and conditions of the first offer. The listing licensee should counsel the seller to seek legal advice because renegotiations may result in activating the back-up contract. The risk is in selling the property to both buyers simultaneously! The licensee should advise the seller to obtain legal advice before changing the first offer when there is a back-up contract. The licensee should also advise the second buyer to obtain legal advice under the same circumstances.

Secondary or back-up offers frequently do not contemplate that the buyer may find another property and may wish to withdraw the back-up offer. Before preparing a back-up offer, the licensee should consult with the buyer as to what will happen if the buyer finds a more suitable property.

Licensees need to be aware that back-up contracts, while useful in some cases, can create serious problems when the contractual limitations and obligations of each party are not properly explained to all parties.

On the face of it, the intent is usually that a back-up contract will become firm and binding if the buyer under the previously accepted contract does not remove the subject to clauses by the date agreed to in the previous contract.

After conditions have been removed, but before completion, additional offers may be accepted as back-ups in sequence by the seller. Licensees should not stop presenting offers until transactions have completed. If a seller instructs the listing agent not to show the property after a transaction is firm, then the agent must obey these instructions, but the agent should advise the seller that firm sales can collapse before completion for a variety of reasons (death of the buyer or one of the buyers, loss of job, financial disaster, unforeseen problems with the property itself, etc.), and the seller is not protected until the transfer of title is complete and the money is in the seller’s hands.

(xii) Further accepted Offers after a first Offer Has Been Accepted (Back-up Contracts)

[11/03/2011 The following section was added to the Professional Standards Manual]

Licensees need to be aware that back-up contracts, while useful in some cases, can create problems when the contractual limitations and obligations of each party are not properly explained to all parties. For example, back-up contracts usually do not contemplate a circumstance where the second buyer finds another property and wishes to withdraw the back-up contract. Before presenting a back-up offer to a seller, the licensee acting for the second buyer should advise the buyer as to the buyer’s obligations to complete the transaction should the back- up offer be accepted and the original contract collapse. The licensee should refer the buyer for legal advice where the buyer wishes to withdraw an accepted back-up contract or where the buyer wishes to include a term in the offer which permits the withdrawal of the back-up offer after acceptance.

Once an offer has been accepted but before the conditions have been removed, a back-up offer that is accepted by the seller sits in second position waiting for the first contract to either firm up or collapse. In order to avoid sellers inadvertently becoming bound by two contracts, licenses acting for sellers should ensure that back-up offers include a clause such as the Back-up Contract Clause noted above.

The date in the back-up contract clause should be the date following the date for subject removal in the original contract and include the time of day upon which the back- up contract expires. It happens, at times, that the seller/buyer of the first contract may seek to renegotiate terms and conditions of the first contract. Where there has been an extension of the subject removal date in the original contract, the licensee acting for the second buyer should ensure that, if the second buyer wishes to continue to be in a back-up position, the back-up contract is amended prior to the time set out in the back-up contract, to reflect the new date of subject removal in the original contract and that amendment is agreed to in writing by the seller.

A review of the case law suggests that so long as the amendments proposed to the original contact are all of a character which affirms the original contract and there has not been a breach or gap in the intention to contact between the original parties, the contract remains in full force. (See most notably B.D. Mgmt. Ltd. V. Tajico Hldg. Ltd., 1988 CanLII 2932 BC C.A. where the BC Court of Appeal held that in a circumstance where the date of completion and possession was extended by two weeks by way of an Interim Amending Agreement, the parties “did nothing other than amend a contract in certain non-fundamental details while affirming the continuing existence of that contract”. In that case the parties had included a clause in the amending agreement which stated “all other terms and conditions contained within the said Agreement remain the same and in full force and effect.”)

However, any changes to the original contract should be approached with caution. If there has been a breach of the terms of the contract or a gap in the intention to contract so that contract has been brought to an end, the back-up offer may be activated. Licensees acting for the seller and first buyer should advise their respective clients to obtain legal advice before changing the first contract when there is a back-up contract. The licensee acting for the second buyer should also advise the second buyer to obtain legal advice under the same circumstances. Where the licensee is acting as a limited dual agent, the licensee should take care to ensure his or her impartiality.

Prior to completion of the original contract, additional offers may be accepted as back-ups in sequence by the seller. Licensees should not stop presenting offers until transactions have completed. If a seller instructs the listing agent not to show the property after a transaction is firm, then the agent must obey these instructions, but the agent should advise the seller that firm sales can collapse before completion for a variety of reasons (death of the buyer or one of the buyers, loss of job, financial disaster, unforeseen problems with the property itself, etc.), and the transaction is not a certainty until the transfer of title is complete and the money is in the seller’s hands. A prudent licensee would request that a seller put such an instruction in writing.

(xiii) Sale of the Buyer’s Property

In some cases, a contract may be written subject to the buyer selling his or her own property. Even if the clause provides that the sale is subject to the sale of the buyer’s property, by a certain date, the seller is forced to wait until at least that date before accepting another offer. To protect the seller, and permit the seller to be in a position to accept other offers, the seller’s agent should ensure that there is a provision which permits the seller to require that the buyer remove the condition within a prescribed period of time upon the seller giving the buyer notice. Such a clause is referred to as a time clause.

(xiv) Time Clauses

Time clauses should be inserted for the protection of the seller when an offer is written or received containing a subject to the sale of clause.

It is important to ensure that the time period is precisely defined (e.g., 72 hours).

Terms such as ‘‘banking days’’, ‘‘working days’’, ‘‘business days’’, etc., should be avoided.

Sale of the Buyer’s Property, with Time Clause

Subject to the Buyer entering into an unconditional agreement to sell the Buyer’s property at (address) on or before (date) .

However, the Seller may, (select either "at any time" or "upon receipt of another acceptable offer") deliver a written notice to the Buyer* or to (name of his or her representing real estate company) requiring the Buyer to remove all conditions from the contract within (number) hours** of the delivery of the notice, not to include Sundays and Statutory Holidays. Should the Buyer fail to remove all the conditions before the expiry of the notice period, the contract will terminate.

This condition is for the sole benefit of the Buyer.

 

* See sample following.

** The period usually ranges from 24 to 72 hours, depending on market conditions.

NOTE: This time clause may be adapted to fit other similar circumstances where the subject to clause is really an option. Examples include allowing time to obtain zoning approval, feasibility studies, engineering reports, etc. This clause protects both parties because the property is never completely off the market except for the designated number of hours between the invocation of the time clause and its deadline.

A clause such as the following should be used when a seller wishes to have the buyer with the first accepted offer remove all conditions or withdraw in order for an accepted back-up offer to move into first position. The circumstances for invocation will depend on how the time clause was written in the first offer, with either ‘‘at any time’’ or ‘‘upon receipt of another acceptable offer’’ being the reference to allow invocation.

Notice Invoking the Time Clause (for use with preceding time clause)

This document constitutes written notice from the Seller to the Buyer requiring the removal of (select either all conditions or the condition) from this contract within (number of hours) hours* not including Sunday or Statutory Holidays, or this contract will terminate at the end of the (number of hours)-hour period and the deposit will be returned to the Buyer.

This Time Clause will start running on delivery of this Notice to the Buyer or to (his or her representing brokerage) which will be at (time of delivery of notice) o’clock (select either a.m. or p.m.) on (date)Therefore, the (number of hours) hours will expire at (time) o’clock (select either a.m. or p.m.) on (date).

* Fill in the same number of hours as in preceding clause.

NOTE: When there is a time clause in the first offer and in the second offer, if the offers are not handled carefully, the Seller could lose both offers.

NOTE: The licensee should obtain evidence of the time of delivery as it may be necessary to prove this in the event of a dispute.

(xv) Listing and Offer Guidelines

When you are preparing, presenting and negotiating offers and counter-offers, follow these principles. Click on each of the statements below to see recommendations for handling offers.

Show/Hide Answer Open All 

Guiding Principles for Offers and Counter-Offers

 

Show/Hide AnswerCommunicate early and often

When you take a listing or begin working with a buyer, explain to the client how offers and counter-offers are handled.  If competing offers are a possibility, discuss strategies.

Show/Hide AnswerThe licensee advises — the client decides

The clients are the ultimate decision makers.

A seller makes the decisions about how and when offers will be negotiated and if they will be accepted, rejected, ignored or countered.

A potential buyer makes decisions about when his or her offer will be written. Based on the licensee's advice and the buyer's decision, the duration of the time the offer will be open for acceptance must be considered.  A potential buyer can accept, reject, ignore or counter any counter-offers received from a seller.

All offers and counter-offers must be presented to the seller and the potential buyer, as the case may be.

Show/Hide AnswerOffers and counter-offers in writing

Offers and counter-offers should be in writing to ensure that the terms, time frames and legal obligations of the parties are understood.

Written counter-offers should include a specific time period for acceptance.

Withdrawal of a written offer or counter-offer should be made in writing. It is critically important to have written evidence of the revocation.

Show/Hide AnswerDisclosure of terms of offers and counter-offers

A listing licensee may not disclose the terms of an offer or counter-offer from one potential buyer to another potential buyer without the prior consent, preferably in writing, of the seller.

Some real estate boards may have bylaws that prohibit the disclosure of the price and terms of a competing offer.

If the seller has agreed with a buyer to maintain the confidentiality of the price and terms of an offer, no information may be disclosed. A seller who is not bound by a confidentiality agreement with a buyer may decide that a better offer could be obtained by disclosing the terms. Should this occur, the listing licensee is obliged to follow the lawful instructions of the seller.

Show/Hide AnswerFull-price offer does not obligate the seller to accept the offer

Listing property for sale is an invitation from the seller for buyers to make offers. The seller is not obligated to sell the property even if a buyer makes a full price, unconditional offer.

Show/Hide AnswerNo priority to offers

The first or highest offer made does not bind or otherwise limit the seller to act upon any offer before considering any other offers.

Show/Hide AnswerLicensee communication

Licensees should make reasonable efforts to keep cooperating salespersons informed, consistent with client’s instructions.

Show/Hide AnswerLicensees are not lawyers

Licensees should advise clients to seek legal advice regarding any questions about the legal status of an offer or contract.

 

 

The Seller Client — An informed seller will be ready to make the right decision when an offer or competing offers are received.

When taking the listing:
  • Discuss with the seller their motivation for selling. Remember, this is confidential information.
  • Discuss impact of current market conditions, e.g., season, types of financing, length of time on market.
  • Review Guiding Principles.
  • Explain that competing offers may be received and that the seller decides whether to disclose the existence and/or terms of offers to other licensees and/or buyers.
  • Confirm that the seller — not the licensee, will make decisions about how and when offers will be presented, negotiated and ultimately accepted or withdrawn.
When the offer is received:
  • Advise the seller of the receipt of the offer(s).
  • Promptly present the offer(s) unless otherwise instructed (preferably in writing) by the seller.
  • Discuss the terms of the offer(s) — if competing offers, compare terms.
  • Inform seller of any other interest in the property.
  • Potential of other offers.
  • Scheduled showings.
  • Recent showings that may require follow-up.
Seller’s options — one offer:
  • Accept, reject, counter, delay during time for acceptance to seek out other offers.
  • Explain pros and cons of each option — including the potential of a buyer withdrawing an offer during a delay.
Seller’s options — competing offers:
  • Accept one offer.
  • If an offer is accepted, the seller may also accept back-up offers.
  • Reject all offers and encourage better offers.
  • Counter one offer (may withdraw counter, in writing, prior to acceptance) — do not inform other buyers.
  • Delay acceptance waiting for another offer.
  • Ignore an offer or all offers. The seller is not obliged to respond to potential buyers.
  • Alert one or more buyers that they are in a competing offer situation.
  • Alert all buyers that they are in a competing offer situation.
  • Do not alert any buyers that they are in a competing offer situation.
  • Consider the pros and cons of each option — delaying or inviting all buyers to make their ‘‘ best’’ offer may produce better offer(s) or may discourage buyers, who may withdraw.

 

The Buyer Client — An informed buyer will be ready to make the right decision when making an offer.

When working with a buyer as that buyer’s agent:
  • Discuss with the buyer their motivation for purchasing. Remember, this is confidential information.
  • Discuss current market conditions, e.g., season, types of financing, average length of time for properties on the market.
  • Review Guiding Principles.
  • Explain that competing offers may be made — realize that in a competing offer situation only one offer will result in a sale and one or more buyers may be disappointed.
  • Explain that the seller is not obligated to acknowledge, counter or reject an offer and may inform other buyers of the existence and/or terms of an offer to obtain better terms or price; or may not accept any offer.
  • Confirm that the buyer — not the licensee, will make decisions about how and when offers will be negotiated and presented or withdrawn.
When the offer is made — discuss with the buyer the possibility of competing offers:
  • Initial offer may be the only opportunity to buy.
  • Sellers may choose not to inform buyers of the existence of other offers.
  • Seller has the right to choose to negotiate with only one buyer at a time and not reveal this to other buyers and this negotiation may continue until seller accepts an offer.
  • The terms of buyer’s offer may not be treated confidentially by the seller, or the seller’s licensee acting upon the instructions of the seller, and the price and terms contained in the offer may be communicated to other buyers to obtain better terms or price.
  • If the buyer wishes the terms and conditions of his or her offer to remain confidential, the buyer can require the seller, prior to the presentation of the offer, to sign a confidentiality agreement. If the seller refuses to sign such an agreement, the buyer can decide whether the offer is to be presented regardless.
  • Seller may accept an offer on terms other than the price.
  • All buyers may be notified to present their highest and best offer — buyer may choose to:
    • make better offer
    • leave original offer
    • revoke offer in writing if period for acceptance is current.
(xvi) Confidentiality of Offers and Counter-Offers

A buyer and seller may enter into a confidentiality agreement prior to the presentation of an offer whereby each would agree not to disclose the terms and conditions of any offer or counter-offer to another buyer interested in the property.

Such a clause would need to be signed as a part of a separate document from the Contract of Purchase and Sale before the offer is presented.

The Council recommends the following clause where buyers and sellers wish to enter into such an agreement:

Confidentiality of Terms Clause

The Buyer and Seller agree that the terms and conditions of any offer or counter-offer with respect to the property located at(address) shall not be disclosed to any other potential Buyer of the property without the prior written consent of the Buyer and Seller.

(i) Mortgages

A licensee has an obligation to protect the interests of the principal and failure to meet that responsibility could result in the licensee being found to have committed professional misconduct. When a licensee is presenting an offer containing unconventional and potentially risky financing arrangements, including some forms of vendor financing, the seller should be urged to seek independent professional guidance. This advice should be confirmed in writing.

(j) Auctioning of Real Estate

Section 2.9 of the Real Estate Services Regulation creates an exemption from the need for licensing for auctioneers provided that the auctioneer does not:

    1. discuss with or provide information to prospective buyers about the real estate or any aspect concerning its disposition, other than to explain the procedures for the conduct of the auction;

    2. show the real estate; or

    3. hold deposits or other money payable by the buyer.

Under the Regulation, property owners may also engage an unlicensed auctioneer as long as the auctioneer’s duties do not extend beyond conducting the auction.

Notwithstanding the exemption, where a licensee acts on behalf of a seller in the auctioning of real estate, all requirements of RESA apply. As noted in the section entitled Application of RESA, licensees must comply with the requirements of RESA even though the activities would otherwise be exempt. As a result, all requirements apply, including the requirement that all advertising include the name of the licensee and the name of the licensee’s brokerage.

It is also important that licensees involved in such auctions provide detailed information to prospective buyers with respect to the auction process itself. The terms and conditions under which the real estate is to be offered should be clear and provided in written form to prospective buyers prior to the auction. This information should address, at a minimum,

  • the registration process required of prospective buyers;
  • documents to be signed by buyers;
  • the deposit required and the fact that such deposits will be held in trust by the brokerage;
  • any financing available;
  • details of the property itself and opportunities for inspection;
  • closing procedures and costs;
  • agency representation;
  • auction terminology and conduct; and
  • whether the seller
    • has established a reserve price or set other conditions under which the property will not be sold at the auction, e.g., subject to being approved for third-party financing
    • maintains the right to have the auctioneer bid on the seller’s behalf.

Where the seller has reserved the right to have the auctioneer bid on his or her behalf, the Council is of the opinion that this fact should not only be disclosed to bidders before the auction but should be disclosed to bidders as it happens. The auctioneer should clearly identify each time he or she is bidding on behalf of the seller, using terminology such as ‘‘seller’s bid is…’’ and ‘‘buyer’s bid is…’’.

Licensees intending to bid at the auction must fill out a ‘‘Disclosure of Interest in Trade’’ form pursuant to section 5-9 of the Rules during the registration process prior to the start of the bidding.

(k) Advertising Requirements

[03/01/2013 The following section replaced the previous sections called Advertising Requirements, Guidelines for Team Names, Internet Advertising, Web-based Social Network Advertising, and Photo Enhancing Software]

Each month, the Real Estate Council receives a large number of complaints relating to licensee advertising. In order to reduce the number of complaints, the Council has developed the following information which is designed to assist licensees in creating advertisements that comply with the requirements set out in the Rules.  The three Rules that relate specifically to advertising are:

These rules are intended to ensure the public is neither misled nor confused as to who is providing real estate services and to ensure the accuracy of representations being made about real estate and real estate services.  The Rules define real estate advertising as “any form of identification, promotion, solicitation or representation relating to real estate, a trade in real estate, or the provision of real estate services, including a sign or other notice relating to real estate, a trade in real estate or the provision of real estate services.

The following guidelines start with a checklist of the most common advertising problem areas. The Council encourages licensees to use this checklist to review their advertisements prior to publication. Following the guidelines, there is more information, including examples, about specific advertising requirements.

(i) Advertising Checklist
  • Is the full name of your brokerage, as registered with the Council, clearly and prominently displayed and easily readable?
  • If a brokerage office address is included in the advertisement, is it the correct address for the brokerage office at which you are licensed?
  • If your name is included in the advertisement, is it your licensee name? (i.e. your legal name, a recognizable short form of your legal name or a name that has been approved by the Council).
  • If you have a personal real estate corporation, does the advertisement include the name of the personal real estate corporation?
  • If the advertisement contains a team name, has that team name and a current list of team members been registered with the Council?
  • Are all the representations in the advertisement current, accurate and verifiable?
  • If a promise or offer is made in the advertisement, have any conditions or limitations been indicated?
  • If a comparative claim, business volume, honour or award is noted in the advertisement, has the basis of the claim/volume/honour/award, (e.g. the source, date and qualifying information) been included to avoid misleading the audience?

The following example displays an acceptable print/electronic advertisement.  It includes:

  • clearly displayed brokerage name
  • the name of the licensees
  • team name
  • a qualifying statement about the “Top selling real estate team” claim
  • a qualifying statement about the “List with us and we’ll donate $2000 to a charity of your choice” promotion

Acceptable Ad

(ii) Brokerage Name

All advertisements must include the full name of the related brokerage. Short forms of the brokerage name are not sufficient. For example, if a brokerage’s full name is ABC Hillside Realty Ltd., it is not sufficient to include ABC Realty, or Hillside Realty, as the brokerage name. Section 4-6(2) of the Rules requires that the name of the brokerage must be displayed prominently and in an easily readable form. This includes, but is not limited to, the following: TV ads and/or channels, all websites and webpages (including websites such as Facebook, Twitter, Google+, YouTube, LinkedIn, Craigslist, usedvancouver, usedvictoria, etc.), e-mail (and any other online identification, representation, promotion or solicitation), bus, bus shelters and bus stop bench signage, newspaper ads, yellow pages ads, brochures, flyers, sponsorship materials and signs, billboards, stadium/arena signs, automobile signs, business cards, or promotional material of any sort. In the case of radio and audio only advertising, the name of the related brokerage must be clearly stated. In assessing compliance with section 4-6(2), the Council will give consideration to the prominence of the brokerage’s name in relation to the rest of the advertisement and the relative ease with which a consumer can identify the brokerage.

The top six advertising vehicles where the Council finds non-compliant licensee advertising are: Craigslist, Kijiji, Facebook, Twitter, Google+, YouTube.

The following example displays an acceptable Twitter page. It includes:

  • clearly displayed brokerage name
  • the name of the licensee
  • name of the personal real estate corporation
  • a qualifying statement about the “Your top selling Richmond agent” tweet
  • a qualifying statement about the “List with me and I’ll donate $2000 to a charity of your choice” tweet

Acceptable Twitter Ad

(iii) Licensee Name

If the advertisement also identifies a managing broker, associate broker, or representative, this must be done by using the licensee name of the individual. Section 4-5 of the Rules provides that the ‘‘licensee name’’ of an individual is the legal name or a recognizable short form of the legal name or the name that is approved by the Council.

Licensees with the same surname who are engaged by the same brokerage (e.g., ‘‘the Bloggs’’) may advertise together as ‘‘the Bloggs’’. Registration of the surname with the Council is not required.

(iv) Personal Real Estate Corporation

A personal real estate corporation’s licensee name is its legal name. Advertising that identifies an individual who has a personal real estate corporation must use the licensee name of the personal real estate corporation, not the individual’s name. Therefore, it is important for the controlling individual to ensure that the legal name of his or her personal real estate corporation is the name in which they wish to advertise.

For example, if Robert Vendre has a personal real estate corporation with the licensee name of Robbie Vendre Personal Real Estate Corporation, advertising must refer to Robbie Vendre Personal Real Estate Corporation, not Robert Vendre. Another example would be where Jie Wu uses the name Jeffrey Wu for advertising purposes and has registered this as his licensee name with Council. If he then wishes to licence a personal real estate corporation, he must choose whether to licence his personal real estate corporation under the name Jeffrey Wu Personal Real Estate Corporation or Jie Wu Personal Real Estate Corporation. If he registers the personal real estate corporation name as Jie Wu Personal Real Estate Corporation, he would then no longer be able to advertise using the name Jeffrey Wu as all advertising must be in the licensee name of Jie Wu Personal Real Estate Corporation. There is no requirement that the font must all be the same, but the term ‘personal real estate corporation’ must be clearly included. Continuing with the example “Robbie Vendre”, the licensee name might appear as:

Robbie Vendre
Personal Real Estate Corporation

The following examples display acceptable forms of advertising for personal real estate corporations.

Example A

PREC Ad Example 1

Example B 
If Robbie Vendre is a member of a team (e.g. The AV Team), the name of that team may be used in advertising. (See below for further information about team names.)

PREC Ad Example 2

Example C 
The name of Robbie Vendre’s personal real estate corporation may also be included with the team name in advertising.

 PREC Ad Example 3

Example D 
The following is an example of an acceptable form of personal real estate corporation advertising for newspaper/ internet or other print advertising.

There is one exception to the general personal real estate corporation advertising rule. Where advertising is generated by a database, for example the way that a board’s MLS® generates advertising like feature sheets and other forms of online listing information, and that database cannot accommodate the entire licensee name of a personal real estate corporation, the MLS® will generate ‘Robbie Vendre PREC*’ and a footnote will appear at the bottom of the information that reads ‘*PREC represents personal real estate corporation’. This exception does not apply to any situations where the licensee generates the advertising.

PREC Newspager

(v) Team Names

If the Council approves a team name for a group of related licensees, real estate advertising may also identify the group by its team name (section 4-6 of the Rules); e.g. ‘‘The AV Team,’’ where ‘‘The AV Team’’ is neither the licensed brokerage nor a registered trade name. The name of the related brokerage must always be included in any form of team advertising.

The Council has developed and adopted the following general guidelines for team names.

TEAM NAME GUIDELINES

Approvals of team names are made on a case-by-case basis. The following guidelines are applied when considering team name requests:

  • A team name must convey to the public that a group of individuals from the same brokerage (which may include unlicensed assistants) is working as a team. Team names which include the words “Group,” “Team,” “Network,” or “Associates” help to make this clear.
  • To ensure the public is not misled or confused, a team name must not give the impression of being an incorporated company or brokerage. Team names such as “Joe Blogg and Company” or “Blogg Real Estate Services” will not be approved.
  • The terms “Realty” and “Real Estate” may not be used in a team name as they may give the impression of being a separately licensed brokerage. Exceptions to this are the use of the terms “Real Estate Team” or “Real Estate Group” at the end of a name. Examples: “The Bloggs Real Estate Team” or “The Bloggs Real Estate Group.”
  • No team name will be approved that may be confused with an existing brokerage.
  • No team name will be approved that is identical to an existing, approved team name.

You will be advised in writing of the Council’s decision regarding your team name request. Typically, team name decisions are made within a week to ten days of the Council’s receipt of the Team Name Request Form. Team name approvals are sent to the requesting licensee and copied to the managing broker.

Note: Licensees with the same surname who are engaged by the same brokerage (e.g., ‘‘the Bloggs’’) may advertise together as ‘‘the Bloggs.’’ Registration of the surname with the Council is not required.

 TEAM MEMBER GUIDELINES

  • A team must include at least two people, one of whom must be licensed.
  • All licensed team members must be licensed with the same brokerage.
  • A licensee can only be a member of one team at a time.
  • It is the obligation of the licensed team members to advise the Council, in writing, when any team member leaves the team or a new member joins. This requirement also applies when a team member transfers or surrenders their licence.

All licensed team members need to be aware that as individual licensees they have an obligation to comply with all of the provisions of the Real Estate Services Act, the Real Estate Services Regulation, Bylaws and Rules. The fact that one licensee member of the team may be the ‘‘lead’’ licensee of the team in no way diminishes the other team members’ legislated responsibilities and obligations.

TEAM ADVERTISING GUIDELINES

  • Teams may identify themselves by team name in advertisements, but the brokerage name must also be prominently displayed and must be easily readable in relation to the rest of the advertisement. Including the name of the brokerage at the bottom of a website or print advertisement, in small type, does not satisfy the requirements of section 4-6(2) of the Rules.
  • All advertising that includes the names of unlicensed team members must identify them as being unlicensed.
(vi) Internet/Social Media Advertising

One of the primary purposes of the Council’s advertising rules is to ensure that consumers accessing a licensee’s advertising are aware that they are dealing with a real estate licensee and know the name of the brokerage with which that licensee is engaged.  This is particularly important for internet and social media advertising given the worldwide exposure of this advertising medium. 

Just as in print advertising, the name of the brokerage must appear in a prominent and easily readable form on all internet and social media advertising vehicles, including each individual page, e-mail, online discussion group or bulletin board, etc.

For social media advertising, licensees must include the name of their related brokerage on their profile screen.  Using Twitter or Facebook as examples, only the licensee’s main profile screen is required to contain the name of the licensee’s related brokerage. It is not required that each ‘‘tweet’’ or ‘‘post’’ contain the name of the brokerage. The rationale is that once a licensee’s profile has been accessed, the name of the brokerage is displayed, and it is known that the individual is a licensee. It is the site visitor, with that knowledge, who then chooses whether to follow the licensee’s ‘‘tweets’’ or asks to become a ‘‘friend’’, going forward. This is rather like licensees introducing themselves to a consumer at an open house; they identify themselves as a real estate licensee and present a business card with the name of their brokerage displayed. Licensees do not have to reintroduce themselves at each subsequent meeting if the consumer decides to maintain contact with them, as the consumer already knows, via the first introduction, with whom he or she is dealing.

The following example displays an acceptable Facebook page. It includes:

  • clearly displayed brokerage name
  • the name of the licensee
  • team name
  • name of the personal real estate corporation
  • a qualifying statement about the “Top selling real estate team” claim
  • a qualifying statement about the “List with us and we’ll donate $2000 to a charity of your choice” promotion

Acceptable Facebook Ad

The same rationale applies to a video blog posted on a licensee’s website. Provided that the name of the licensee’s brokerage is prominently displayed and easily readable on the website where the video is posted, it is not required that the licensee include the name of his or her brokerage on each blog segment. However, if a licensee posts a video blog on any other website, such as YouTube, the name of the brokerage must be in the title or description of the video.

The following example displays an acceptable YouTube page. It includes:

  • clearly displayed brokerage name
  • the team name
  • a description of the team
  • a qualifying statement about the “Top selling real estate team” claim
  • a qualifying statement about the “List with us and we’ll donate $2000 to a charity of your choice” promotion

Acceptable Youtube Ad

Guidelines for Common Online and Social Media Websites

Facebook: Profiles have limited characters but the name of the brokerage/personal real estate corporation/team can be displayed as a graphic in the cover photo. Better yet, a Facebook page has unlimited characters so it is easy to comply and have the page look very professional. If you are, in any way, using Facebook to ‘advertise’, your page and profile must include the name of your brokerage. If you don’t want the public (or the Council) to scrutinize your Facebook page, be sure your privacy settings are set appropriately.

Twitter:  The Twitter bio section has room for your name plus that of your brokerage. Or you can include your brokerage name in the background of your Twitter page. You do not have to add the name of your brokerage to each tweet.

Google +: Like Facebook, you can put the name of your brokerage in the cover photo or in your profile photo.  Keep in mind that the posts are the first thing displayed, not the “About” section. So if you don’t have your brokerage name in the cover photo or profile photo you will have to have it on all your posts.

YouTube:  On the “Your Channel” section of YouTube, you can put your brokerage name in the “About” section. On the “You Tube” video page you can put the name of the brokerage/personal real estate corporation/team in three areas – the “Title”, “Description” or in the intro to your video.

Craigslist and Kijiji:  It is important to ensure that the name of your brokerage is prominently displayed and easily readable on any Craigslist and Kijiji posting.

Foreign Language publications: Translations of brokerage names into other languages is not acceptable. The licensee name of the brokerage/licensee/personal real estate corporation/team must be reflected as registered by the Council.

Pinterest:  Should you post any photos on Pinterest that have to do with the real estate that you are marketing, you should include your brokerage name on the photo itself to avoid a contravention if, for example, your photo is re-pinned on another person’s board.

QRL Codes: It is important to ensure that the name of your brokerage is prominently displayed and easily readable on the link that is provided by the QRL code.

(vii) No False or Misleading Advertising

Section 4-7 of the Rules states that a licensee must not publish real estate advertising that the licensee knows, or ought to know, contains a false statement or misrepresentation concerning real estate, a trade in real estate or the provision of real estate services.

False statements are those that can be shown to be factually incorrect.  Generally, there is little room for interpretation in these situations.  The assessment of statements that may be misleading, deceptive or inaccurate, however, is more subjective in nature.

In general, licensees should assume that all statements in an advertisement will be taken at face value and interpreted based on their plain meaning.  If the licensee’s intent is to imply something else, or if the licensee is aware that the statement could be interpreted in different ways, it would be better to spell out the intended meaning in plain language, or to provide some form of disclaimer within the advertisement.  Failure to do so could result in the statement being deemed misleading, deceptive or inaccurate.

  • Promises or Offers

    If a promise or offer is made in any advertising, any conditions or limitations must be clearly indicated.  Additionally, full written details of the terms, conditions or limitations of the promise or offer must be available.

  • Comparative Claim/Business Volume/Honour or Award

    If a comparative claim, business volume, honour or award is noted in any advertising, the basis of the claim/volume/honour/award, (e.g. the source, date and qualifying information) needs to be included to avoid misleading the audience.

  • Photo Enhancing Software

    Photo enhancing computer applications make it easy to manipulate photographs in a variety of ways. When using photographs in advertising materials, licensees must use caution so as to not alter or enhance photographs in any way that would misrepresent aspects of the property. While editing out such items as a garbage can or an automobile parked in a driveway would be acceptable, removing nearby power lines or changing any physical characteristic of a property such that it results in a misrepresentation would not be acceptable.

(viii) Current and Accurate Information

Listing information must be kept current and accurate. Licensees must ensure that when listings have expired, they are immediately removed from websites. Similarly, if property information changes during a listing period, the information posted on websites should be changed accordingly.

Licensees should not advertise other licensee’s listings directly on their own website without permission from the listing licensee and if this permission is given, should not alter any of the listing information without approval of the listing licensee. If linking to an outside database of available properties, it should be clear to consumers which listings are the licensee’s and which are not.

The Council is hopeful that these advertising guidelines will be of assistance to licensees.  Licensees that are members of a real estate board should check with their local board for any specific advertising requirements that are in addition to the Council’s guidelines.

(l) Disclosure of Material Latent Defects

At common law, a seller, and correspondingly, a seller’s agent, must disclose all known material latent defects. A latent defect is one that is not visible upon ordinary inspection, but which materially affects the property’s use or value. On the other hand, a patent defect is one that is readily visible and/or obvious upon ordinary inspection. A patent defect may also materially affect the property’s use or value.

Section 5-13 of the Rules requires disclosure of known material latent defects and that section defines a material latent defect as follows:

    material latent defect means a latent defect that cannot be discerned through a reasonable inspection of the property, including any of the following:

      (a) a defect that renders the real estate

        (i) dangerous or potentially dangerous to the occupants,

        (ii) unfit for habitation, or

        (iii) unfit for the purpose for which a party is acquiring it, if

          (A) the party has made this purpose known to the licensee, or

          (B) the licensee has other wise become aware of this purpose;

      (b) a defect that would involve great expense to remedy;

      (c) a circumstance that affects the real estate in respect of which a local government or other local authority has given a notice to the client or the licensee, indicating that the circumstance must or should be remedied;

      (d) a lack of appropriate municipal building and other permits respecting the real estate.

Further, section 5-8 of the Rules requires that disclosure to be in writing and separate from any agreement under which real estate services are provided and separate from any agreement giving effect to a trade in real estate. A licensee is not required to disclose a known material latent defect to a buyer if the seller has already disclosed all known material latent defects, in writing, to the buyer. For example, disclosing the material latent defect on the Property Disclosure Statement (PDS) may now satisfy the requirements of the Rules.

Timing of the disclosure is critical. Written disclosure of all known material latent defects must be provided to the buyer before there is an accepted offer. This applies whether the PDS, or some other document is to be used to disclose these defects. A licensee acting for the seller must ensure that the written disclosure of the material latent defect was provided to the buyer prior to the acceptance of the offer by the seller. Licensees should include the following clause in the Contract of Purchase and Sale whenever a material latent defect is disclosed.

Disclosure of Material Latent Defect Clause

The buyer acknowledges having received separate written disclosure of a material latent defect relating to (general reference to issue) .

Licensees must keep in mind that trading services includes offering real estate for rent or lease. As a result, written disclosure of a material latent defect is required regardless of whether the real estate is offered for sale or for rent or lease.

Section 5-13 of the Rules also provides that if the client instructs the licensee not to disclose the material latent defect, the licensee must refuse to provide further trading services to the client in respect of the trade in real estate.

(m) ‘‘Stigmatized’’ Properties

When selecting a property to buy, most often the physical appearance of a property and the location will be obvious. If a buyer has concerns about the less obvious structural and mechanical aspects of a property, the buyer can have a property inspection done. However, consumers may have other areas of concern that would cause them to avoid a property. Certain events may cause a property to be described as a ‘‘stigmatized property’’, or a ‘‘ psychologically impacted property’’. These terms are sometimes applied to a property that has had some circumstance occur in or near it, but which does not specifically affect the appearance or function of the property itself.

Examples of these in a residential context might include:

    1. a sexual offender is reported to live in the neighbourhood;

    2. a former resident was suspected of being an organized crime gang member;

    3. a death occurred in the property;

    4. the property was robbed or vandalized; or

    5. there are reports that the property is haunted.

The significance of these or any other occurrence can be affected by a person’s beliefs, values and perceptions, ethnic background, religion, gender, age, and other individual concerns. Therefore, to determine with any certainty all the possible circumstances that might cause a property to be considered ‘‘stigmatized’’ is daunting, if not impossible. Further, in the event of a lawsuit resulting from an undisclosed stigma, the buyer would have to prove what harmful effect the stigma had because these issues are often personal ones that do not affect the appearance, function or use of the property — the usual tests for determining a material latent defect.

While, under the doctrine of caveat emptor, buyers are ultimately responsible to satisfy themselves that the property they are acquiring is suitable for their purposes, many buyers look to the seller to provide them with information about the property. In British Columbia, it is important for consumers to know that while sellers and licensees representing sellers are required by law to disclose material latent defects affecting a property, they are not required by law to disclose the existence of possible stigmas that might be of concern to specific buyers. Therefore, British Columbia buyers, who are concerned about certain possible stigmas in regard to a property, are responsible to conduct their own investigation which could include inquiries of licensees who represent them or direct inquiries of the seller or licensees representing the seller.

When asked by their client, a buyer’s agent must make the appropriate inquiries.

When asked about the possible existence of stigmas that might affect the property the seller, or licensees representing the seller, may:

    a) answer the question directly; or

    b) decline to answer the question and advise the buyer to conduct their own investigation

Sellers and their licensees who choose to answer such questions are expected to use reasonable skill and care to ensure the accuracy and completeness of the information provided to buyers.

A refusal by the seller to answer questions may raise a warning flag for a prospective buyer who may then wish to find the answers through the buyer’s own independent research.

Stigmas Are Difficult To Define

The following example may help to show the difficulty in defining a stigma. Think about your response to this question:

Would it matter to you if a death had occurred in a property you were interested in buying?

Some would say ‘‘Yes, absolutely !’’ However, consider the following situations:

    1. Would you find a death caused by a violent act or suicide unacceptable?

    2. What if the family brought an elderly grandmother home to die in the comfort of her family and familiar surroundings?

    3. Suppose it were a crib death of a newborn?

    4. What if you learned the owner’s pet had recently died in the home? Would you feel differently if the death was natural or if poison was suspected?

    5. Would you be concerned if a person had been killed by a car on the street in front of the house?

    6. Would you be as concerned by a death that occurred 50 years ago as you would with a recent one?

These examples illustrate how difficult it is to clearly define what a ‘‘stigmatized’’ property might be. What one person might find unacceptable may be of little or no importance to another.

It is impossible to anticipate all the areas of sensitivity individuals may have. While the feelings and concerns of individual buyers are understandable, it is also easy to see that sellers might be unfairly hurt by a requirement to disclose such things. For instance, if the law required that all deaths in properties must be disclosed, regardless of how and when they occurred, the act of bringing a grandmother home to die may cause the owners to lose property value.

As noted earlier, sellers may refuse to answer questions about such potential stigmas, or, if they do answer, would be expected to use reasonable skill and care to ensure the accuracy and completeness of the information they provide. However, a seller may have no knowledge of events that occurred before their ownership, or the property may have been rented out and the seller may not know of events that occurred during the rental period.

Sellers and licensees acting on behalf of sellers who are concerned that some circumstance may cause the seller’s property to be considered stigmatized will face a dilemma — do we disclose and risk harming our property

value, or do we not disclose and risk the buyer learning the information later and pursuing us for damages? Prudent licensees will discuss all the variables with the seller and should suggest obtaining independent legal advice as to the seller’s rights and obligations.

Keep in mind that the issues concerning stigmas affecting properties differ from the obligation of sellers and their representatives to disclose all known material latent defects about a property to potential buyers. A definition of the term ‘‘material latent defect’’, and the responsibility of a licensee acting on behalf of a seller to disclose a material latent defect, is contained in section 5-13 of the Rules.

Limited Dual Agency

The disclosure obligations of a seller and listing brokerage change somewhat when the listing brokerage is, with the consent of the seller, acting as a limited dual agent. Despite the fact that a seller does not have an obligation at law to disclose the existence of a stigma that affects their property the seller has, when they consent to the listing brokerage acting as a limited dual agent, agreed that the brokerage will have a duty to disclose all matters material to the buyer except:

    (i) that the seller is willing to accept a price or terms other than those contained in the listing;

    (ii) the motivation of the seller to sell or lease; or

    (iii) personal information about the seller.

Accordingly in a limited dual agency situation, where the buyer has made his or her concern about a stigma known to the brokerage through the licensee representing the buyer, and the brokerage, through the licensee representing the seller is aware of the existence of such a stigma the brokerage, as a limited dual agent, has a duty to disclose that information to the buyer. Where the brokerage does not have knowledge of the existence of the stigma and an inquiry is made by the buyer the seller may, as with other inquiries, choose to:

    (i) answer the question directly; or

    (ii) decline to answer the question and advise the buyer to conduct his or her own investigation.

The following two questions were received concerning stigmatized properties.

    What is a seller’s (and seller’s agent’s) obligation to disclose a stigma if asked directly about it by a buyer or a buyer’s agent?

    Unlike the obligation to disclose a material latent defect, a seller, and, therefore, a licensee representing that seller does not have an obligation to disclose the existence of stigmas which might affect the property. Therefore, if asked about the possible existence of stigmas, the seller, or licensees representing the seller, may:

      a) answer the question directly; or

      b) decline to answer the question and advise the buyer to conduct his or her own investigation.

    Before responding to such a question on behalf of his or her seller, a licensee should first seek direction from the seller about whether to answer, or to decline to answer. Sellers and their licensees who choose to answer such questions are expected to use reasonable skill and care to ensure the accuracy and completeness of the information provided to buyers.

    A refusal to answer questions may raise a warning flag for a prospective buyer who may then wish to find the answers through their own independent research.

    Are the obligations different in dual agency?

    Despite the fact that a seller does not have an obligation at law to disclose the existence of a stigma that affects their property, the seller has, when consenting to the listing brokerage acting as a limited dual agent, agreed that the brokerage will have a duty of disclosure to the buyer, excluding

      a) that the seller is willing to accept a price or terms other than those contained in the listing;

      b) the motivation of the seller to sell; or

      c) personal information about the seller.

    Under the current limited dual agency system, the brokerage has a duty to disclose to the buyer all material information except that which has been excluded by the limited dual agency agreement with the consent of both the buyer and the seller. Accordingly, where the buyer has made his or her concern about a stigma known to the brokerage through the buyer’s representative, and the brokerage through the listing representative is aware of the existence of such a stigma, the brokerage has a duty to disclose that information to the buyer. Where the brokerage does not have knowledge of the existence of a stigma and an inquiry is made by the buyer, the options set out above related to the first question would apply.

(n) Disclosure of Illegal Activities

[June 2014: The following section was revised in the Professional Standards Manual]

If real estate has been used for the production of illegal substances, such as growing marijuana or as a methamphetamine laboratory, and the property has not been properly restored, a material latent defect may exist, in the form of toxic hazards that cannot be discovered on a reasonable examination of the property. While marijuana for medical purposes may be grown legally with the necessary licence, the possibility remains that its growth could result in a property defect.

If no disclosure has been made by the seller in this regard, the Council recommends that licensees acting for buyers encourage including the following clause in the contract of purchase and sale to confirm that the property has not been used to grow marijuana, whether legally or otherwise, or to manufacture illegal substances:

No Growth or Manufacture of Illegal Substances Clause (for use with non-strata properties)

The Seller represents and warrants that, during the time the Seller has owned the property, the property and the buildings and structures thereon have not been used for the growth of marijuana or manufacture of any illegal substances.  This warranty shall survive and not merge on the completion of this transaction.  Further, the Seller represents that, to the best of the Seller’s knowledge and belief, the property and the buildings and structures thereon have never been used for the growth of marijuana or manufacture of illegal substances.

If, however, the property has been used to grow marijuana or manufacture illegal substances, and the buyer is prepared to accept the condition of the property on an ‘as is’ basis, the Council recommends that

a) written disclosure of the property use by made to the buyer in a form separate from the Contract of Purchase and Sale; and

b) the following clause be included in the Contract:

Growth or Manufacture of Illegal Substances Clause (for use with non-strata properties)

The Buyer acknowledges that the property and the buildings and structures thereon may have been used for the growth of marijuana or manufacture of illegal substances, and acknowledges that the Seller makes no representations and/or warranties with respect to the state of repair of the premises. The Buyer accepts the property and the buildings and structures thereon in their present state, and in an ‘‘as is’’ condition.

§ NOTE: The use of this or a similar clause in the Contract of Purchase and Sale does not replace the requirement to have made such a disclosure on a separate document prior to the offer being accepted.

Licensees should also be aware that home warranty insurance may be void if it is found that illegal activity has occurred in the premises. The Homeowner Protection Act provides for certain permitted exclusions from warranty coverage due to, among other items, non-residential use, illegal activity (including marijuana growing operations) and failure to properly maintain the premises. Under some home warranty programs, current or subsequent owners may be impacted by exclusions from warranty coverage that are permitted by the Homeowner Protection Act and thus could void warranty insurance.

 

[August 2014: The following section was added to the Professional Standards Manual]

In the sale of a strata lot, except perhaps where the strata lot is part of a bare land strata corporation, a seller cannot be expected to have the knowledge about the property implied in the above clause.

Licensees may find the following adapted versions of the clauses useful in the sale of strata lots.

The Council recommends that licensees use the following clause to confirm that the strata lot has not been used to grow marijuana, whether legally or otherwise, or to manufacture illegal substances:

No Growth or Manufacture of Illegal Substances Clause (for use with strata lots)

The Seller represents and warrants that, during the time the Seller has owned the strata lot, neither the strata lot nor any limited common property associated with the strata lot has been used for the growth of marijuana or manufacture of any illegal substances. This warranty shall survive and not merge on the completion of this transaction. Further, the Seller represents that, to the best of the Seller’s knowledge and belief, neither the strata lot nor any limited common property associated with the strata lot has ever been used for the growth of marijuana or manufacture of illegal substances.

If, however, the strata lot has been used to grow marijuana or manufacture illegal substances, and the buyer is prepared to accept the condition of the property on an ‘as is’ basis, the Council recommends that:

a) the seller make a written disclosure to the buyer in a form separate from the Contract of Purchase and Sale; and

b) the following clause be included in the Contract:

 

Growth or Manufacture of Illegal Substances Clause (for use with strata lots)

The Buyer acknowledges that the strata lot or limited common property associated with the strata lot has been used for the growth of marijuana or manufacture of illegal substances, and acknowledges that the Seller makes no representations and/or warranties with respect to the state of repair of the strata lot or the limited common property associated with the strata lot. The Buyer accepts the strata lot in its present state, and in an ‘‘as is’’ condition.

§NOTE: The use of this or a similar clause in the Contract of Purchase and Sale does not replace the requirement to have made such a disclosure on a separate document prior to the offer being accepted.

Licensees should also be aware that many financial institutions have lending restrictions they may apply to properties that have been used for growing marijuana or the manufacture of illegal substances.

 

Licensees should also be aware that home warranty insurance may be void if it is found that illegal activity has occurred in the premises. The Homeowner Protection Act provides for certain permitted exclusions from warranty coverage due to, among other items, non-residential use, illegal activity (including marijuana growing operations) and failure to properly maintain the premises. Under some home warranty programs, current or subsequent owners may be impacted by exclusions from warranty coverage that are permitted by the Homeowner Protection Act and thus could void warranty insurance.

(o) Proper Signatures on Contracts

Licensees should ensure that all Contracts of Purchase and Sale and Addendums are in writing, signed by the parties to the Contract, and properly witnessed by a person over the age of 19 who is present to witness the parties signing the document in question. Licensees must never witness a signature on a document that has not been signed in their presence but, for example, has been faxed to them with the party’s signature.

If a representative is authorized to sign a listing contract on behalf of the brokerage, the representative should sign his or her signature where it states:

    XYZ Real Estate Ltd. Listing Brokerage (Print)

    John Smith (signature) Per: Licensee’s Signature

    ‘‘JOHN SMITH’’ (printed) Licensee (Print)

to ensure that the contract is binding on the brokerage.

If the representative is not authorized to sign the listing contract on behalf of the brokerage, then he or she should ensure that the contract is signed by someone who is authorized to sign on behalf of the brokerage before giving a copy to the seller.

Licensees should ensure that the seller also signs the listing contract in front of a witness over the age of 19 and that the seller is given a true copy of the listing contract after it has been fully executed by both parties.

 

Signing on Behalf of Clients

Before signing a contract on behalf of a client, section 5-3 of the Rules requires that you must have obtained written authorization from the client or an authorized agent of the client. It is not acceptable to sign a document on a client’s behalf simply on the basis of a verbal authorization from the client.

You should not rely on an email as authorization from a client unless you are certain that the e-mail was written and sent by the person from whom it appears to have been received.

When signing on behalf of a client, you should not sign the name of the client. Instead, sign your own name and indicate beside or below your name that you are signing as agent for the client. Here’s an example:

example signature

 

 

 

When clients are out of town, difficult to reach by phone or email, or otherwise unable to sign documents, having authority to sign on their behalf may seem like a simple and expedient way for your clients to conduct business.

But by signing on your clients’ behalf, you are stepping into their shoes. Accepting the responsibility of signing on behalf of clients is a business decision that may have unanticipated consequences. In the absence of specific written instructions, it may be perceived that your decisions were influenced by your interest in earning a commission or fee, over the interests of your clients, regardless of how well intentioned your motives may have been.

Always insist on receiving clear, written instructions from your clients before accepting the responsibility to sign on their behalf. At a minimum, the instructions should state the following:

  • the clients’ directions to you
  • the specifics of how they would like you to proceed, and
  • the limits to your authority to act on their behalf.

The instructions should set out the exact terms and conditions under which you are authorized to sign on behalf of your client. It may be advisable to seek legal advice to ensure that you have sufficient authority to act on behalf of your client. When receiving a contract signed by another licensee acting on behalf of their principal, if your client has any concerns about the enforceability of the contract they should be advised to seek independent legal advice.

Keep in mind that when your clients give you authority to sign a contract on their behalf, they are investing a great deal of trust and reliance in you as their agent. It is a significant responsibility, and should never be taken lightly.

(p) Fax/Scanned Copies

Fax copies or scanned copies that are e-mailed are commonly used in real estate transactions where one party or the other is unavailable or residing in a different location. Fax/scanned copies are a convenient way to comply with the requirement that real estate contracts must be recorded in writing and must be signed by the parties to the contract.

Fax/scanned copies should not be used as a replacement for meeting face to face with the parties to a contract and obtaining signatures on original documents. They should only be used as an alternative where either party is unavailable or residing in a different location.

Licensees should ensure that, when sending fax/scanned copies, the entire contract is faxed or scanned, both front and back, as well as any addenda or schedules to the contract. There is a clause in the standard Contract of Purchase and Sale which states,

    This offer if accepted is a legal and binding Contract. See information on back. Read it all before you sign.

Licensees should request that the receiver of the fax/scanned copies confirms receipt of the fax/scanned copies and, where not confirmed by the receiver, the sending licensee should follow up and ensure that the copies have, in fact, been received.

When receiving fax documents, because the fax copy may be on special paper that could deteriorate over time, the licensee should make a photocopy of the fax copy and keep that on file. Additionally, a photocopy of the fax should be made for acceptance and/or counter-offer.

A fax/scanned copy is sufficient evidence of a contract and, assuming the contract is other wise binding, the contract comes into effect once the fax bearing all parties’ signatures accepting the offer or counter-offer is communicated and received by all the parties to the contract.

Licensees should remember that sending a signed contract by fax or sending a signed scanned copy by e-mail has the same legal effect as sending a signed original of a contract. It is important that all involved persons be advised as to the binding legal nature of the obligation created by sending a fax or scanned copy by e-mail.

NOTE: Licensees must ensure when sending a contract by fax, that all of the contract is legible.

(q) E-mail Instructions

E-mail is a common way to transmit information. However, licensees should not rely on e-mail instructions unless they are certain they have verified that they were written by their client. Firstly, it is difficult to prove that the person sending an e-mail is the person from whom it may appear to have been received. Secondly, where these instructions are intended to contractually bind a person, as in the case of a Contract of Purchase and Sale, a listing contract, a rental property management agreement or a strata management agreement, that person’s signature is required. Therefore, it is not likely that receiving such instructions by e-mail would create sufficient evidence of a contract.

(r) E-signatures, Electronic Agreements and Electronic Tablets

[06/15/2010 The following information replaced section called Electronic Contracts]

With commerce becoming increasingly digitized, electronic agreements and contracts have grown in popularity. Some licensees have started to use electronic tablets when providing real estate services. The tablets contain, for example, the electronic version of service agreements and Contracts of Purchase and Sale of real estate. The signature of the buyer and seller may be captured by their signing on the tablet, much like when we sign on a tablet for receipt of delivery of a couriered package or at a credit card terminal. The agreements can be printed or emailed directly from the tablet.

The Council has considered the question of whether electronic contracts are enforceable when the signature of a party to the contract is not signed in ink, known as a “wet” signature.

The Council has concluded that electronic agreements and the use of signatures written onto an electronic tablet can create enforceable agreements, whether these are service agreements or Contracts of Purchase and Sale of real estate, so long as all of the essential elements of a contract are in place, e.g. the parties to the contract are known, the terms of the contract are clear and the parties have agreed to those terms.

The Law and Equity Act requires that a Contract of Purchase and Sale of real estate, in order to be enforceable, must be in writing and signed by the party to be charged or an agent of the party. The courts have expressly supported the view that, while the traditional form of writing is a paper document, the definition does not preclude other forms of expression, including electronic communications.

The reason for the requirement of a signature to a contract is to ensure that there has been acknowledgement and approval of the terms of the contract. The signature need not be in any particular form and the courts have supported both manual “wet” and electronic signatures, and electronic signatures that are password protected, as well as those that are not.

Licensees are reminded that email communications, where the name of the sender may appear, are not sufficient as a replacement for a “wet” signature on a paper contract or an electronic signature captured on a tablet.

Other Issues – Storage and retention of electronic records

There are other issues which should be considered by licensees and their brokerages using electronic technology. The first concern is that many of the companies promoting electronic agreement software are based in the USA and both the production and the storage of the information is subject to different privacy laws, such as the U.S. federal Patriot Act which may result in disclosure of confidential client information in circumstances which would not be required in Canada. As well, section 25 of the Real Estate Services Act requires that a brokerage must keep proper books, accounts and other records in British Columbia. Several Rules may also apply. For example, section 8-9.1 of the Rules permits electronic storage of records but requires the prompt transfer to a printed form of any record upon the request of the Council. Since section 8-10 of the Rules requires licensees to keep records for 7 years, the security and accessibility of the storage facility must also be considered when setting up a method of electronic storage within the brokerage. Brokerages may wish to obtain appropriate legal, accounting and IT advice when considering a paperless record keeping system.

 

(s) Registration of Seller’s Interest

Licensees should always be extremely careful in handling documents which have been signed by their principal, whether that principal is the seller or the buyer. The Council has had to deal with situations where transfers and mortgages, having been signed by the seller, have been delivered by licensees directly to the buyer. One buyer, instead of registering the seller’s mortgage, placed a new mortgage, thus leaving the seller’s mortgage unregistered and unsecured.

Where a seller is to carry part of the purchase price by way of mortgage or agreement for sale, the licensee should impress on the seller the importance of having that interest registered either by the buyer’s lawyer (provided the buyer’s lawyer has given such an undertaking) or by the seller’s lawyer.

It is customary for mortgagees to stipulate that mortgage documents will be prepared by their conveyancer at the expense of the mortgagor. It is recommended that this provision be included in the Contract of Purchase and Sale whenever the seller and/or a private investor will be carrying or advancing mortgage money.

Conflict of interest guidelines that apply to both lawyers and notaries public prevent the conveyancer, in most instances, from acting for more than one party to the transaction, unless there is no actual conflict and they have written consent from all of the parties to the transaction.

(t) Included/Excluded Items

[11/20/2012 The following section was amended with new information]

The standard Contract of Purchase and Sale provides for the insertion of included and excluded items. It is important to itemize any chattels and/or fixtures which are to be included or excluded from the contract to avoid misunderstanding. If any of these items are not in working order, the licensee should disclose this fact in writing.

Some licensees appear to be presuming that appliances or other chattels that are listed as inclusions in MLS® information are automatically included in the sale of a property and do not have to be itemized in a Contract of Purchase and Sale. This is not true. Licensees using the ‘standard’ BCREA Contract of Purchase and Sale are reminded that paragraph 18 states:

REPRESENTATIONS AND WARRANTIES: There are no representations, warranties, guarantees, promises or agreements other than those set out in this Contract and the representations contained in the Property Disclosure Statement if incorporated into and forming part of this Contract, all of which will survive the completion of the sale.

The listing of appliances or other chattels or excluded fixtures in the MLS® information is, like the listing price, a reflection of what the seller, at the time of listing the property, directs their agent to advertise as the terms under which the property may be sold. Those terms may change at the seller’s instigation or through negotiations with a buyer. Paragraph 7 of the ‘standard’ Contract of Purchase and Sale lists many items which are to be included and provides for the creation of a schedule of included items and a schedule of excluded items. To avoid misunderstanding, it is important for licensees to ensure this clause is carefully completed to accurately reflect the intention of the parties. If any of the items that are to be included are not in working order, the licensee should disclose this fact in writing.

It is a good idea for the licensee to do a walk-through with the buyer and the seller to confirm included and excluded items.

Among the many potential items that could be included in a real estate transaction are the following:

  • built-in vacuum canister and attachments
  • air-conditioners
  • humidifiers
  • air filters
  • water filters
  • hot tub and equipment and heater
  • pool equipment and heaters
  • thermal blankets
  • pool dome
  • fans
  • solar panels
  • window coverings
  • valances
  • loose carpeting
  • mirrors on hooks
  • under-cupboard appliances attached by screws
  • workbenches
  • built-in or loose shelving
  • closet organizers, built-in bars
  • laundry hoses for washer and dryer
  • unattached plumbing fixtures (usually in new homes, additions or basements ready for finishing)
  • satellite dish and decoder
  • gas fireplace key
  • garage door remote control
  • any other remote controls
  • alarm systems
  • fireplace inserts.

(u) Warranties on Appliances and Other Components

While the warranty provided by the builder or other third-party warranty company typically starts to run only when the home is first occupied, other warranties on appliances and building components provided by the suppliers may start to run when the appliance or component is installed as part of the house or condominium. The licensee should advise the buyer of the date of the final inspection or occupancy permit and provide all warranty documentation to the buyer. The onus is on the buyer to read the documentation.

When it is represented that there is a warranty in existence, a copy of that warranty, with the date and the name of the warranting company, should be given to the buyer for review, as is done with other documents. The warranty, with details as to what it covers, should be referenced on the Contract of Purchase and Sale. Often, the company which has provided the original warranty has gone out of business (e.g., a 50-year roof may no longer be covered). Sometimes, the warranty is not transferable and the next owner does not qualify. Appliances may have a different warranty date than the house does. Frequently, sellers believe they are covered when they are not and they could innocently misrepresent the situation to an unsuspecting buyer. It is imperative that no misrepresentation be made by the licensee.

Licensees who are referencing warranties on appliances or other components should be prepared to provide a copy of the warranty to the buyer and ensure that all relevant details concerning the warranty are listed on the Contract of Purchase and Sale.

If the appliances are not in working order, the licensee should disclose this fact in writing.

The following clause may be used by a buyer’s licensee to protect the buyer’s interests when appliances are included in the purchase:

Appliance Warranty Clause

The Seller warrants that the appliances included in the purchase of this property will be in proper working order as of the Possession Date.

(v) Guaranteed Purchase Agreements

Where a brokerage is going to offer a Guaranteed Purchase Agreement to a seller, it is strongly recommended that legal advice be sought regarding the specific wording of such an agreement. Because the brokerage is assuming substantial obligations and the seller is relying on the guarantee, use of a standard precedent (which may not fit the particular situation) can be hazardous.

There are several points which should be particularly noted in preparing Guaranteed Purchase Agreements of any kind.

    1. The licensee must be sure to prepare a separate Guaranteed Purchase Agreement, normally in the form of a Contract of Purchase and Sale. He or she must not attempt to incorporate the trade agreement clauses into the original contract.

    2. When preparing the Guaranteed Purchase Agreement, the licensee must be certain that the brokerage purchasing the property makes the full disclosure required under section 5-9 of the Rules and also be certain that the disclosure is made prior to the presentation of a Guaranteed Purchase Agreement to the seller.

    3. The licensee must prepare a Listing Contract on the seller’s property and have it executed at the same time as the Guaranteed Purchase Agreement is executed.

    4. The licensee must be aware that in giving a guarantee, his or her brokerage is making a major financial commitment. The licensee must be sure that his or her brokerage is in a position to honour all such commitments if called upon to do so.

(w) Proceeds of Crime (Money Laundering) and Terrorist Financing Act

[updated 08/25/2015]

The following summary of the legislative requirements under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act applies to licensees when acting as an agent regarding the purchase or sale of real estate. These requirements do not apply to licensee’s activities related to property management. If you are an employee of a licensee, these requirements are the responsibility of your employer except with respect to reporting suspicious transactions and terrorist property, which is applicable to both. If you are a licensee acting on behalf of a brokerage, these requirements are the responsibility of the brokerage except with respect to reporting suspicious transactions and terrorist property, which is applicable to both.

(i) Reporting Suspicious Transactions

You must report where there are reasonable grounds to suspect that a transaction or an attempted transaction is related to the commission or attempted commission of a money laundering offence or a terrorist activity financing offence.

See Guideline 2: Suspicious Transactions and Guideline 3: Submitting Suspicious Transaction Reports to FINTRAC at www.fintrac-canafe.gc.ca.

(ii) Terrorist Property

You must report where you know that there is property in your possession or control that is owned or controlled by or on behalf of a terrorist or a terrorist group.

See Guideline 5: Submitting Terrorist Property Reports to FINTRAC at www.fintrac-canafe.gc.ca.

(iii) Large Cash Transactions

You must report large cash transactions involving amounts of $10,000 or more received in cash.

See Guideline 7: Submitting Large Cash Transaction Reports to FINTRAC at www.fintrac-canafe.gc.ca.

(iv) Record Keeping

You must keep the following records:

  • large cash transaction records
  • receipt of funds records
  • client information records
  • copies of official corporate records (binding provisions)
  • copies of suspicious transaction reports
  • records of the purpose and intended nature of your business relationships
  • records on the measures you take to monitor your business relationships and the information you obtain as a result of your monitoring.

See Guideline 6B: Record Keeping and Client Identification for Real Estate at www.fintrac-canafe.gc.ca.

(v) Ascertaining Identity

You must take specific measures to identify the following individuals or entities:

  • any individual who conducts a large cash transaction
  • any individual or entity for whom you have to keep a client information record or a receipt of funds record
  • any individual for whom you have to send a suspicious transaction report (reasonable measures and exceptions apply).

See Guideline 6B: Record Keeping and Client Identification for Real Estate at www.fintrac-canafe.gc.ca.

(vi) Use of personal information

The use of personal information in Canadian commercial activities is protected by the Personal Information Protection and Electronic Documents Act (PIPEDA), or by substantially similar provincial legislation. You have to inform individuals concerning the collection of personal information about them. However, you do not have to inform individuals when you include personal information about them in any of the reports that you are required to make to FINTRAC. You can get more information about your responsibilities in this area from the following:

(vii) Business Relationship

You enter into a business relationship when you conduct two or more transactions in which you have to:

  • Ascertain the identity of the individual; or
  • Confirm the existence of a corporation or other entity

See Guideline 6B: Record Keeping and Client Identification for Real Estate

See also the Report from Council newsletter: Changes to Canada's Anti-Money Laundering Regulations Affect Brokerages (June 2014), and Clarifying Brokerages' Obligations Under the FINTRAC Regime (August 2014).

(viii) Third Party Determination

Where a large cash transaction record or a client information record is required, you must take reasonable measures to determine whether the individual is acting on behalf of a third party.

In cases where a third party is involved, you must obtain specific information about the third party and their relationship with the individual providing the cash or the client.

See Guideline 6B: Record Keeping and Client Identification for Real Estate at www.fintrac-canafe.gc.ca.

(ix) Compliance Regime

The following five elements must be included in a compliance regime:

    (1) The appointment of a compliance officer

    (2) The development and application of written compliance policies and procedures

    (3) The assessment and documentation of risks of money laundering and terrorist financing and measures to mitigate high risks

    (4) Implementation and documentation of an ongoing compliance training program

    (5) A documented review of the effectiveness of policies and procedures, training program and risk assessment.

See Guideline 4: Implementation of a Compliance Regime at www.fintrac-canafe.gc.ca. For further information call 1-866-346-8722 or visit www.fintrac-canafe.gc.ca.

3. Acting For Buyers

All licensees have a duty to establish their agency responsibilities as early as possible, and to fully explain this relationship to their clients. In buyer agency, this process should include:

  • determining what type of property and location the buyer is interested in buying;
  • discussing the services you are offering to the buyer to locate and assist them in purchasing such properties;
  • discussing the value of that service, including the minimum compensation you will accept;
  • discussing the fact that some properties may be offered for sale which could meet the buyer’s needs, but which do not offer sufficient compensation for your services;
  • discussing options that may be available to address such circumstances before they arise, e.g.,
    • buyer agrees to sign an exclusive buyer agency agreement that confirms the amount of compensation the buyer’s agent will receive,
    • buyer agrees whether such properties should be brought to their attention,
    • buyer will make up any shortfall to a pre-determined amount, and
    • buyer will attempt to negotiate through the contract of purchase and sale to have the pre-determined shortfall paid to the agent’s brokerage out of the proceeds of the sale;
  • ensuring the buyer understands whatever course of action is being agreed to; and
  • committing that agreement to writing and having the buyer sign the agreement. Of the foregoing options, the Council believes that entering into an exclusive buyer’s agency agreement is the most comprehensive.

In keeping with their buyer agency responsibilities, licensees must act in the best interest of their clients, and avoid conflicts of interest. With this in mind, is it proper for a buyer’s agent, without their client’s knowledge, to avoid showing a buyer a property offered for sale, or other wise ‘‘steer’’ a buyer away from such a property, simply because the buyer’s agent is not being offered as much remuneration as they wish to receive? The answer, clearly, is no! A buyer’s agent has an obligation to not allow their own personal interests to interfere with the best interests of their client. Service fees are negotiable, and there is no requirement for a seller, or a brokerage representing a seller, to offer sufficient compensation to satisfy any and all buyer’s agents.

This does not mean that a buyer’s agent should work for less than satisfactory compensation, but it does mean that buyer’s agents who are not prepared to provide their services without some certainty about their level of compensation need to discuss this fact with their buyer clients.

Buyer’s agents provide a valuable service to their buyers. A well informed buyer will understand the value of that service, and will realize that a buyer’s agent cannot be expected to provide that service without being reasonably compensated.

If you are concerned that some properties offered for sale will not provide you with the amount of compensation desired, you should discuss this with your buyer clients before the situation arises, and come to an understanding about what will happen if that occurs. This process is similar to the one a licensee would use in making a listing presentation.

Most licensees have determined what fee they expect when listing a property for sale. That is discussed with prospective sellers during listing presentations, and the agreed-to fee is documented in the listing contract. A buyer’s agent who does not have this type of discussion reaching some form of agreement with their buyers, and who simply chooses to ignore or steer buyers away from properties offered for sale which do not offer enough compensation for his or her liking, is not acting in the best interest of those clients. This could lead to disciplinary action and/or civil proceedings.

(a) Listing Agreements Must be Amended if Commission is to be Increased or Decreased

[07/23/2011 The following section was added to the Professional Standards Manual]

As licensees are aware, there are all sorts of commission rates and fees charged by different licensees and brokerages. Licensees who are working as buyers’ agents need to discuss what they charge and how they get paid at the start of their relationship with a buyer, to avoid misunderstandings and controversy in the event that the property that suits the buyer does not offer a selling commission that suits the buyer’s agent. Such a situation creates a conflict between the buyer’s interest in acquiring the property and the buyer’s agent’s interest in being paid what they expect. In this scenario licensees must be aware that the interests of their client in acquiring the property trump the licensee’s interest in earning a commission.

The use of a buyer agency agreement can facilitate commission discussions and put the relationship with a buyer on a professional, contractual footing.

As described above, it is not uncommon for a listing agent to have contracted with a seller to offer a selling portion of commission that is lower than what a buyer’s agent expects to receive. When this happens, typically the buyer’s agent either gets the buyer to top up the difference, (easily done if a buyer agency agreement is in place) or with the buyer’s consent, the buyer’s agent drafts a clause in the offer whereby the buyer and seller agree that the seller will pay commission to the buyer’s agent’s brokerage equal to the amount agreed to between the buyer and the buyer’s agent. In some instances the buyer’s agent presents a fee agreement setting out that the seller agrees to pay a specific amount to the buyer’s agent’s brokerage.

Licensees should be mindful that the use of a fee agreement creates a separate contractual relationship between the buyer’s agent and the seller not contemplated in the listing agreement, and that agreement in no way modifies the terms of the listing agreement. Further, the buyer’s agent’s brokerage will have to collect the fee from the seller and not look to the seller’s agent’s brokerage for payment.

This being said, a seller’s agent must be careful not to put their seller in the position of potentially being contractually obliged to pay more commission than they actually intend. When it is the intention of the parties that the selling portion reflected in the listing agreement is being replaced by the amount set out in the fee agreement, the listing agreement must be amended accordingly. If this is not done the seller is contractually obligated to pay the total of the commission set out in the listing agreement, (paragraph 5 A. of the BCREA MLS® contract) plus the amount set out in the fee agreement.

On a case by case basis, when a change in the buyer’s agent’s commission is agreed to by the buyer and the seller in the Contract of Purchase and Sale, the listing agreement should also be amended to reflect the change to the overall commission.

A listing amendment provides certainty as to the intentions and obligations of the seller and the listing brokerage to pay the increased amount of commission to the buyer’s agent, thus avoiding any misunderstandings at the time of completion of the trade.

Buyers’ agents should be aware that if the listing is not amended to reflect the amount agreed to in the Contract of Purchase and Sale and the seller decides not to live up to their agreement in the Contract of Purchase and Sale to pay the buyer’s agent the extra amount of commission, it is the buyer, not the buyer’s agent’s brokerage, who would have to successfully sue the seller to enforce that agreement. A buyer is not likely to do that. Further, the buyer’s agent could not look to the seller’s agent’s brokerage for that amount as the brokerage is not a party to the Contract of Purchase and Sale.

In all matters contractual unintended consequences may arise when licensees, for the sake of expediency, do not properly amend agreements to fully reflect the intentions of the parties. The failure of a licensee to protect the interests of their clients in this regard, by not applying reasonable care and skill, are contraventions of the Real Estate Services Act and the Rules, which may result in a licensee being subject to professional discipline, should a complaint arise.

(b) Obligations of a Buyer’s Agent

When working with a buyer, a licensee is responsible for checking all information that he or she knows, or ought to know, is important to the buyer.

It is not sufficient for a buyer’s agent to rely on representations regarding room measurements, if, for example, a buyer has indicated that a room must be of a certain size to accommodate the buyer’s furniture. Similarly, for all matters of significance to a buyer, the buyer’s agent should either confirm the information or advise the buyer, in writing, to obtain professional advice.

When a buyer is purchasing a strata titled property, the buyer’s agent should clarify with the buyer the extent to which they will be reviewing the minutes, bylaws, and all other information that the buyer obtains from the seller.

Following is a checklist licensees can use when working with a buyer:

    ❐ Working With a REALTOR brochure explained and tear-off signed

    ❐ exclusive Buyer Agency Agreement/Fee Agreement signed/oral agreement made

    ❐ buyer qualified for mortgage and referred to financial institution

    ❐ buyer qualified for motivation, needs versus wants

    ❐ buyer qualified for area, type of property, etc.

    ❐ buyer educated about dealing with other licensees

    ❐ buyer has lawyer (yes or no)

    ❐ buyer has accountant (yes or no)

    ❐ buyer needs approval/assistance of family member before buying (yes or no)

    ❐ the ‘‘finding a property’’ process explained to buyer

    ❐ blank Contract of Purchase and Sale reviewed with buyer including back page outlining costs, i.e., PTT and legal fees

    ❐ the offer and completion process reviewed with buyer

    ❐ comparative Market Analysis of desired type of property given to buyer

    ❐ buyer provided with area information kit (schools, parks, amenities, peculiarities of zoning, map of the area, area concerns)

    ❐ when suitable property found, ensure that the buyer has been or will be, as a condition of the contract, provided with:

      — Comparative Market Analysis (CMA),

      — title search, information on easements, covenants, etc.,

      — survey map of street (legal map),

      — the appropriate Property Disclosure Statement, if available,

      — rules, regulations, bylaws, financial statements, meeting minutes,

      — profit and loss statement, balance sheet and other relevant documents related to the sale of a business.

Having first established and disclosed the nature of the agency relationship, but before preparing the offer, the licensee should take some time to consider all aspects of the transaction. For example:

  • How are the buyers paying for it? Which clauses do you need to explain financing?
  • What kind of deposit are you dealing with? Will it be increased when ‘‘subject to’’ clauses are removed? Will you have it in your company’s trust account long enough for them to earn interest?
  • Is it a strata property (or a co-op)? If yes, what clauses are needed related to bylaws, financial statements, minutes, parking/storage lockers, engineers reports, etc.?

After writing the offer, the licensee should go back and check it. Did he or she remember to:

  • date it?
  • insert the full legal names of all of the parties?
  • use the legal description of the property?
  • consider the appropriate form of deposit?
  • ensure that each ‘‘subject to’’ clause is designated to the benefit of the seller or the buyer as appropriate and that there is a subject removal date included
  • ensure that everything that was agreed to is in writing?
  • ensure that the completion date is not a weekend or holiday?
  • list all of the inclusions and exclusions to the sale, including dealing with any leased items such as alarm systems and water coolers?

The licensee should also review the offer to ensure that all items that should be included in the real estate transaction are listed. See the ‘‘Included/Excluded’’ section for a list of possible items to consider.

(c) Establishing Market Value

A buyer’s agent has a duty to inform the buyer as to current market conditions and provide information regarding the approximate value of the property being considered. This can be done with a Comparative Market Analysis (CMA), a copy of which should be retained in the trade file.

(d) Disclosure of Remuneration

As a licensee, you may not accept any form of remuneration in a transaction from a party other than your client without disclosing to the client that you have received this compensation.

Section 5-11 of the Rules requires a buyer’s agent to disclose all remuneration that the buyer’s agent receives that is not paid by the buyer. Section 5-8(1.1) of the Rules permits remuneration from a party other than a client to be disclosed in the service agreement and/or in a record other than an agreement giving effect to a trade in real estate that is separate from the service agreement. This means that the disclosure of remuneration cannot be made, for example, in a contract of purchase and sale, because that is an agreement giving effect to a trade in real estate.

As a buyer’s agent, you must disclose all remuneration that the brokerage receives, whether from the listing brokerage or from the seller. You must also disclose all other remuneration, including referral fees, that as the buyer’s agent you have received or anticipate receiving in relation to the real estate services.

Section 5-11 requires you to make this disclosure to the client promptly. The common law requires that such disclosures are:

  • timely,
  • occur before any potential conflict of interest has arisen, and
  • occur when the disclosure has some meaning.

Disclosing Remuneration paid to Cooperating Brokerages

For example, consider what would be timely and effective disclosure by a licensee, acting as a buyer’s agent, who anticipates receiving remuneration by way of the amount offered to cooperating brokerages by the listing brokerage? This is not remuneration that will be paid directly by the buyer/client: therefore, the disclosure requirements of section 5-11 apply.

Step 1: To begin the process of disclosure, as a licensee you should have a general discussion about remuneration with a prospective buyer/client at the same time as you are describing the services you will provide. The last two paragraphs on the first page of the Working With a REALTOR® brochure describe the source of remuneration for cooperating brokerages (buyer’s agents) in many cases. In these cases, providing a buyer/client with this brochure would satisfy the requirement to disclose in writing the source of remuneration not being paid directly by the buyer/client.

Step 2: You must still disclose the amount (or the likely amount, or the method of calculating the amount). One effective way would be to provide a buyer/client with a copy of the MLS® information respecting the properties under consideration that includes the remuneration being offered to a cooperating brokerage. This would constitute effective disclosure so long as the full amount or method of calculation of the full amount is clear (e.g. any bonus or additional amount being offered is included in the information). Having the buyer/client initial that information would be a useful acknowledgment. Obviously, some other method of disclosure would be necessary if a property being considered was not listed on MLS®.

Step 3: To satisfy the common law requirement that disclosure is made when it has meaning, the very latest time you could make this disclosure is before an offer is to be written.

 

Disclosing Remuneration from Other Service Providers

The above only addresses a buyer’s agent’s remuneration with respect to the actual trade in real estate that is not to be paid directly by the buyer. The requirements of sections 5-11(b) and (c) to disclose remuneration as a result of recommending other service providers or a client to another service provider are not typically connected to the writing of an offer; nor are they limited to buyer’s agents. However, the requirement that disclosure be ‘‘prompt’’ also exists in those instances. Again, this means you must make the disclosure

  • before any conflict of interest arises (e.g., if you use that mortgage broker I will receive some benefit), and
  • when it has meaning (i.e., at a time when the information can be used in considering whether to use the service provider to whom they have been referred).

 

Disclosure of Remuneration Form

The Council provides a Disclosure of Remuneration - Trading Services form for use in situations where a brokerage is to receive remuneration or a licensee of the related brokerage is to receive remuneration that is not paid by the client. For information on using the form correctly, please see: Disclosing Remuneration Under Designated Agency, What to Disclose, to Whom, and Why in the April 2015 Report from Council newsletter.

For more information on Disclosure of Remuneration, see General Information - Disclosures.

 

(e) Disclosure of Mortgage Referral Fees

Real estate licensees who may be paid a referral fee, or any other remuneration, as a result of the referral must advise their client of this fact, in writing, as required by section 5-11 of the Rules. For a buyer’s agent, this requirement most frequently applies to the payment of remuneration in relation to mortgage referrals.

Section 7 of RESA provides that a licensee must not accept remuneration in relation to real estate services from any person other than the brokerage in relation to which he or she is licensed. In order for a licensee to receive remuneration, such as a referral fee for referring a buyer to a financial institution or mortgage broker, the remuneration must first be paid to the brokerage.

The definition of remuneration in RESA is any form of remuneration including any commission, fee, gain or reward, whether the remuneration is received, or is to be received, directly or indirectly.

Remuneration includes not only the payment of fees, but any other gain, or reward, such as bonus points, air miles, the chance to win a trip or other item, or any other such benefit. As a result, a buyer’s agent must ensure that the buyer is advised of all remuneration that a buyer’s agent may receive as a result of the referral.

As indicated previously, a sample form that licensees may use when making disclosure of remuneration is located on the Council’s website.

(f) Referral Policy

As noted previously under the section ‘‘Directing Business to Other Professionals’’, making specific recommendations of other professionals can put a licensee at risk for liability if something goes wrong.

The Council has established guidelines relating to licensees making referrals to other professionals. This policy applies to all types of referrals that licensees make and includes referrals to other real estate licensees, home inspectors, lawyers, notaries public, and mortgage brokers or financial institutions.

The Council advises licensees to provide a list of several professionals. The client should then select the professional independently. In keeping with the Council’s guidelines, all licensees who choose to refer a client to a financial institution or mortgage broker should provide the client with a list of several choices (at least three) from which the client could then choose.

(g) Mortgage Broker Registration

(i) When Mortgage Registration Is Required

Mortgage broker registration is required for all those who fall within the definition of mortgage broker as contained in the Mortgage Brokers Act (except for the exemption noted below). The Mortgage Brokers Act defines mortgage broker as follows:

    ‘‘mortgage broker’’ means a person who does any of the following:

      (a) carries on a business of lending money secured in whole or in part by mortgages, whether the money is the mortgage broker’s own or that of another person;

      (b) holds himself or herself out as, or by an advertisement, notice or sign indicates that he or she is, a mortgage broker;

      (c) carries on a business of buying and selling mortgages or agreements for sale;

      (d) in any one year, receives an amount of $1,000 or more in fees or other consideration, excluding legal fees for arranging mortgages for other persons;

      (e) during any one year, lends money on the security of 10 or more mortgages;

      (f) carries on a business of collecting money secured by mortgages.

Although licensees should be cautious that they do not meet any of the requirements of the definition of mortgage broker without having obtained mortgage broker registration, the two aspects of the definition of ‘‘mortgage broker’’ that are most likely to apply to licensees are subsections (d) and (f).

Subsection (d) requires registration if the licensee arranges mortgages and receives $1,000 or more in a year in fees or other consideration. When a licensee refers a client to a financial institution or a mortgage broker, the Registrar of Mortgage Brokers has determined that the licensee will be considered to have arranged the mortgage if the licensee does anything more than provide a name and contact information. If the licensee has any discussion with the client regarding mortgage terms, amounts, interest rates, etc., the licensee may be considered to have arranged the mortgage. If the licensee is found to have arranged mortgages and, in any one year, the licensee has received $1,000 or more in fees, the licensee may be found to be in violation of the registration requirements of the Mortgage Brokers Act.

If a client requests a licensee to provide a referral to a financial institution or a mortgage broker, the licensee should be very careful to avoid all discussion about possible mortgages.

The Council policy regarding referrals is that a licensee should provide the names of a number of professionals, including financial institutions or mortgage brokers. However, even if a number of mortgage brokers are recommended, a licensee may still be in violation of the registration requirements of the Mortgage Brokers Act if the licensee discusses the mortgage with the client.

Subsection (f) was previously included in the definition of agent in the former Real Estate Act. As a result, licensees were permitted to administer mortgages and collect mortgage payments under their licence. RESA does not include the collection of money secured by a mortgage in the definition of trading services. As a result, a licence under RESA is not sufficient to permit an individual to collect mortgage payments and administer mortgages. Instead, registration under the Mortgage Brokers Act is now required.

For assistance with specific questions regarding mortgage broker registration, please call the Registrar of Mortgage Brokers’ office at 604-953-5300.

(ii) Exemption from Mortgage Broker Registration

The Regulations to the Mortgage Brokers Act contain the following exemption for individuals licensed under RESA. Effective January 1, 2001,

    … a person licensed under the Real Estate Services Act is exempt from the registration provisions of the Mortgage Brokers Act if the person would otherwise be required to be registered only as a result of the person’s activity in facilitating the sale of a vendor take-back mortgage if that activity is ancillary to the person’s role in the transaction that gave rise to the vendor take-back mortgage.

Thus, mortgage broker registration is not required if a real estate licensee carries out the activity of facilitating the sale of a vendor take-back mortgage, where the mortgage was arranged as part of a trade in real estate in which the licensee was involved.

Licensees wishing to take advantage of this exemption should note that they must still comply with all other provisions of the Mortgage Brokers Act and Business Practices and Consumer Protection Act, such as the requirement to provide the necessary disclosure statements, and conflict of interest forms.

(iii) Disclosure Statements — Mortgage Brokers Act

The Mortgage Brokers Act requires mortgage brokers to provide borrowers with disclosure in cases where a borrower is required to pay a fee to the mortgage broker for the mortgage. A Disclosure Statement, in a form prescribed by regulation under the Mortgage Brokers Act, must be furnished to a borrower before the signing of the mortgage:

Where there is an amount by way of bonus, commission, discount, finder’s fee, brokerage fee or amount of a similar kind, by whatever name called, required to be paid by the borrower, in addition to interest and reasonable appraisal, survey and legal fees, as part of the cost of obtaining the amount paid to the borrower or on the borrower’s account.

(h) List Back Agreements

Licensees are sometimes asked by buyers who intend to buy (perhaps rebuild) and re-sell a property, to re-list the property for sale for the buyers. Such arrangements are referred to as list back agreements. In addition, they are also sometimes asked to waive or transfer their commission on the first transaction to reduce the purchase price or to provide a benefit to the buyers, in exchange for the licensee receiving a commission on the resale instead.

Licensees must be conscious of their agency role in list back arrangements. Unless acting as an agent for the buyer (i.e., single agency for the buyer), a licensee would be in a position of conflict with a list back. A licensee acting as an agent for the seller and the buyer would be required to disclose the list back arrangement in writing to the seller, prior to entering into a negotiation. A buyer’s agent has no duty to disclose to the seller.

Furthermore, to comply with section 5-1 of the Rules, which requires a written service agreement where a brokerage offers real estate for sale, any such list back agreements with the buyer should be executed in writing between the licensee and the buyer on a proper Listing Contract, containing all information as required in section 5-1 of the Rules and both the buyer and the licensee must receive a copy of that listing contract.

(i) Assignment of Contracts

For information about contract assignments, please see:

(j) Disclosures of Interest in Trade Related to the Assignment of Contracts of Purchase and Sale

[01/16/2011 The following section was added to the Professional Standards Manual]

What disclosures are required, and to whom must those disclosures be made, if a licensee is involved in the acquisition or disposition of real estate by way of an assignment?

Section 5-9 of the Rules requires a licensee, except in the limited circumstances described in subsection (2.1), to disclose certain information if, under a trade in real estate,

  1. the licensee is to directly or indirectly acquire real estate,

  2. an associate of the licensee is to directly or indirectly acquire real estate and the licensee is providing real estate services to the associate,

  3. the licensee is to dispose of real estate, or

  4. an associate of the licensee is to dispose of real estate and the licensee is providing trading services to the associate.

Where disclosure is required to be made, it must be made in a form approved by the Council. The Council has posted a Disclosure of Interest in Trade form, to be used for these purposes, on its website at www.recbc.ca.

These same disclosure requirements apply when the acquisition or disposition of the real estate is by way of an assignment. The following examples detail how these disclosure requirements apply in a variety of assignment scenarios:

Scenario 1

A seller enters into a Contract of Purchase and Sale with buyer A for the sale of the seller’s home. Prior to completion, Henry, who is a real estate licensee, approaches the buyer enquiring whether the buyer would like to assign their interest in the contract to Henry. Must Henry make a Disclosure of Interest in Trade, and, if yes, to whom?

Yes. Henry, the real estate licensee, must complete and provide a Disclosure of Interest in Trade form to the buyer prior to any assignment agreement is entered into. So long as there was not an intention from the outset that the buyer was acquiring the property for the specific purpose of assigning it to Henry, Henry is not obliged to provide the seller with a Disclosure of Interest in Trade.

Scenario 2

A seller enters in a Contract of Purchase and Sale with a buyer for the sale of the seller’s apartment building, conditional on the buyer being able to obtain financing. The buyer is unable to obtain the total financing necessary and locates Randi, who agrees to have the buyer’s interest in the contract assigned to her. Randi is married to a real estate licensee, Paul, who is asked to prepare the necessary assignment documents. Must Paul make a Disclosure of Interest in Trade and, if yes, to whom?

Yes. Section 5-9 of the Rules requires the licensee, who is providing real estate services to an associate (his wife) in relation to the assignment, which is a trade in real estate, to make a Disclosure of Interest in Trade to the buyer. As in scenario 1 above, so long as there was not an intention from the outset that the buyer was acquiring the property for the specific purpose of assigning it to Randi, Paul is not obliged to provide the seller with a Disclosure of Interest in Trade.

Scenario 3

Mary, a real estate licensee, has always wanted to buy her neighbour’s house, but she and her neighbour are not on good speaking terms. When a ‘For Sale’ sign goes up on the neighbour’s front lawn, Mary wants to make an offer but knows that her neighbour will not sell to Mary. Mary convinces a friend to make an offer, which is accepted by the neighbour, with the understanding that the friend will assign the contract to Mary prior to completion. Just to be certain that the neighbour won’t be able to obstruct the assignment, the offer includes the following clause:

“The Buyer reserves the right to assign this contract in whole or in part to any third party without further notice to the Seller; said assignment not to relieve the Buyer from his or her obligation to complete the terms and conditions of this contract should the assignee default.”

Must Mary make a Disclosure of Interest in Trade and, if yes, to whom?

Yes. Section 5-9(2) requires the disclosure of a licensee’s interest in an acquisition of real estate “if a licensee or an associate intends to acquire real estate currently owned by another person through acquisition by a third party who is subsequently to dispose of the real estate to the licensee or associate.” In this instance, the Disclosure of Interest in Trade must be provided to both the original seller (the neighbour) and the original buyer (Mary’s friend), and this disclosure must be made prior to the friend’s offer being made to the neighbour. As with other forms of disclosure, the purpose is to provide relevant information to a person who has a right to know that information, at a time when that information can be used in order to make an informed decision.

Scenario 4

Vijay is a licensee who has purchased a vacant lot with the intention of having a home built. Prior to completion of the lot purchase, Vijay finds a finished home which meets his family’s needs and decides that he wants to assign his contract to purchase the vacant lot. He finds a buyer who is interested in entering into an assignment agreement. Must Vijay make a Disclosure of Interest in Trade and, if yes, to whom?

Yes. Vijay had an obligation to make a Disclosure of Interest in Trade to the seller of the vacant lot prior to presenting his offer to purchase that lot. Now that he intends to assign his interest to the new buyer, he must also provide that buyer with a Disclosure of Interest in Trade prior to entering into the assignment agreement.

Licensees should also be aware of conflicts of interest which arise related to licensees buying and selling real estate if a licensee attempts to act as an agent and a principal in the same transaction. Guidelines in relation to these conflicts may be found at this link.

(k) Fraudulent Practices

Real estate transactions must not be structured to mislead mortgage lenders as to the amount of equity (if any) being provided by buyers. This is fraud. Licensees who participate are subject to a wide range of penalties.

Fraud includes contracts that state that some amount of money is to be paid directly to the seller to finish a basement when the basement is already finished and the seller never receives these funds; gift letters from family members where no gift funds are ever paid over; or a separate addendum to the contract crediting back funds to the buyer. The implications of a licensee participating in these types of deceptions are serious.

Do not confuse acting in the best interest of clients with facilitating fraudulent mortgage applications.

Listing agents must ensure that the Contract of Purchase and Sale spells out the proposed equity and financing being sought, in order to protect the interests of the seller. This may involve rewriting the financing section of the contract. All applicable financial information must be contained within the same contract. ‘‘Altered’’ Contracts of Purchase and Sale, which seek to mislead a lender and a seller, are fraudulent and can be deemed criminal.

(l) 100% Financing Programs

The Council has, over the years, cautioned licensees about participating in, or advising consumers that they participate in, schemes that claim that home ownership may be easily available to individuals even though they may not qualify for conventional financing.

The Council is aware of 100% financing schemes that involve a failure on the part of a borrower to provide complete and accurate financial information to lenders, or that involve a substantial increase in borrowing costs as compared to conventional financing.

In the first instance, obtaining financing based on providing inaccurate or incomplete financial information to a lender may amount to mortgage fraud. Similarly, borrowers who are not aware of the full extent of borrowing costs may be put at financial risk. Licensees must be diligent in ensuring that consumers are not innocently placed in positions of legal or financial risk.

Financial institutions have marketed ‘‘No Down Payment’’ mortgages. These mortgages are designed for people who have no down payment for a home but have excellent credit ratings and repayment capacity.

The Council believes that licensees who may be promoting these programs have an obligation both to be aware of any requirements or qualification criteria and not to mislead consumers, as a form of inducement, by implying that such programs may be available to a broader segment of the public than they are.

Additionally, as indicated above, once a licensee enters into a discussion with a buyer regarding mortgages, the licensee is at risk of being found to have violated the registration requirements of the Mortgage Brokers Act. Licensees should not, unless they are registered as a mortgage broker or sub-mortgage broker, enter into any discussion with clients regarding mortgage terms.

(m) Sale of the Buyer’s Property

In some cases, it may be necessary to include in the Contract of Purchase and Sale, a subject clause which permits the buyer to sell their own property.

The following clause may be used:

Sale of the Buyer’s Property Clause

Subject to the Buyer entering into an unconditional agreement to sell the Buyer’s property at (address) on or before (date) .

This condition is for the sole benefit of the Buyer.

Ω If not using the standard form Contract of Purchase and Sale, refer to ‘‘Contracts under Seal’’.

If the buyer has entered into a Contract of Purchase and Sale, the following subject clause may be used to allow time for the contract to become unconditional:

Confirmation of the Sale of Buyer’s Property Clause

Subject to the sale of the Buyer’s property at (address)becoming unconditional on or before (date). 

This condition is for the sole benefit of the buyer.

(n) Items Affecting a Property

(i) Issues Affecting an Owner’s Interests

Many types of rights in favour of governmental and other agencies may affect a given piece of property. The following are some of the most common issues that arise. Licensees are expected to be familiar with these issues where they are common in the market area or segment in which they practice.

(1) Dedications, Restrictions and Expropriations

Not included on most title searches or plans are the Ministry of Transportation’s ‘‘takings’’ as a result of expropriation or dedication. Sizes of parcels indicated on B.C. Assessment records may not reflect the net size. Rights-of-way for passage or road widening may not have been surveyed or registered. Driveways and culverts may not be constructed on any public roads without the permission of the Ministry of Transportation. Permission could also be denied on limited-access roads. On cliffs and adjacent to bodies of water (including streams, rivers, oceans or lakes), there may be building setback requirements or other restrictions to preserve the water or uplands habitat. One hundred-year flood plains, requiring minimum elevations of main floors, may be far removed from the relevant body of water. See your local Highways Department or local government office for information.

(2) Air Space Rights and Railway Lines

The Aeronautics Act limits construction and controls heights of structures in a wide arc around all airports. Properties with railway lines passing through pose a real challenge to the developer as no less than four agencies become involved for the approval of drainage, subterranean crossing of service lines, and level crossings.

(3) Agricultural Land Reserve (ALR)

The Agricultural Land Reserve, in addition to limiting development, may also take precedence over municipal zoning.

(4) Islands Trust

Those Gulf Islands that come under the jurisdiction of the Islands Trust must adhere to the development and land use approved by that body. Foreshore leases for oysters, water lots for fish farms and log booming grounds may not be indicated on the title but will certainly impact on the view or use of the waterfront landowner.

(5) Heritage Conservation Act

While the intent of the Heritage Conservation Act with respect to archaeological sites is to balance a respect for heritage and a property owner’s right to develop, some private landowners may face costly archaeological studies and/or limited use of their land.

The Heritage Conservation Act is concerned with activities that may alter heritage sites automatically protected under the legislation. While it is not likely to affect properties where there is no intended change of use, it could have an impact where a change in that use is contemplated (e.g., subdivision, new construction, construction of an addition or pool).

If the intent of a property owner or potential buyer is to subdivide the property, then, as part of the process of subdivision, the proposal may be referred by the local municipality or regional district to the Archaeology Branch (of the Ministry of Tourism, Culture and the Arts) to determine if an archaeological assessment is recommended. The cost of such an assessment would be borne by the property owner and can be substantial.

Further, the Local Government Act gives municipalities and regional districts the power to pass bylaws to withhold the issuance of building permits if they would result in an alteration to protected heritage property.

Licensees should be aware that archaeological sites are not at this time commonly noted on the title of affected properties. However, the statute applies regardless of whether or not the notice is registered on title.

What significance does this have for licensees? Based on court decisions in similar situations, it is likely that a court would find a licensee has a duty to know whether there are archaeologically sensitive areas in the community in which they work and, if so, whether a search for archaeological sites may provide necessary information for a seller or a buyer.

The first potential source of that information is the local municipality or regional district. However, not all municipalities and regional districts maintain up-to-date information respecting archaeological sites. The second source is the Archaeology Branch. Its website (www.for.gov.bc.ca/archaeology/index.htm) contains a broad range of information on the Heritage Conservation Act and its application, including a Data Request Form for requesting information about specific sites. Most requests for information about a specific site can be answered within four to five days. More detailed enquiries may require up to two weeks.

Licensees can also request from the Archaeology Branch a copy of a map that identifies registered sites in a specific region of the province. These sites are more likely to be clustered around existing urban areas, major rivers or other waterways, and other areas that are most attractive for human habitation.

A prudent licensee working with a buyer who becomes interested in a particular property will want to determine if the proposed use or redevelopment of that property will result in ground alteration that might be affected by Heritage Conservation Act. If the buyer does intend to alter the use, the following clause should be incorporated into the Contract of Purchase and Sale:

Heritage Conservation Act Clause

Subject to the Buyer satisfying himself/herself on or before(date) regarding the potential effect of the Heritage Conservation Act on the use and/or development of the property.

This condition is for the sole benefit of the Buyer.

Ω If not using the standard form Contract of Purchase and Sale, refer to ‘‘Contracts under Seal’’.

The Archaeology Branch may be contacted as follows:

Ministry of Tourism, Culture and the Arts Archaeology Branch

PO Box 9375, Stn. Prov. Govt.

Victoria, B.C. V8W 9M5

Tel: 250-952-5021

Fax: 250-952-4188

Website: www.for.gov.bc.ca/archaeology/index.htm

(6) Fish Protection Act — Riparian Areas Regulation

[12/18/2012 The following section was amended with updated information]

The Riparian Areas Regulation under the Fish Protection Act is intended to protect riparian fish habitat, while facilitating urban development that exhibits high standards of environmental stewardship.

A licensee acting for a buyer or seller in a transaction that involves a “stream” (as defined below) on the subject property or neighboring property should be aware that the Riparian Areas Regulation (RAR) could have a significant effect on the value and potential use or development of the property because of legislated building/development setbacks and other requirements protecting riparian areas, including riparian vegetation and fish habitat.

A “stream” in the province of BC is broadly defined in the RAR to include the following that provides fish habitat:

  • (a) a watercourse, whether it usually contains water or not;
  • (b) a pond, lake, river, creek or brook;
  • (c) a ditch, spring or wetland that is connected by surface flow to something referred to in paragraph (a) or (b);

Riparian vegetation and streams are protected by the Federal Fisheries Act; the Provincial Fish Protection Act, and the Water Act. Municipal bylaws may also apply.

While licensees are not expected to be experts in the Riparian Areas Regulation, they are expected to be alert to the implications of RAR and are obliged to advise clients who are buying, selling or developing property that is impacted by the legislation to seek independent professional advice.

In instances where a “stream”, as defined above is present, licensees drafting contracts of purchase and sale should incorporate the following clause:

Fish Protection Act Clause

Subject to the Buyer receiving and approving independent professional advice concerning any limitations on the use and/or development of the property resulting from the Fish Protection Act, on or before (date) .

This condition is for the sole benefit of the Buyer.

Ω If not using the standard form Contract of Purchase and Sale, refer to ‘‘Contracts under Seal’’.

If the RAR applies to a property, the local government will require the riparian area and development to first be assessed by a Qualified Environmental Professional (QEP) such as a Registered Professional Biologist (R.P.Bio.) to determine a Streamside Protection and Enhancement Area (SPEA), which is defined as a setback that protects degradation of fish habitat. The SPEA is delineated by a QEP as part of RAR to protect fish habitat from land alteration including consideration of sediment and erosion control; damage or alteration of vegetation, and trails and landscaping.

For a list of regional districts and municipalities where the RAR applies visit:

www.env.gov.bc.ca/habitat/fish_protection_act/riparian/documents/applicable_regulations_table.pdf

For more information about riparian areas visit:

www.env.gov.bc.ca/habitat/fish_protection_act/riparian/riparian_areas.html

www.livingbywater.ca

www.stewardshipcentre.bc.ca

(7) Ground Water Protection Regulation

On November 1, 2005, the Ground Water Protection Regulation took effect. The Regulation is intended to protect groundwater and wells from contamination. The Regulation imposes duties on well drillers and pump installers as well as owners of land containing a well.

The property owner must:

  • maintain the integrity of the wellhead and surface seal;
  • engage a qualified well driller if alterations to, or closure of, the well are contemplated;
  • ensure the well identification plate remains visible and not damaged or lost;
  • deactivate or permanently close a well that has been out of service; and
  • ensure the well is securely capped or covered.

Licensees should advise buyers that the Regulation will impose obligations on them if they purchase the property containing the well. Additionally, buyers should determine the extent that the seller has complied with the Regulation.

Additional information on the Ground Water Protection Regulation can be obtained from the BC Laws website at www.bclaws.ca.

(8) The Effect on Property Taxes of Harvesting Timber

Where private land is classified for property tax purposes such as forest land, and has as its highest and best use the production and harvesting of timber, B.C. Assessment values the land using a two-step process. First, they assess bare land value based on factors such as soil quality, accessibility, parcel size and location. Secondly, after timber has been harvested, BC Assessment adds the assessed value of the cut timber to the bare land value of the land. 

BC Assessment provides the following example of this two-step assessment process:

For example, timber harvested in the calendar year 2015 will show up as added value on the assessment notice of a forest land property for the 2017 Assessment Roll. For property taxes payable in the summer of 2017, part of the value may come from the harvesting of trees two years previously.

Prospective purchasers of property classed as forest land are advised to enquire about previous harvesting on the property, and its possible property tax implications.

For more information, see:

How Managed Forest Land is Assessed 

Managed Forest Land: A Warning to Potential Purchasers 

(9) First Nations Lands

The Superintendent of Real Estate has advised that in his view RESA applies to the real estate services provided in respect of First Nations land located in British Columbia. Thus, the licensing and other requirements of RESA would be applicable.

In the Superintendent’s view, the Real Estate Development Marketing Act would generally not apply to development properties located on First Nations land in British Columbia. However, depending on the specific terms of any land settlement agreement, such as the Nisga’a Agreement, it is possible for First Nations land to be governed by the Real Estate Development Marketing Act. A licensee acting in respect of development property located on First Nations land may wish to obtain legal advice in any situation where it is not clear whether the Real Estate Development Marketing Act would be applicable.

Licensees should advise consumers that the Real Estate Development Marketing Act does not apply and that the purchasers are not entitled to a disclosure statement, rescission rights or other benefits of the Real Estate Development Marketing Act.

Although the Strata Property Act generally does not apply to developments on First Nations land, depending on the specific terms of any land settlement agreement, such as the Nisga’a Agreement, it is possible for a strata development on First Nations land to be governed by the Strata Property Act.

Other problems of a less visible nature, but just as serious for the buyer, include First Nations lands issues which are frequently associated with land claims or significant aboriginal archaeological sites (see index under Heritage Conservation Act). However, in areas where native bands have developed land for supply to non-natives on a leasehold basis, extra caution must be taken by the licensee acting on behalf of either the buyer or seller of the improvements on that land.

Traditional remedies for contractual disputes may not be available as provincial courts or appeal panels may have no jurisdiction.

(10) Invasive Species

Many local governments have enacted bylaws pertaining to noxious weeds or invasive plants. These bylaws specifically require property owners to ensure that certain listed species are not growing on their property, or are controlled from spreading from their property.

The Invasive Species Council of British Columbia has developed the Invasive Species Toolkit for Local Government: Information for Local Government, Developers and Real Estate Professionals, which includes information on:

  • Recommendations and tools available to developers and real estate professionals regarding invasive species on private lands;
  • Local government jurisdiction and enabling legislation for local invasive species control programs;
  • Determining responsibility and management of private property impacted by invasive species, and
  • Key resources and reporting tools available on invasive species in BC.

More Information:

Invasive Species Council of BC:  http://bcinvasives.ca/

Invasive Species Toolkit for Local Government: Information for Local Government, Developers and Real Estate Professionals:  http://bcinvasives.ca/documents/Govt_Toolkit_Final_WEB_09_10_2014.pdf

(11) Leasehold Interests

Leasehold interests may include rental of real property of any description, strata title properties on leasehold land (prepaid or ongoing), co-operatives on leasehold land (rental leases), manufactured home pads in manufactured home parks, water lot leases for floating homes or moorages, etc. This is a complex area where the public should be urged to obtain legal advice.

Terms, renewal procedures, rate reviews, and assignability are elements of the lease which must be reviewed by the buyer with advice from a lawyer competent in leases. The licensee should not assume all leases from a common lessor are identical. The licensee should search the title and obtain a copy of the head lease in every case. He or she should become acquainted with the provision of services such as water, sewer, garbage, and snow removal. Are they provided by the landlord or contracted to third parties? How are property taxes collected? The licensee should insist that buyers make their own enquiries at the local city or municipal hall or at the band administration offices, if applicable, and provide adequate time within the Contract of Purchase and Sale for these enquiries to take place.

A case that clearly illustrated the duties of buyers’ agents to their clients is the case of Rieger v. Croft & Finlay 69

B.C.L.R. (2d) 288. In 1983, Ms. Rieger purchased a unit in a housing cooperative on leased land. The purchaser was not informed that the head lease provided for a rent revision every 22 years. A rent revision occurred in 1990. The purchaser sued various parties, including the selling agent and the conveyancing solicitors. The judge found the selling agent and the conveyancing solicitors negligent. The judge found the selling agent’s negligence warranted a higher proportion of fault and apportioned the fault 60/40 between the selling agent and the solicitors.

With respect to the selling agent’s duty, the judge stated that the selling agent owed a duty to the purchaser to know the product he was selling. The judge found that the selling agent knew the land was leased and ought to have found out whether the lease was constant, prepaid, or variable, and how long the lease term was. The judge held that alternatively, the selling agent should have made the transfer subject to a solicitor’s review of the lease or title documents. The judge found the selling agent failed in his duty and was therefore liable to the purchaser.

The judge commented that the agents for the seller did not owe a duty to the purchaser. Although they did not know of the rent revision, the judge found that nothing that the agents for the seller did was misleading. The judge also rejected the argument that the rent revision clause was a ‘‘defect’’ in title and was required to be disclosed by the agents for the seller.

(ii) Title Insurance

Although fairly common in the United States, title insurance is a relatively new consideration for real estate transactions in British Columbia. This is likely because B.C.’s Land Title registration system is regarded as being one of the most definitive in North America. With only a few exceptions, the B.C. Land Title registration system guarantees the title to a property.

Title insurance offers coverage for lenders or buyers against a loss as a result of acquiring a property, or an interest in a property, with a defective title. A defect could be characterized as the existence of an interest in a particular property that was unknown at the time of the transaction. In essence, title insurance covers against losses sustained due to the condition of the title being other than as registered with the Land Title Office.

While title insurance is most often used by commercial real estate lenders and purchasers, there may also be certain situations where it could be useful to a buyer of a residential property, particularly as the scope of insurance coverage expands. In addition, some lending institutions may require title insurance as a condition of approving a mortgage loan secured by residential property.

Licensees wishing to learn more about title insurance and its application to residential and commercial transactions are encouraged to refer to the B.C. Real Estate Association’s three-part Legally Speaking series (Articles 321, 322 and 323) that deals with this topic. Past issues of Legally Speaking are available on the Association’s page on the REALTORLink™ website.

(iii) Floating Homes

If a floating home or houseboat includes an interest in land (e.g., as part of a strata lot) or is sold in conjunction with a strata lot (water lot), it qualifies as real estate and can be advertised and sold as such. Without an interest in land, it remains simply a ‘‘boat’’, that is, a chattel and can only be advertised and sold as such.

(iv) Farm Land Classification

Licensees must keep in mind that, for those clients who are purchasing land classified as farm land for property tax purposes, specific requirements must be met for that property to continue to qualify for farm classification. Those requirements are set out in the Assessment Act.

The regulation requires a specified amount of ‘‘primary agricultural products’’ to be produced and sold by October 31 to qualify the land for farm class in the following year.

The regulation also requires the completion of an application form by October 31 for any new farm to enable farm class to be granted the next tax year. The assessor may require new owners of existing farms to file an application for farm class. Also, at any time during the year, the assessor may require the provision of farm income details or other information to support the continuation of farm class.

If requirements are not met, the assessor is required to deny or remove farm classification for the following year. Typically, this means the land will change to Class 1 (residential) or Class 6 (business and other). These classes typically have higher tax rates and higher land values than farm land. Land classified as farm is valued by rates set by the assessment commissioner, reflecting only the value of the land in farm use, not necessarily highest and best use.

Further information on farm assessment can be obtained from the B.C. Assessment website at www.bcassessment.bc.ca, through a local assessor, or by contacting the farm appraiser in Cost and Legislated Assessment Services, B.C. Assessment head office at 250-595-6211.

4. General Information

(a) Contract Clauses

(i) Contracts of Purchase and Sale

The intent of each item included in any contract must be clear and so specific that there is no misunderstanding possible with regard to who will do what and by what date.

Drawing upon the experience of many licensees, the Council has collected some samples of clauses intended to meet various situations in normal real estate practice in the hope that licensees will find them of use. When in doubt on any question, licensees are advised to seek the advice of their managing broker and, if necessary, a lawyer. A slight delay or extra expense at an early stage may help to prepare an enforceable contract. This care will reduce the chance of misunderstanding and litigation.

Licensees must be familiar with the form of contract they use and be knowledgeable as to how to use the necessary clauses and phrases. The Professional Standards Manual is the sole recommended source of clauses in the province, however, no clause should be used without due consideration as to its meaning and effect. Clauses must be tailored to suit the needs of the parties. While the sample clauses are useful in many circumstances, it is important that the clauses be reviewed prior to insertion into a contract, to ensure that they are suitable for the circumstances. The clauses must clearly and accurately reflect the intentions of the parties. The sample clauses may need to be altered accordingly. Licensees must recognize their limitations and refrain from negotiating contracts beyond the scope of their knowledge and experience. Such expertise results from training and study. All licensees are urged to participate in educational programs to keep their skills current.

(ii) Approved Form of Contract of Purchase and Sale

For drafting contracts involving residential properties, the Council recommends that licensees use the latest edition of the Contract of Purchase and Sale developed for use in British Columbia by the B.C. Real Estate Association and the Canadian Bar Association (B.C. Branch). A number of other versions of the Contract of Purchase and Sale have been developed for various types of properties (e.g., commercial properties, manufactured homes, first nations lands, etc.).

The approved contract and all addendum pages should be cross-referenced. The following system for numbering pages is suggested: if the original contract and addenda consist of three pages, then the appropriate page number should be written at the top of each page (i.e., page 1 of 3, page 2 of 3, or page 3 of 3).

When faxing/e-mailing the contract, it is imperative to include the ‘‘Information about the Contract’’ page.

(iii) General Guidelines

The Council recommends that licensees ensure that contracts address all material issues to ensure that there is no confusion as to the nature of the contractual terms and to make certain that all contracts are valid and enforceable. Council reminds licensees that the parties are relying on them to ensure a contract is properly executed.

When licensees or any other person, other than a principal, in a transaction are purporting to act on behalf of a party to a transaction, the scope of their authority should be evident in writing and clearly recorded in the contractual documents. Section 5-3 of the Rules requires that before signing a contract on behalf of a client, the licensee must have obtained written authorization from the client or the client’s authorized agent. Similarly, when a party to a transaction purports to act under a power of attorney or if a corporate party acts through an authorized signatory, the extent of that authority should be readily available and clearly disclosed in the contract. The same obligation to verify, document and record holds true when a seller, who is not registered on title, purports to have authority to sell a property on behalf of the registered owner. (See ‘‘Powers of Attorney and Dealing with Authorized Representatives’’.)

(iv) Dealing with Amendments to Original Contract of Purchase and Sale

All amendments to an original Contract of Purchase and Sale must be made on a Contract Amendment or Addendum Form and signed by all the parties to the contract, each of whom must receive a copy dated the day of the amendment. The Amendment or Addendum Form must clearly refer to the original contract and should also state that ‘‘all other terms and conditions remain the same’’. Where any dates are changed as to completion, adjustment, possession or subject clause removal, licensees must state that ‘‘time shall remain of the essence’’.

(v) Revival of an Expired Contract

[01/16/2011 The following information added to Professional Standards Manual]

Some licensees attempt to revive an expired contract by having the buyer and seller sign the subject removal addendum after the time for the removal of the subject clause has expired or by having the parties sign an addendum attempting to revive the expired contract.

An expired contract cannot be revived. Licensees should draft a new Contract of Purchase and Sale for the parties to sign or have them sign an extension addendum before the contract expires.

(vi) Acting on Behalf of a Party to a Trade in Real Estate

The seller or buyer may appoint someone (a real estate licensee or another person) to act on his or her behalf, and even to sign agreements as his or her agent, thereby meeting the requirement of reducing the agreement to writing. However, as indicated above, the Rules require that a licensee obtain the specific written instructions prior to signing any documents on behalf of the principal for whom he or she is acting as agent. This authorization should set out the exact terms and conditions under which the licensee is authorized to sign. A telegram, letter or fax may be used for these purposes but it must be received and in the licensee’s hands before he or she attempts to act on the principal’s behalf.  Licensees must avoid signing documents on behalf of anyone based on oral instructions. Additionally, licensees should not rely on an e-mail as authorization from a client unless they are certain that the e-mail was written and sent by the person from whom it appears to have been received.

A licensee accepting documents from another licensee signing on behalf of a buyer or seller will want to see evidence of the authority. It should be attached to all documents where the licensee has signed on behalf of his or her principal.

(vii) Powers of Attorney

Where it is desirable or necessary to rely on a Power of Attorney, it is prudent practice for licensees to recommend that the Power of Attorney be granted to someone other than the licensee, preferably on their lawyer’s advice. When a person who has been granted a Power of Attorney signs a contract on behalf of the person granting the Power of Attorney, the correct way for the contract to be completed is as shown in this example:

    ‘‘Mary Smith grants a Power of Attorney to her friend Ted Lee to enter into contracts for the sale of her property.’’ Ted Lee would then sign both the Listing Contract and Contract of Purchase and Sale using the following statement: ‘‘Mary Smith by her attorney in fact, Ted Lee’’, followed immediately by Ted Lee’s signature.

**Alert**

A Form A transfer executed under a Power of Attorney, to be filed in the Land Title Office at the time of completion of a sale, requires a Power of Attorney to be in proper form. Licensees should note that different types of Powers of Attorney can be granted by one person to another. While the form of such authority may authorize a party to sign contracts and certain other documents for another party, it may not be sufficient for Land Title purposes. Whenever any Power of Attorney is contemplated or utilized in a trade in real estate, licensees should advise parties to seek the advice of their respective lawyers as soon as possible to ensure the form of Power of Attorney being used is valid and is acceptable for Land Title Office purposes. It should be noted that the Power of Attorney may expire after a specific time or be invalid for other reasons. Licensees should advise their clients to obtain legal advice before proceeding.

(viii) Due Diligence Required When Dealing with the Elderly

[11/03/2011 The following section was added to the Professional Standards Manual]

Licensees should exercise due diligence when dealing with persons who appear to suffer from memory impairment, dementia or some other form of mental disability.

Licensees should be aware that there is new legislation that came into force on September 1, 2011 that deals with any incapacity on the part of an individual. The provincial government has decided to bring into force portions of the Adult Guardianship and Planning Statutes Amendment Act, 2007 (Bill 29) as amended relating to the Power of Attorney Act, the Representation Agreement Act, advance medical directives, health care consent, and other matters. These reforms create three incapacity planning documents: enduring powers of attorney, representation agreements, and advance directives.

Section 10 of the amendments defines an enduring power of attorney to mean a power of attorney:

  1. In which an adult authorizes an attorney (adult person) to:
    1. make decisions on behalf of the adult, or
    2. do certain things in relation to the adult’s financial affairs, and
  2. (b) that continues to have effect while, or come into effect when, the adult is incapable.

“Financial Affairs” is defined to include “an adult’s business and property, and the conduct of the adult’s legal affairs.”

A representation agreement provides a mechanism whereby an adult may arrange in advance how, when and by whom decisions about their health care or personal care, the routine management of their financial affairs or other matters will be made if they become incapable of making decisions independently.

As of September 1, 2011, an adult person will be able to predetermine what health care they may wish to have, or not have, at a later time when they are no longer capable of giving instructions. Any adult will be able to make an advance directive in which he or she may give or refuse consent to any health care in the future provided that any instructions will not be valid and will be severed from the advance directive if carrying out these instructions would be contrary to law. Many advance directives will address end of life decisions, but the document may also be used to address specific types of treatment.

Licensees should contact family members to determine whether they or anybody else hold a power of attorney or have been appointed as a legal representative or substitute decision maker for this person under any of these statutes to ensure that this person is making the right decisions.

Licensees should obtain a true copy of the power of attorney, representation agreement or advance directive for their file, and read the document to ensure that they are dealing with the person who has the legal authority to deal with the property.

If there are no family members, or neither the family members or anybody else does not hold a power of attorney or has not been appointed as a legal representative or substitute decision maker, the licensee should ensure that the person obtains independent advice before entering into any real estate transactions.

For further information please visit www.ag.gov.bc.ca/incapacity-planning/index.htm

(ix) Witnessing Signatures

The person who signs a document as a witness to the signature of a party to the contract is attesting that he or she was present and saw the signing.

While the signatures of the parties to a Contract of Purchase and Sale do not have to be witnessed in order to make the contract legally binding, some financial institutions, as part of their due diligence in considering whether to provide financing, are insisting the parties’ signatures be witnessed. In order to witness a signature, a person must be present at the time the party, whose signature is to be witnessed, is signing the contract. If a licensee is not present when the party is signing the contract, that licensee must not witness the signature after the fact. If a licensee knows he or she will not be present when a contract is going to be signed, he or she should tell the party to ensure that someone is present to witness the signature. Telling the parties the reason for this will hopefully help them understand the importance of this from the financial institution’s perspective.

(x) Dealing with Legal/Beneficial Owners

The person or company shown as the registered owner of real property on the Certificate of Title at the Land Title Office may not be the person or company who signs the Contract of Purchase and Sale as seller of that property. Under what circumstances might that occur, what are some of the legal issues involved, and what should you do as the licensee who may be involved in the sale?

In trades in real estate, for a variety of reasons, one entity may appear as the registered owner of real property and another entity may sign the Contract of Purchase and Sale as seller. This may happen, for example, if the registered owner holds the property in trust for another entity. In that case, the beneficial owner (the person(s) for whom the property is being held in trust), may sign the contract. If the contract is signed by the beneficial owner, there will usually be a recognition of the trust in the contract (e.g., John Doe in trust for Mary Black). As well, there will normally be a covenant by the buyer to accept a transfer from the registered owner and not the beneficial owner who signs the contract. That covenant acts as a waiver of section 6 of the Property Law Act, which provides that the person who signs the contract as seller is the person who must sign the transfer. There may be warranties and representations of the beneficial owner, of the registered owner, of both, or limited warranties and representations of each.

In other circumstances, the registered owner may wish to structure the transaction as a sale of shares, rather than a sale of the real property. The sale may involve the shares of the registered owner or the shares of the beneficial owner of the real property.

Because real estate contracts involving different legal and beneficial owners can be complex, lawyers should draft these contracts and should advise the sellers and buyers in respect of these contracts to ensure that all legal issues are appropriately addressed. Licensees should not draft such contracts nor should they provide legal advice respecting those contracts.

Even in a relatively simple residential real estate transaction, problems can arise, which, if the licensee undertakes the drafting of such a contract, may expose the licensee to liability. For example, if a licensee attempts to draft such a contract prior to receipt of the results of a title search, a contract for sale may be drafted with the seller when, in fact, the property is legally owned by some other person or company. In that case, the seller may have to transfer title into his or her name to comply with section 6 of the Property Law Act (a costly transaction involving, in part, Property Transfer Tax) or face the possibility that the buyer may legally refuse to complete if presented with a transfer from the seller as shown on the contract, rather than the registered owner as shown on title.

In a simple residential trade in real estate, depending on the circumstances, the lawyer might deal with the issue of split legal /beneficial ownership as follows:

    1. have the contract signed by the beneficial owner;

    2. include a statement in the contract such as ‘‘The Buyer acknowledges that the property is held in trust for the Seller by (name of registered owner) the ‘Registered Owner’’’; and

    3. include a covenant of the buyer such as ‘‘The Buyer agrees to accept a transfer executed by the Registered Owner in satisfaction of the Seller’s obligation pursuant to section 6 of the Property Law Act’’.

Licensees involved in these types of transactions should use caution and advise the sellers and buyers to obtain legal advice.

(xi) Assignments

[05/16/2016 the following section updated]

a) Real Estate Contract Assignments
A contract assignment occurs when a buyer transfers the contract to buy property to someone else before the completion date. The buyer can transfer the contract for any price, even for a higher price than they paid for the property. The buyer does not have to pay the seller any additional money if they make money from selling the contract.


Real estate contracts are assignable under the law unless the contract expressly forbids it. Section 36 of the Law and Equity Act provides that the seller’s consent to the assignment is not required, provided that notice in writing of the assignment is given to the seller.


b) Provincial Requirements for Licensees Relating to Real Estate Contract Assignments
On May 16, 2016, requirements relating to the assignment of real estate contracts came into force in BC. These requirements apply in all transactions where a licensee is acting for the seller and/or the prospective buyer of real estate (except where the contract is for the sale of a development unit by a developer, as those terms are defined in section 1 of the Real Estate Development Marketing Act).


All licensees providing trading services should carefully review the amendments to the Regulation.


The amendments provide that a licensee preparing a proposed contract for the purchase and sale of real estate (an “offer”) must include the following terms (the “Standard Assignment Terms”) unless otherwise instructed in writing by the person to whom they are providing trading services:

  1. this contract must not be assigned without the written consent of the seller; and
  2. the seller is entitled to any profit resulting from an assignment of the contract by the buyer or any subsequent assignee.


The amendments further provide that licensees must take certain steps if they are involved in a potential real estate transaction where an offer to be presented to the seller does not include the Standard Assignment Terms. These requirements are further discussed below.


c) Licensees Acting for Buyers

Notice to Seller Regarding Assignment Terms
If you are acting for a buyer and you have drafted an offer that does not include one or both of the Standard Assignment Terms, you must notify the seller’s licensee (or the seller, if the seller is unrepresented) of that fact.


You must use the Council’s form entitled Notice to Seller Regarding Assignment Terms, which is available on the Council’s website under the heading “Forms and Fees” and the subheading “Disclosure Forms”. You must provide the Notice to Seller Regarding Assignment Terms form to the seller or the seller’s licensee at the same time the offer is presented.

The same obligations apply to you if you are acting on your own behalf or on behalf of an associate as a buyer (directly or indirectly) in a real estate transaction. If you are aware that an offer to be presented to a seller does not include one or both of the Standard Assignment Terms, you must provide the Notice to Seller Regarding Assignment Terms form to the seller or the seller’s licensee at the same time the offer is presented. These notice obligations are in addition to your obligation to disclose your interest in trade to the seller.


Advice to Buyers Regarding Assignment Terms and Conditions in Offers
When you are acting for a buyer and advising the buyer on whether to include the Standard Assignment Terms (or other terms and conditions relating to the assignment of the contract) in an offer, you should carefully consider and discuss with the buyer what may be best for them. For example:

  • Consider the market conditions: is it a buyers market? A seller’s market?
  • Consider the buyer’s circumstances.
  • Discuss your obligations under the regulations and the Notice to Seller Regarding Assignment Terms form when appropriate.
  • If there are any issues outside of your expertise, advise your client to seek independent legal advice.

In every case, when acting for a buyer you must be guided by your duties to your client. This includes your duties to act in the best interests of the client and in accordance with the client’s lawful instructions, and to advise the client to seek independent professional advice on matters outside of your expertise.


Where the buyer wishes to have an express right to assign the contract, you should ensure they strike the default clauses from the Contract of Purchase and Sale (if the standard contract form is used) and consider using the following clause in the contract:

Assignment Option Clause

The Buyer reserves the right to assign this contract in whole or in part to any third party without further notice to the Seller; said assignment not to relieve the Buyer from his or her obligation to complete the terms and conditions of this contract should the assignee default.


In preparing an offer where the assignment of the contract of purchase and sale is contemplated, you should not use clauses such as ‘‘and/or nominee’’ or ‘‘and/or assignee’’ to describe the buyer. Arguments could be made that contracts containing such phrases in the description of the buyer are unenforceable due to uncertainty in the identity of the buyer.


Licensees Acting for the Assignor or Assignee of a Contract
If you are asked to represent an assignor (original buyer) or assignee (ultimate buyer) pursuant to a Contract of Purchase and Sale, you should, as a minimum, ensure that:

  1. the assignor has the right to assign and the assignee has the right to receive a valid assignment by referring to the original contract;
  2. a proper assignment is drafted and validly executed (BCREA has created two forms entitled ‘‘Assignment of Contract of Purchase and Sale — New Development’’ and ‘‘Assignment of Contract of Purchase and Sale — Non-Development’’, both available on Webforms);
  3. the assignor is aware of their obligation to provide the seller with notice in writing of the assignment (unless the clause in the Assignment Option Clause has been used);
  4. the identities of the parties are clear and verified (e.g., proper photo identification, passport, etc., especially when the assignment involves parties with whom the seller may not be familiar); licensees acting for assignors should be particularly careful to establish the identity of the assignor. Licensees should confirm through acceptable identification that the person asking that the contract be assigned is the purchaser on the contract;
  5. the assignor’s and the assignee’s rights to the initial deposit under the original contract, if any, are dealt with; and
  6. in the event that an assignor or assignee is a corporate party, the individual signing on behalf of the corporate entity has the authority to bind the corporation (this may involve conducting a company search and obtaining a copy of the corporate resolution allowing that individual to execute the assignment on the company’s behalf).

Assignors should determine whether GST applies as a result of the assignment. As a licensee, you should advise your clients to seek independent professional advice on that issue.


Because the procedure and documentation for assignment can be complex and fraught with difficulties, it is in everyone’s best interest to advise all parties to seek legal advice in the drafting of effective and enforceable assignments of any Contract of Purchase and Sale. You should document having provided this advice. Members of real estate boards/associations may also wish to refer to the additional information about assignments of contracts (e.g., BCREA Assignment of Contract of Purchase and Sale — Q&A Guide and ‘‘A REALTOR’s Guide to the BCREA-CBA Assignment Agreement’’) found on the REALTORLink website.


d) Licensees Acting for Sellers
If an offer presented to a seller does not include one or both of the Standard Assignment Terms, as the seller’s licensee you must do the following, before the seller accepts the offer:


a) Provide the seller with the Notice to Seller Regarding Assignment Terms form presented by the buyer’s licensee (this will not apply where an offer is presented by an unrepresented buyer, as unrepresented buyers are not obliged to provide that form);


b) Inform the seller that the offer before them is missing the Standard Assignment Term(s);


c) Advise the seller whether the offer provides that the contract may be assigned;


d) If the offer provides that the contract may be assigned, advise the seller:
i. about any conditions on the right of assignment of the contract, and
ii. about the seller’s entitlement under the contract to any profit resulting from an assignment of the contract, if applicable.


The goal of the these requirements is to ensure that before they enter into a contract for the purchase and sale of their property, the seller understands and accepts the terms and conditions that will govern any assignment of the contract by the buyer, regardless of whether:

  • the offer contains the Standard Assignment Terms;
  • the offer is silent with respect to assignments; or
  • the offer contains assignment terms that differ from the Standard Assignment Terms.


When you are advising the seller on whether or not to insist that an offer include the Standard Assignment Terms (or other terms and conditions relating to the assignment of the contract), you should carefully consider and discuss with the seller what may be in their best interests. For example:

  • Consider the market conditions: is it a buyers market? A seller’s market?
  • Consider the seller’s circumstances.
  • Discuss your obligations under the regulations and the Notice to Seller Regarding Assignment Terms form, when appropriate.
  • If there are any issues outside of your expertise, advise your client to seek independent legal advice.

As a licensee, you have an obligation to discuss everything material to the transaction with your client, including the subject of assignments. If the seller is uncertain about any of the terms in the contract they should be advised to seek legal advice.


In every case, as a licensee acting for a seller you should be guided by your duties to your client. This includes the duty to act in the best interests of the client and in accordance with the client’s lawful instructions, and to advise the client to seek independent professional advice on matters outside of your expertise.


e) Requirements for Brokerages

Brokerages are required by section 8-4(1) of the Rules to keep copies of Notice to Seller Regarding Assignment Terms forms.

These copies must be provided to the brokerage by licensees who:

  • act for a buyer,
  • act for themselves as a buyer, or
  • act for a seller.
(xii) Buying from an Estate

 [July 2015: the following information updated in the Professional Standards Manual]

If a licensee is considering acting on behalf of an executor of an estate that is selling property, or acting for a buyer of an estate property, they should confirm whether the executor or administrator has the legal authority to act on behalf of the estate. This authority will take the form of a grant of probate or letters of administration.

If a grant of probate or letters of administration has not been obtained, then the executor or the administrator may not have the legal authority to sign a listing agreement, or enter into a Contract of Purchase and Sale on behalf of the estate.

Licensees are therefore encouraged to advise their client to seek independent legal advice before their client signs a listing agreement, and/or enters into a Contract of Purchase and Sale.

An example of the proper way for an executor or administrator to sign a contract on behalf of the estate is: ‘‘G. Seller, Executor [or Administrator] of the Estate of (name of the deceased).’’

 

On March 31, 2014 the Wills, Estates and Succession Act [SBC 2009] c. 13 came into force, replacing a number of BC statutes, including the Estate Administration Act, Wills Act, and Wills Variation Act.

 

 

 

(xiii) Non-Resident Withholding Tax

A non-resident withholding tax applies to the sale of non-resident owned real estate. The Non-Resident Withholding Tax Guide is available on the Government of Canada website at www.cra-arc.gc.ca/E/pub/tg/t4061/t4061-e.html.

Licensees should also advise their non-resident clients to obtain professional advice.

(xiv) Terminology: On or Before

‘‘By’’ and ‘‘on or before’’, legally, mean the same thing.

(xv) Legal Counsel

It is recommended that all parties to a transaction be advised to seek any legal advice from their own lawyers. As a general rule, the seller and buyer should not consult the same lawyer.

(xvi) "Subject to" Clauses — General Information

A contract signifies the common intention of the parties to be legally bound by their respective obligations. If the parties have not expressed those obligations with sufficient clarity, there is no contract because there does not yet exist the necessary common intention to be bound by definite obligations. The law requires all of the terms and conditions of a contract to be sufficiently clear. The law does not enforce arrangements whose essential terms or conditions are uncertain.

The ideal subject clause is one whose criteria are so clear that it is completely obvious whether the criteria for satisfying that clause are met. To determine the certainty of a subject clause, the courts often consider whether the criteria for satisfying the subject clause are subjective or objective. A subjective criterion is one that depends on the personal view of the individual who decides it. In contrast, an objective criterion is one that depends on an external event. The more subjective the wording of a subject clause, the more likely a court will find the clause to be uncertain.

(1) How the Law Works

The leading statement of the law in this area is found in the dissenting judgment of Mr. Justice Lambert in Wiebe v. Bobsein, [1985] 64 B.C.L.R. 295; 39 R.P.R. 228; 20 D.L.R. (4th) 475; [1985] B.C.J. No. 1742 (C.A.). In that case, Mr. Justice Lambert compared the different results that occur, depending on whether a subject clause is subjective, objective, or partly subjective and partly objective. First, he described the consequence of using a subjective subject clause (Wiebe v. Bobsein, [1985] B.C.J. No. 1742 at paragraph 15).

    Each condition precedent case must be considered on its own facts. As (the trial judge) indicated, some conditions precedent are so imprecise, or depend so entirely on the subjective state of mind of the purchaser, that the contract process must still be regarded as at the offer stage. An example would be ‘‘subject to the approval of the president of the corporate purchaser’’. (Emphasis added.)

This means that if a subject clause is wholly subjective (sometimes called a whim and fancy clause), the court may view the arrangement, in law, as nothing more than an offer by the seller that the buyer may accept by removing the subject clause. In other words, even though there was an initial offer, followed by an acceptance, and the document is called a Contract of Purchase and Sale, the arrangement, in law, is nothing more than an offer until the subject clause is removed.

Next, Mr. Justice Lambert explained what happens when the subject clause is objective (paragraph 15):

    In other cases, the condition precedent is clear, precise and objective. In those cases, a contract is completed; neither party can withdraw; but performance is held in suspense until the parties know whether the objective condition precedent is fulfilled. An example would be ‘‘subject to John Smith being elected as Mayor in the municipal election on 15 October of this year’’.

If the subject clause is objective, a contract comes into existence as soon as the offer is accepted. The obligation to carry out the contract to completion is suspended until the subject clause is removed.

Finally, Mr. Justice Lambert described the result when a subject clause is partly subjective and partly objective (paragraphs 16-18),

    But there is a third class of condition precedent. Into that class fall the types of conditions which are partly subjective and partly objective. An example would be ‘‘subject to planning department approval of the attached plan of sub-division’’. This looks objective, but it differs from a truly objective condition in that someone has to solicit the approval of the planning department. Perhaps some persuasion of the planning department will be required. Can the purchaser prevent the condition from being fulfilled by refusing to present the plan of sub-division to the planning department? This type of case has been dealt with by implying a term that the purchaser will take all reasonable steps to cause the plan to be presented to the planning department, and will, at the proper time and in the proper way, take all reasonable steps to have the plan approved by the planning department.

    The law in relation to implying terms in an agreement is no different in relation to conditions precedent than it is for other terms of an agreement. Business contracts should not be permitted to fail over an omission that the parties would immediately have corrected if the parties had noticed the omission at the time the contract was made. And we have the business efficacy test and the officious bystander test to guide us. In the example I have given, it is clear that business efficacy requires that someone must present the plan of sub-division to the planning department, and the officious bystander test would be met by both parties answering the hypothetical question of the hypothetical onlooker, as to who will present the plan, by saying: ‘‘Of course the purchaser will do it’’.

    But there are cases that fall in this third class of condition precedent where it will not be possible to imply the missing term, and the agreement will fail for uncertainty. In those cases the court cannot write a contract for the parties.

Where a subject clause is partly subjective and partly objective, the court must determine whether its features are objective enough to constitute a contract. If, on the other hand, the clause is predominantly subjective, then the arrangement will amount to nothing more, in law, than an offer which the buyer may accept by removing the subject clause.

(2) How To Make a Subject Clause More Objective

The ideal subject clause is one whose criteria is so clear that everyone may easily know whether the clause is fulfilled or not. The more objective the criteria, the easier it is to determine whether the subject clause is fulfilled or not.

A licensee makes a subject clause more objective by using specific criteria to measure its fulfillment and, where practical, requiring a reasonable interpretation of those criteria.

(3) Using Specific Criteria

To make a subject clause more objective, a licensee begins by asking questions along the following lines. The licensee may then use the answers to develop clear, precise and objective criteria for the relevant subject clause.

    1. What is my client actually concerned about?

A licensee answers this question by identifying the essential problem(s) that concerns the client.

    2. What feature(s) must be present or absent to know if evidence exists to justify that concern?

To answer this question, a licensee should look for specific criteria whose presence, or absence, is consistent with the presence, or absence, of the particular concern.

For example, suppose in a residential purchase the buyer wishes to make an offer subject to inspection. The buyer’s agent could use the following subject clause:

    Subject to the Buyer on or before (date), at the Buyer’s expense, obtaining and approving an inspection report.

    This condition is for the sole benefit of the Buyer.

This clause, however, tends to be subjective because its fulfillment depends mainly on the buyer’s personal preferences instead of external criteria. To objectify this clause, the licensee begins by asking the first question:

    1. What is my client actually concerned about?

In this example, the buyer wants to avoid purchasing a property that requires repairs. The essential concern, however, is cost. The buyer does not want to buy a property that carries the risk of expensive repairs. From the buyer’s perspective, costly repairs affect the use and value of the property.

Using this information, the buyer’s agent could make the subject clause more objective by adding the following:

    Subject to the Buyer on or before(date), at the Buyer’s expense, obtaining and approving an inspection report against any defect that adversely affects the property’s use or value.

    This condition is for the sole benefit of the Buyer.

2. What feature(s) must be present or absent to know if evidence exists to justify that concern?

When the buyer’s agent in this example looks for specific criteria whose presence, or absence, is consistent with the buyer’s concern, the agent asks the buyer to put a dollar value on the problem. How much money is the buyer willing to spend on repairs, if necessary? By asking the buyer, the buyer’s agent in this case determines that the buyer’s threshold is $1,500. If the property requires repairs in excess of $1,500, the buyer does not want to purchase it unless the seller takes responsibility for those repairs.

Using this information, the buyer’s agent may make the subject clause even more precise, as follows:

    Subject to the Buyer on or before(date), at the Buyer’s expense, obtaining and approving an inspection report against any defects whose cumulative cost of repair exceeds $1,500 and which adversely affect the property’s use or value.

    This condition is for the sole benefit of the Buyer.

(4) Adding a Requirement of Reasonableness

Another way to objectify a subject clause is to add reasonableness as one of the criteria. The law uses the standard of care of a reasonable person as an objective standard. In the same fashion, a licensee may make a subject clause more objective by requiring its criteria to be reasonably assessed. For instance, the buyer’s agent in this illustration may make the subject clause more objective by stating, in effect, that certain defects will be evaluated reasonably, as follows:

    Subject to the Buyer on or before(date) at the Buyer’s expense, obtaining and approving an inspection report against any defects whose cumulative cost of repair exceeds $1,500 and which reasonably may adversely affect the property’s use or value.

    This condition is for the sole benefit of the Buyer.

In its final form, this subject clause is much more objective than the one with which we started.

(5) The Different Interests of a Seller and Buyer

A seller and buyer have different interests that affect how they negotiate a real estate transaction. Although most subject clauses tend to favour the buyer, some specifically benefit the seller. When considering the different interests of a seller and buyer regarding a subject clause, it is important to first identify for which party’s benefit the clause exists.

A subject clause may be in any party’s favour. Where the parties agree to a subject clause that is sufficiently objective, a contract exists. If so, the law implies as a term of the contract that the party with the benefit of the subject clause must act fairly, honestly, and in good faith to satisfy the subject clause.

(6) Acting for the Seller

The seller’s interests vary depending upon whether the subject clause in question benefits the buyer or the seller.

(7) Where a Subject Clause Benefits the Buyer

Where a subject clause benefits the buyer, the seller’s best interests are served by ensuring that the wording of the subject clause is sufficiently certain. In addition, the more substantial the initial deposit, the better.

The seller is best served by getting a substantial deposit when the parties first enter the agreement, rather than waiting until the buyer removes his or her subject clause. At common law, the seller is entitled to keep the deposit if the buyer defaults. If the buyer fails to use his or her best efforts to remove the subject clause, the buyer will be in breach of the implied term of the agreement that requires the buyer to act in good faith. If so, the seller may keep the deposit on account of damages as a result of the buyer’s breach.

If the buyer attempts to escape the contract, for example, by alleging that a subject clause is so subjective that, in law, there is only a standing offer pending subject removal, the seller is in a significantly better position to negotiate a resolution to the dispute if the original agreement includes a substantial deposit held in trust.

The seller is also best served by a subject clause that is sufficiently objective to constitute a contract. If a seller receives an offer that contains a very subjective subject clause in favour of the buyer, the seller’s licensee should do several things. First, the licensee should warn the seller that the more subjective the wording of a subject clause, the more likely a court will find the clause to be uncertain. If the seller accepts the buyer’s offer, and the subject clause is too subjective, the arrangement, in law, will be nothing more than a standing offer until the subject clause is removed. If there is not yet, in law, any contract, the buyer will not have any obligation to act fairly, honestly, and in good faith to satisfy the subject clause. In other words, by accepting an offer that contains a very subjective subject clause, the seller takes the risk there will be nothing in law to enforce.

If, in the licensee’s view, the subject clause is too subjective, then after explaining the risks in general terms, the licensee may recommend a counter-offer with more objective language or a very short subject removal period. If the seller disregards the licensee’s recommendations, the licensee should recommend that the seller obtain independent legal advice before accepting the buyer’s offer. In each case, a licensee should keep a written record of the licensee’s advice to the client, including the warning about the risk the seller takes by not following the licensee’s advice.

(8) Where a Subject Clause Benefits the Seller

Where a subject clause benefits the seller, the seller’s best interests are served by ensuring that the wording of the subject clause is sufficiently certain.

For example, suppose the seller’s financial obligations exceed the sale price. This happens, for instance, where the outstanding balance of the seller’s mortgage exceeds the sale price and the seller makes the deal subject to arranging his or her financial affairs to raise the necessary funds to clear the mortgage from title on completion, as follows:

    Subject to the Seller’s confirmation and satisfaction with the arrangement of financial affairs on or before(date), which enable the Seller to proceed with this Sale.

    This condition is for the sole benefit of the Seller.

Since the fulfillment of this subject clause depends substantially on subjective criteria, this arrangement, in law, may be nothing more than the buyer’s standing offer to purchase the seller’s property that the seller may accept by removing the subject clause. If so, the seller’s agent best protects the seller by modifying the clause referenced in the section ‘‘Contracts under Seal’’ to prevent the buyer from revoking the buyer’s offer while the seller considers his or her financial affairs.

(9) Acting for the Buyer

A buyer may request a subject clause whose fulfillment depends substantially on subjective criteria in the mistaken expectation that it gives the buyer greater flexibility, without appreciating the buyer’s legal risk.

Where a licensee represents the buyer, it is common for the buyer to ask the licensee to prepare an offer with subject clauses whose removal depends substantially on subjective criteria. For example, the buyer may instruct the licensee to write the offer, ‘‘subject to satisfactory financing’’. The buyer may also prefer this wording because it withholds information from the seller about the buyer’s financial circumstances.

Bearing in mind how the law works, it is important to warn the buyer that by using a subject clause whose removal depends substantially on subjective criteria, the buyer may create an opportunity for the seller to escape the agreement. The more subjective the wording of a subject clause, the more likely a court will find the clause to be uncertain. If the subject clause is too subjective, the arrangement, in law, is nothing more than an offer until the subject clause is removed. If an arrangement amounts only in law to a standing offer pending subject removal, the seller may revoke the offer by cancelling the deal anytime before the buyer removes the subject clause. However, a clause that provides that the seller’s acceptance is irrevocable, as discussed below under the heading ‘‘Contracts under Seal’’ and which is contained in the standard Contract of Purchase and Sale, prevents the seller from cancelling the deal before the subject clause is removed.

(10) Option Clause

An Option Clause is an effective tool for addressing the consequences of a subject clause that tends to be too subjective. An option is a legally enforceable agreement by which a seller promises the buyer to keep an offer open for acceptance until a specified time. In other words, an option is a contract by which the seller promises to make an offer irrevocable. The British Columbia Real Estate Guide gives the following useful definition of an option.

    Where consideration is provided for leaving the offer open, the transaction is known as an option. In essence, it consists of two contracts, one the agreement regarding the offer, the second the contract arising if that offer is accepted. (British Columbia Real Estate Guide, © CCH Canadian Limited, at ¶3055 in Volume 1).

Consideration means that each party must give a promise, or carry out some other act by which that person gives up something, in exchange for the promise or act of the other party. The law permits parties to a contract to create a contract under seal, which allows a promise to be enforced without evidence of consideration.

(11) Contracts under Seal

The latest edition of the Contract of Purchase and Sale developed by the B.C. Real Estate Association and the Canadian Bar Association (B.C. Branch) contains a clause which provides that the acceptance of the seller is irrevocable until the terms and conditions are waived or declared fulfilled or any options are exercised. The provision also provides that the Contract of Purchase and Sale is executed under seal. Clause 21 of the standard Contract of Purchase and Sale provides:

Acceptance Irrevocable (Buyer and Seller)

The Seller and the Buyer specifically confirm that this Contract of Purchase and Sale is executed under seal. It is agreed and understood that the Seller’s acceptance is irrevocable, including without limitation, during the period prior to the date specified for the Buyer to either:

    (a) fulfill or waive the terms and conditions herein contained; and/or (b) exercise any option(s) herein contained.

As a result of this clause, once the seller accepts the contract, the seller cannot argue that the conditions imposed by the buyer were too subjective or uncertain to be enforceable. In other words, the acceptance of the seller is irrevocable. Additionally, because the clause provides that the Contract is executed under seal, no additional consideration is required to be paid by the buyer to the seller.

Throughout the Professional Standards Manual, various clauses are referenced which may be determined to be too subjective to be enforceable. In all cases the following statement appears below the clause:

Ω If not using the standard form Contract of Purchase and Sale, refer to ‘‘Contracts under Seal’’ above.

If a licensee is using the current version of the Contract of Purchase and Sale, the contract is automatically executed under seal.

However, if a different form of Contract of Purchase and Sale is used and the Contract contains subject clauses that are overly subjective, licensees should include a clause that provides that the Acceptance is Irrevocable similar to Clause 21 as set out above and ensure that the contract is executed under seal in the following way.

For each party, ensure the presence of an adhesive wafer seal, or a mark representing a seal, adjacent to the line reserved for that party’s signature. If a mark is used to represent a seal, write the word seal next to the mark. It does not matter whether the mark representing the seal is a preprinted black dot on the paper itself, or a hand drawn ellipse containing the printed word seal, or anything else, so long as the document clearly shows the intention to execute the option agreement under seal. Each party’s seal, or mark representing a seal, must be placed on the paper before or at the time that party signs the document.

If a seller or buyer does not personally execute the Option Clause under seal but instructs someone else to sign it as their agent, the licensee should note the following concerns. In Friedmann Equity Developments Inc. v. Final Note Ltd. (2000), 188 D.L.R. (4th) 269, the Supreme Court of Canada confirmed that as a general rule, an agent who executes an agreement under seal in the agent’s own name will be personally liable upon it if the agent fails to disclose the name and existence of the agent’s principal. This is called the sealed contract rule. Where an agent makes a contract under seal without disclosing the name and existence of his or her principal, the sealed contract rule makes the agent personally liable under the agreement. The rule also prohibits the principal from suing, or being sued, under the contract. To avoid personal liability under the sealed contract rule, an agent who signs an option agreement under seal on behalf of the seller or buyer must record both the identity of the principal on whose behalf he or she is signing and his or her status as an agent. For example, suppose the seller has given a power of attorney to the listing licensee to execute the option agreement. The licensee should sign the addendum containing the Option Clause under seal, as follows:

    [Seller’s name] by his or her attorney in fact, [Licensee’s signature]. Followed by the date and time.

    Or

    [Licensee’s signature] as agent for [Seller’s name]. Followed by the date and time.

Because the standard ‘‘Contract of Purchase and Sale’’ contains the Acceptance Irrevocable Clause and is executed under seal, it may be that even a very subjective subject clause will not render the contract unenforceable as the court will accept that Clause 21 effectively prevents the seller from revoking his or her acceptance. However, the clause has not yet been tested in court. Thus, in all cases, and particularly, where the standard ‘‘Contract of Purchase and Sale’’ is not used, such as in an Offer to Lease or where the contract is prepared by a developer, a licensee should keep the following in mind.

Summary

1. Strive to make each subject clause as objective as possible. Avoid making the outcome of the subject clause substantially dependent on subjective criteria (e.g., the state of mind of the buyer or of a third party).

2. Despite a licensee’s best efforts, there will be occasions where a client’s instructions, or circumstances, compel the use of a subject clause that is very subjective. If it is not possible to avoid a clause that depends substantially on subjective criteria, a licensee should:

    a. Warn the seller, or buyer, as the case may be, that there may not be a binding contract. Instead, the arrangement, in law, may be nothing more than a standing offer by the seller to the buyer that the buyer may accept by removing the subject clause.

    b. If so,

      (i) the seller’s agent should warn the seller that:

        (1) if, pending subject removal, there is no contract, the buyer may have no obligation to act fairly, honestly, and in good faith to satisfy the subject clause, and

        (2) if the seller receives another offer while such a standing offer exists, the seller should obtain legal advice if he or she wishes to revoke the standing offer in order to proceed with the second offer.

      (ii) the buyer’s agent should:

        (1) warn the buyer that there is the potential for the seller to cancel the deal by revoking the seller’s standing offer until the buyer removes the subject clause; and

        (2) recommend the use of one of the Option Clauses shown above to bind the seller to keep the offer open until the subject removal deadline;

        (3) alternatively, keep the length of time for removal of the subject clause as short as possible;

        (4) where a licensee uses an Option Clause supported by consideration, the licensee must verify that the consideration is actually paid and obtain a receipt for it;

        (5) where a licensee uses an Option Clause supported by a seal, the licensee must ensure there is a seal, or a symbol representing a seal, beside each party’s signature and ensure that the seller and buyer personally sign the document.

(12) True Conditions Precedent

Quite apart from any concerns about the subjective nature of a subject clause, our common law also distinguishes between a true condition precedent and an ordinary condition precedent.

At common law, a true condition precedent is a condition that is wholly dependent on the will or actions of someone who is not a party to the contract. If a contract contains a true condition precedent, then at common law no party may unilaterally waive that condition.

In 1978, the province amended the Law and Equity Act to override the common law rule preventing the unilateral waiver of a true condition precedent. Section 54 of the Law and Equity Act provides:

    54. If the performance of a contract is suspended until the fulfillment of a condition precedent, a party to the contract may waive the fulfillment of the condition precedent, even if the fulfillment of the condition precedent is dependent on the will or actions of a person who is not a party to the contract if

      (a) the condition precedent benefits only that party to the contract,

      (b) the contract is capable of being performed without fulfillment of the condition precedent, and

      (c) where a time is stipulated for fulfillment of the condition precedent, the waiver is made before the time stipulated, and where a time is not stipulated for fulfillment of the condition precedent, the waiver is made within a reasonable time.

Clause 3 of the standard form ‘‘Contract of Purchase and Sale’’ anticipates section 54. Clause 3 says in part, that,

    Each condition, if so indicated, is for the sole benefit of the party indicated.

When a licensee writes a subject clause whose satisfaction depends completely on the will or actions of a third party (e.g., a lawyer, an accountant, a relative, a local government), the licensee must state in writing for whose sole benefit that clause is written to engage section 54. If the licensee fails to engage section 54 by stating for whose sole benefit the clause exists, the common law rule applies and the clause may only be waived if all parties consent. For example, suppose a contract is subject to the local government adding the property to the municipality on or before 12:00 p.m. on the 15th day of the month, but the clause fails to state for whose benefit it exists. Suppose, too, that by 10:00 a.m. that morning, it is clear the municipality will not make any decision about the property for at least several more months and that the buyer wants to waive the subject clause to proceed with the deal. Since the subject clause fails to engage section 54 by stating for whose benefit it is written, the common law rule applies and the buyer cannot waive the subject clause without the seller’s consent. If desired, the seller can then terminate the transaction by refusing to consent.

(13) Removing or Waiving Subject Clauses

The ‘‘standard’’ form, ‘‘Contract of Purchase and Sale’’, anticipates that the parties to the agreement may wish to use one or more subject clauses. The standard form contract says, in part, in clause 3:

    3. TERMS AND CONDITIONS: The purchase and sale of the Property includes the following terms and is subject to the following conditions:

    The document then provides a blank space in which the licensee may write any additional terms beyond those in the preprinted wording, plus any subject clauses, in accordance with the licensee’s instructions. Alternatively, the licensee may use the blank space to refer the reader to another document that is attached to and forms part of the contract and which contains the additional terms and any subject clauses; for example, (see attached Addendum which forms part of this contract).

    Each condition, if so indicated, is for the sole benefit of the party indicated. Unless each condition is waived or declared fulfilled by written notice given by the benefiting party to the other party on or before the specified date for each condition, this contract will be terminated thereupon and the deposit returnable in accordance with the Real Estate Services Act.

(14) Removing a Subject Clause

To remove a subject clause, a party must deliver written notice to every other party on or before the subject removal deadline. Verbal notice is not sufficient because the standard form contract requires, ‘‘written notice given by the benefiting party to the other party on or before the specified date…’’.

The standard form contract anticipates that a party will remove a subject clause by declaring it fulfilled or by waiving it. When the requirements for satisfying a condition are met, we say it is fulfilled. For instance, suppose a contract for the purchase of a residential property contains the following subject clause from this manual:

    Subject to the Buyer, at the Buyer’s expense, obtaining and approving an inspection report on or before (date) .

    This condition is for the sole benefit of the Buyer.

If the property inspector reports that everything is fine, the buyer can declare the subject clause fulfilled. On the other hand, if the buyer decides to proceed with his or her purchase without any inspection, the buyer may waive the subject clause.

For certainty, the written notice used to remove (by waiving or declaring fulfilled) a subject clause should include the exact wording of the subject clause to be waived or declared fulfilled. The following notice is an example of how the above subject clause could be waived or declared fulfilled.

    Date

    The Buyer hereby waives / declares fulfilledthe following subject clause: ‘‘Subject to the Buyer, at the Buyer’s expense, obtaining and approving an inspection report on or before (date) This condition is for the sole benefit of the Buyer’’.

    Witness Signature Buyer’s Signature

    * Licensees should select whether this clause has been waived or declared fulfilled.

(15) The Practice of Adding New Terms on a Subject Removal Addendum

[04/10/2010 The following information added to Professional Standards Manual]

There appears to be a growing practice in the industry whereby some licensees are using the Subject Removal Addendum to a Contract of Purchase and Sale to add an amendment to the contract (e.g. a price reduction) after the removal of the subject clauses and then having the buyers sign at the bottom of the Subject Removal Addendum.

This imposes a risk on the buyer as, once all of the subject clauses have been removed, the seller may not agree to the amendment and may take the position that the buyer has removed all subject clauses, and therefore there is a firm and binding Contract of Purchase and Sale.

An amendment constitutes a contract to change an existing contract. Since the amendment itself amounts to a contract, there must be fresh consideration or a seal in support of it. An amendment made without new consideration or a seal is unenforceable because it is a gratuitous promise.

A licensee seeking an amendment to a Contract of Purchase and Sale on behalf of the buyer must first confirm with the other parties that any discussions about the proposed change will not terminate the existing contract. During the ensuing discussion over the proposed amendment, the licensee must emphasize to all parties that the original Contract of Purchase and Sale remains binding on them until any amendment is finalized. The licensee should prepare the amendment on a separate form. This should be done and signed by the parties to the Contract of Purchase and Sale prior to the removal of the subject clauses, which are then removed on a separate addendum. If, at the time the amendment is to be signed, the time for the removal of the subject clauses is in danger of expiring, then a further amendment to the contract may be included on the same form extending the time for subject removal. An example of a Contract of Purchase and Sale Amendment form is included below.

For those licensees who use the BCREA preprinted Contract of Purchase and Sale Addendum form to make amendments to the Contract of Purchase and Sale, they should ensure that it contains the following clause:

“All other terms and conditions in the said Contract of Purchase and Sale remain the same and in full force and effect. Time shall remain of the essence.”

Licensees must alert their clients that there are risks to consider when amending the terms of an already accepted contract on a Subject Removal Addendum form. Both the buyer and seller should be advised to get independent legal advice so that they may understand their options in this regard.

Contract of Purchase and Sale Amendment

DATE ____________________

RE: Address _________________________________________________

Legal __________________________________________________

Further to the Contract of Purchase and Sale dated _____________________

Made between _______________________________________as Seller, and

___________________________________________________ as Buyer and

Covering the above mentioned property, the undersigned hereby agree as follows:

_______________________________________________________________

All other terms and conditions in the said Contract of Purchase and Sale remain the same and in full force and effect. Time shall remain of the essence.

___________________________ _________________________________ Seal

Witness Buyer

_________________________ _________________________________Seal

Witness Seller

 

(xvii) Financing Information
(1) Pre-Approved Financing

As part of the process of purchasing real estate, many buyers are being pre-approved for financing prior to making an offer. This usually entails a financial institution agreeing that the buyer qualifies for a mortgage up to a maximum amount. However, licensees need to be aware that while the financial institution may have pre-approved the amount of money it is prepared to lend a buyer, it retains the right to also approve the property used as security for the financing. This will often include approving the appraised value of the property to ensure an acceptable loan/value ratio, as well as the physical condition of the property.

**Alert**

Council is of the view that a subject to financing clause, such as the New First Mortgage Clause found below, should be included in Contracts of Purchase and Sale even where the buyer has been pre-approved for financing.

(2) New First Mortgage Clause

New First Mortgage Clause

Subject to a new first mortgage being made available to the Buyer on or before (date) , in the amount of $ (amount) at an interest rate not to exceed ___ % per annum calculated (select either half-yearly or monthly) , not in advance, with a ____- year amortization period, ____- year term and repayable in blended payments of approximately $ (amount) per month including principal and interest (plus 1/12 of the annual taxes, if required by the mortgagee).

This condition is for the sole benefit of the Buyer.

NOTE: This clause must not be used for a Seller-take-back mortgage.

While the standard ‘‘New First Mortgage Clause’’ can be applied to nearly every residential contract, there will be occasions when the buyer will be applying for unconventional financing (e.g., land assembly, shopping centres, high-rise buildings or warehouse purchases). Licensees must be aware that courts have sometimes declared vague mortgage clauses to be unenforceable whim and fancy clauses.

Because the standard Contract of Purchase and Sale contains an option clause and is executed under seal, when using a standard Contract of Purchase and Sale, the seller is irrevocably bound by the contract even if the subject to financing clause is vague. See the section entitled ‘‘Option Clause’’ for more information.

(3) Mortgage Covenants Affected by Property Law Act

The Property Law Act significantly changed the law in British Columbia relating to the continued liability of a mortgagor on his or her personal covenant after his or her residential property had been sold.

It is necessary for all licensees to advise sellers and buyers regarding the effect of the amendments in transactions involving the assumption of a mortgage.

It is an advantage to the seller to be released from any further liability on a mortgage that is being assumed by the buyer. For this reason, it is recommended, in a residential transaction where the buyer will be assuming an existing mortgage, that a condition be inserted in the contract to ensure that the seller’s covenant on the mortgage is released. The Assumption of Existing Mortgage Clause set out below includes as a subject that the mortgagee release the seller from the seller’s covenant.

The amendments to the Property Law Actinclude the following provisions:

    1. The changes relate only to a residential mortgage (which is defined as a mortgage or agreement for sale) registered against the residence where the borrower resides, and where the financing was entered into or assumed to permit the borrower to acquire the residence, make improvements to the residence or make expenditures for family or household purposes.

    2. Where an original borrower sells the home and the buyer (new owner) has assumed the mortgage, the original borrower’s liability will be extinguished unless the lender demands payment in full within three months after the existing term of the mortgage has expired. As well, an original borrower will be able to extinguish his or her liability by having the lender approve the credit worthiness of a buyer or proposed buyer. The second alternative is more attractive to the seller, because the seller is released from liability on the mortgage at an earlier date.

    3. When the lender specifically approves, in writing, the assumption of the mortgage or agreement for sale by the buyer, then the seller is released from the covenant. The lender may not unreasonably withhold approval. If the seller or the buyer feels that the lender is unreasonably withholding approval, he or she may apply to the Supreme Court of British Columbia for relief.

(4) Assumption of Existing Mortgage Clause

Assumption of Existing Mortgage Clause

The sum of approximately $ (amount A) by way of cash down payment.

The Buyer will assume all obligations under the existing (rank)mortgage held by (name of lender) with an outstanding balance of approximately $ (amount B) at an interest rate of % per annum calculated (select either half-yearly or monthly)not in advance, with a ‘‘balance due’’ term date of (date)with blended payments of $ (payment amount)per month including principal and interest (plus 1/12 of the annual taxes, if required by mortgagee).

NOTE: Amounts (A) and (B) must equal total purchase price.

Subject to the mortgagee approving the Buyer in writing on or before (date), thereby releasing the Seller from liability under section 24 of the Property Law Act.

This condition is for the benefit of both the Buyer and the Seller.

(5) Refinance of Existing Mortgage

Under certain circumstances, a substantial payout penalty may be avoided by the buyer arranging a new mortgage through the existing mortgagee.

Refinancing with Existing Mortgagee Clause

Subject to the Buyer arranging financing with (name of existing mortgagee) and to (name of existing mortgagee) providing the Seller with written confirmation on or before (date), that upon completion the Seller shall be released, without penalty or cost, from its covenants under the existing mortgage.

This condition is for the benefit of the Seller and the Buyer.

CAUTION: This clause is to be used only in conjunction with the ‘‘New First Mortgage Clause’’ detailing the mortgage to be arranged by the Buyer.

Such a clause should be reviewed by the seller’s lawyer.

(6) Sale Price Insufficient To Cover Financial Encumbrances

Licensees should be aware that, in some instances, sellers may find themselves unable to clear title as their financial obligations are greater than they expected and exceed the proceeds of the sale. Examples of this might occur when penalties are applied for the early pay-out of a mortgage, interest has accumulated if mortgage payments have fallen into arrears, or if a lien against the property is unsatisfied. The amounts of these sorts of financial obligations can be very substantial and, when combined with commissions payable, may create a circumstance where the seller has no practical remedy and the transaction collapses, leaving the buyer, the seller and the licensees involved all in regrettable positions with potential legal implications.

At the time of listing a property, it is a prudent practice for licensees to discuss with a seller their obligation to clear title and the nature of the expenses they will face at closing. Licensees should advise their seller-clients to review the terms of their mortgage, as well as to seek written confirmation from their lending institution of the amount of any outstanding mortgage balances, accrued interest, or penalties. A seller who is planning on acquiring another property, based on the sale of an existing property, may also want to familiarize himself or herself as to the portability of his or her existing mortgage and any terms, conditions and time limitations that may apply.

Licensees who advise and assist their clients in obtaining clear and certain information as to their financial obligations at the time of listing a property, place their clients in a position of being able to make informed decisions when considering any offers. This ultimately sets the stage for a smooth completion without surprises.

In the event there is any question whether the sale price is sufficient to cover financial encumbrances and real estate commission, licensees should protect the seller (and themselves) by use of the following clause in the contract:

Financial Obligations Exceed Sale Price Clause

Subject to the Seller’s confirmation and satisfaction with the arrangement of financial affairs, on or before (date), which enable the Seller to proceed with this sale.

This condition is for the sole benefit of the Seller.

Ω If not using the standard form Contract of Purchase and Sale, refer to ‘‘Contracts under Seal’’.

(7) Seller To Take Back First Mortgage

It is recommended that preparation of all seller-take-back mortgages be referred to the seller’s lawyer.

Seller To Take Back First Mortgage Clause

The Seller will take back a first mortgage, in a form acceptable to the Seller (which form will be provided by the Seller on or before (date) and approved by the Buyer on or before (date) , in the amount of $ (amount) at an interest rate of % per annum calculated (select either half-yearly or monthly) , not in advance, with a ___-year amortization period and ___-year term and repayable in blended payments of $ (amount) per month including principal and interest (plus 1/12 of the annual taxes, if required by the Seller).

The mortgage will provide that if the Buyer disposes of or agrees to dispose of the property, the full balance will immediately become due and payable at the Seller’s option. The Seller will draw and register the mortgage at the Buyer’s cost.

The Buyer hereby consents to the Seller obtaining a credit report on the Buyer. Subject to the Seller approving the Buyer’s credit report on or before (date).

This condition is for the sole benefit of the Seller.

NOTE: If the seller is being asked to carry a second mortgage, it is important that the listing agent find out the terms and amount of the first mortgage the buyer is contemplating. The licensee must disclose the amount of the first mortgage when writing subject clauses regarding seller-take-back mortgages. See also ‘‘Additional Mortgage/Agreement for Sale Clauses.’’ Otherwise, the seller may be inadequately secured.

Ω If not using the standard form Contract of Purchase and Sale, refer to ‘‘Contracts under Seal’’.

If the seller has not sought legal advice before signing the offer, a subject clause such as the one found below should be added allowing him or her to obtain such advice.

Lawyer’s Approval of Financing Terms Clause

Subject to the Seller’s lawyer approving the financing terms and conditions on or before (date)

This condition is for the sole benefit of the Seller.

(8) Second Mortgages

The term of the second mortgage should be concurrent with and not exceed the term of the first mortgage.

Ω If not using the standard form Contract of Purchase and Sale, refer to ‘‘Contracts under Seal’’.

New Second Mortgage Clause

Subject to a new second mortgage being made available to the Buyer on or before (date), in the amount of (amount) at an interest rate not to exceed ___ % per annum calculated (select either half-yearly or monthly), not in advance, with a ___-year amortization period, ___-year term and repayable in blended payments of approximately $(amount) per month including principal and interest (plus 1/12 of the annual taxes, if required by the mortgagee).

This condition is for the sole benefit of the Buyer.

(9) Seller Taking Back Second Mortgage

It is absolutely imperative to state the exact amount and details of any first-mortgage financing ranking ahead of the second mortgage to be carried by the seller. Failure to do so could result in a buyer being able to finance a property via the first mortgage in excess of its value, leaving the seller in the bad position of having little or no equity left in the property to protect the seller’s second mortgage.

It is customary for mortgagees to stipulate that mortgage documents will be prepared by their conveyancer at the expense of the mortgagor. It is recommended that this provision be included in the Contract of Purchase and Sale whenever the seller and/or a private investor will be carrying or advancing mortgage money.

**Alert**

Some mortgages may contain a term that provides that the mortgage secures all amounts that the borrower may owe to the financial institution. If the first mortgagor initiates foreclosure, the amount secured by the mortgage may be the amount of the first mortgage as well as any other borrowings, including amounts owed on personal loans or credit cards.

Sellers willing to take back a second mortgage should consider inserting a term in the contract that prohibits the buyer from entering into a mortgage which contains such terms.

 

Seller To Take Back Second Mortgage Clause

The Seller will take back a second mortgage, in a form acceptable to the Seller (which form will be provided by the Seller on or before (date), and approved by the Buyer on or before (date), in the amount of (amount) at an interest rate of __ % per annum, calculated (select either half-yearly or monthly)not in advance, with a ___-year amortization period, ___ -year term and repayable in blended payments of $ (payment) per month, including principal and interest (plus 1/12 of the annual taxes if required by the Seller, if not already being collected by the first mortgagee). Such second mortgage will provide that if the Buyer disposes or agrees to dispose of the property, the full balance will immediately become due and payable at the Seller’s option.

The Seller will draw and register the mortgage at the Buyer’s cost. This condition is for the sole benefit of the Seller.

The Buyer hereby consents to the Seller obtaining a credit report on the Buyer. Subject to the Seller approving the Buyer’s credit report on or before (date)This condition is for the sole benefit of the Seller.

The Seller’s second mortgage is to rank after the (select either new or existing) first mortgage of no more than $(amount) at ___% interest with a term due date of (date) .

Ω If not using the standard form Contract of Purchase and Sale, refer to ‘‘Contracts under Seal’’.

If the seller has not sought legal advice before signing the offer, a subject clause such as the one here should be added allowing him or her to obtain such advice.

(10) Buy-Down of New First Mortgage

Where the seller is buying down a new first mortgage arranged by the buyer, it is recommended that the buy down clause follow the subject to first mortgage clause.

NOTE: This technique is used in periods of high interest rates when the buyer wants a more attractive mortgage rate. The seller is willing to accept a reduction by paying a sum to the mortgagee/broker to accomplish this end. The mortgagee receives a better ‘‘yield’’ on the mortgage. The net result to the buyer is less interest to pay over the term of the mortgage.

Seller To Pay Discount To Buy-Down Rate for Buyer Clause

Subject to a (select either first or second) mortgage being made available to the Buyer on or before (date) , in the amount of $ (amount) at an interest rate not to exceed %per annum, calculated (select either half-yearly or monthly)not in advance, with a ___-year amortization period, ___-year term, and repayable in blended payments of approximately $ (payment) per month, including principal and interest (plus 1/12 of the annual taxes, if required by the mortgagee).

The Seller will pay a discount to the (select either mortgagee or broker) on the  (select either first or second) mortgage arranged by the Buyer, sufficient to yield the mortgagee an interest rate of ___ %** per annum, calculated (select either half-yearly or monthly)not in advance, for a term of  ___ years, but the amount of discount and buy-down costs may not exceed $(amount) in total and will be deducted from the proceeds of sale due to the Seller on completion.

This condition is for the sole benefit of the Buyer.

 

* This is the ‘‘bought-down’’ rate (i.e., what the Buyer wants).

** This is the ‘‘market ’ rate (i.e., what the Lender wants).

Ω If the seller has not sought legal advice before signing the offer, a subject clause similar to the one here should be added allowing him or her to obtain such advice.

(11) Agreement for Sale (Right To Purchase)

Although not in common use, an agreement for sale is a contract for the sale of an interest in land under which the buyer agrees to pay the purchase price, over a period of time and, on full payment, the seller is obliged to convey title to the buyer.

Licensees should note that, when performing title searches, they may discover the notation ‘‘RP’’ or Right to Purchase. This is what the Land Title Office uses to denote an agreement for sale. Agreement for Sale is the term used in the real estate industry to denote a Right to Purchase. Licensees should also note that only one RP can be registered on a title.

The time period involved in an agreement for sale, whereby a seller can take action against a buyer who is in arrears on payments in an agreement for sale, is now the same as that for a mortgage.

Agreements for sale may still be advantageous in certain circumstances, for example, where the seller has an existing mortgage at an interest rate which is lower than current market rate. In that case, the interest rate on the agreement for sale would be at least either the current interest rate or a higher rate than the seller has on the current mortgage. In this case, the clause for an agreement for sale with an underlying mortgage would be the appropriate clause to use. The term of the agreement for sale should be concurrent with and not exceed the term of the first mortgage.

Some lenders do not allow assumption of an agreement for sale. It is important to ensure that the clients have confirmation in writing from either the mortgagee or the mortgagee’s lawyer.

When proposing agreements for sale, licensees should keep in mind the particular requirements of the seller and the buyer. The most important concerns will be the interest rate to be charged, the payments on the agreement for sale and the term of the agreement for sale. The terms of the underlying first mortgage will influence the position of the principals to the agreement for sale.

Agreement for Sale (With No Underlying Mortgage Which Allows Resale) Clause

The Seller will carry the remaining balance of $ (amount) by way of an Agreement for Sale, in a form acceptable to the Seller (which form will be provided by the Seller on or before (date) and approved by the Buyer on or before (date) ), at an interest rate of % per annum, calculated (frequency) not in advance, with a _____-year amortization period, ______-year term and repayable in blended payments of $ (payment) per month, including principal and interest (plus 1/12 of the annual taxes, if required by the Seller).

The Agreement for Sale will provide that if the Buyer disposes, or agrees to dispose of his or her interest in the property, the full amount then owing under the Agreement for Sale will immediately become due and payable at the Seller’s option.

The Seller will draw and register the Agreement for Sale at the Buyer’s cost.

The Buyer hereby consents to the Seller obtaining a credit report on the Buyer. Subject to the Seller approving the Buyer’s credit report on or before (date).

Ω If the seller has not sought legal advice before signing the offer, a subject clause similar to the one here should be added allowing him or her to obtain such advice.

Agreement for Sale (With Underlying Mortgage) Clause

The Seller will carry the balance of $ (amount) by way of an Agreement for Sale, in a form acceptable to the Seller (which form will be provided by the Seller on or before (date) and approved by the Buyer on or before (date) ), at an interest rate of %per annum calculated (frequency) , not in advance, with a (number)-year amortization period and a term to expire (date) ** and repayable in blended payments of $ (payment) *** per month including principal and interest (plus 1/12 of the annual taxes, if required by the Seller). The Seller covenants and agrees to pay the existing first mortgage in favour of according to the terms of the mortgage.

* Amount includes underlying mortgage.

** Term expiry date to correspond to underlying mortgage.

*** In order to protect the Buyer, this amount should be at least as large as monthly payments on the underlying mortgage.

Ω If the seller has not sought legal advice before signing the offer, a subject clause similar to the one here should be added allowing him or her to obtain such advice.

In most cases, the term expiry date of the agreement for sale will correspond with the underlying mortgage. In any event, the parties are advised to seek expert advice from a mortgage broker or accountant with regard to the terms.

Licensees must ensure that the parties are adequately informed regarding their risks if payments on the underlying mortgage are not made.

Licensees should also advise the buyer and seller to seek legal advice regarding their respective risks in this situation.

The Agreement for Sale Clause will contain the following additional provisions:

Agreement for Sale Clause

The Agreement for Sale is subject to an underlying mortgage held by (name) with an outstanding balance of approximately $ (amount) at an interest rate of % per annum calculated (frequency), not in advance, with a ‘‘balance due’’ term date of (date) , and with blended payments of $ (amount) per month including principal and interest.

The Seller covenants to maintain the underlying mortgage in good standing and to pay and satisfy in full when due or when the Agreement for Sale is paid off, and on any failure to do so, the Buyer may pay the underlying mortgage directly, and deduct such payment from amounts owing to the Seller under the Agreement for Sale.

If the Buyer disposes of or agrees to dispose of the property, the full amount then owing under the Agreement for Sale shall immediately become due and payable at the option of the Seller, and any penalty payable because of the resulting prepayment of the underlying mortgage will be paid by the Buyer.

The Seller will draw and register the Agreement for Sale at the Buyer’s expense. The Buyer hereby consents to the Seller obtaining a credit report on the Buyer. Subject to the Seller approving the Buyer’s credit report on or before (date).

This condition is for the sole benefit of the Seller.

Ω If the seller has not sought legal advice before signing the offer, a subject clause similar to the one here should be added allowing him or her to obtain such advice.

(12) Additional Mortgage/Agreement for Sale Clauses

Open (Prepayment in Part) Mortgage Clause

The principal balance may be paid at any time, in whole or in part, without notice, bonus, or penalty.

Open (Prepayment in Full) Mortgage Clause

The principal balance may be paid at any time, in full, without notice, bonus, or penalty.

Penalty (Prepayment in Part) Clause

The principal balance may be paid at any time, in whole or in part, upon payment of an additional (number of months) months’ interest as a penalty and by way of compensation for said prepayment.

Penalty (Prepayment in Full) Clause

The principal balance may be paid at any time, in full, upon payment of an additional (number of months) months’ interest as a penalty and by way of compensation for said prepayment.

Some lenders require an interest differential in lieu of or even in addition to a prepayment privilege commonly called a penalty. This amount is usually the loss of interest for the balance of the term. The licensee must confirm what is payable by a seller as it may affect his or her ability to clear title, pay a commission and/or buy again. A Mortgage Verification letter asking for details should be sent to the lender and kept on file for consultation during the offer presentation to ensure the seller’s status is protected.

A prepayment privilege is a designated amount of interest, usually three to six months, which is normally less onerous than the interest differential.

(xviii) Miscellaneous Clauses

Seller Purchasing Residence Clause

Subject to the Seller entering into an unconditional agreement on or before (date) to purchase another residence.

This condition is for the sole benefit of the Seller.

NOTE: This subject clause is to give a seller the opportunity to acquire a new home before being committed to sell and vacate his or her existing home. From the buyer’s perspective, the subject removal period should be as short as possible.

Friend/Relative Approval (for Buyer or Seller) Clause

Subject to approval of the (select either purchase or sale) by (name) on or before (date) .

This condition is for the sole benefit of the Buyer/Seller.

Ω If not using the standard form Contract of Purchase and Sale, refer to ‘‘Contracts under Seal’’.

(xix) Zoning Approval

Confirmation of Zoning Clause

Subject to the Buyer confirming on or before (date) that zoning for the Property is (indicate desired zoning) .

This condition is for the sole benefit of the Buyer.

This clause may be adapted for other situations where confirmation of specific information is required by the buyer.

Change of Zoning Clause

Subject to the Buyer, at the Buyer’s expense, obtaining final approval of zoning change from (current zoning) to (desired zoning) on or before (date) The Seller will co-operate with the Buyer in the zoning application process.

This condition is for the sole benefit of the Buyer.

(xx) Goods and Services Tax (GST)

[04/09/2013 The following information updated to reflect switch back to GST]
[08/24/2010 The following information updated to reflect switch to HST]

The application of the Goods and Services Tax (GST) to real estate transactions is complex. Generally speaking, GST applies to the sale or rental of real estate unless the sale or rental is exempt.

Exemptions may include but are not restricted to the following: residential rents, sales of used residential housing other than substantially renovated property, sales of personal-use land by an individual or an estate, certain sales of farmland to related individuals where the farmland is for personal use, and most sales and rentals of real property by charities, non-profit organizations and other public-service organizations.

NOTE: Licensees are responsible for the accuracy of any advice they may provide concerning the application of GST to real estate transactions. Both the buyer and the seller should be advised that if they have any questions regarding GST liability, exemptions, or their right to apply for a rebate, they should contact a lawyer, accountant or the nearest Canada Revenue Agency Office.

On April 1, 2013, the Harmonized Sales Tax (HST) was replaced by the federal GST and the BC Provincial Sales Tax (PST).  For any contracts entered into prior to April 1, 2013, and which close after April 1, 2013, there are certain rules for the transition from HST to GST and PST that may impact a buyer or seller’s obligations with respect to the payment of GST or PST. If a buyer or seller has entered into a Contract of Purchase and Sale prior to April 1, 2013, they should contact a lawyer, accountant or the nearest Canada Revenue Agency Office with respect to the application of such transitional rules.

There are brochures and GST memoranda available at Canada Revenue Agency offices that licensees may find useful regarding current rebate limits and exemptions, including the GST New Housing Rebate brochure RC4028(E). Licensees in smaller centres not served by a Canada Revenue Agency office may call 1-800-959-1953. On the Internet, government publications are available at www.cra-arc.gc.ca.

Where the buyer has not received independent advice regarding GST liability, exemptions, or rebates, prior to entering into a Contract of Purchase and Sale, the following clause should be inserted into the Contract:

Receipt of Information or Professional Advice by Buyer/Seller Concerning GST Liability Clause

Subject to the (select either Buyer or Seller) receiving and approving information or professional advice concerning the (select either Buyer or Seller) GST liability, GST exemptions or GST rebates, on or before (date) .

This condition is for the sole benefit of the (select either Buyer or Seller) .

Ω If not using the standard form Contract of Purchase and Sale, refer to ‘‘Contracts under Seal’’.

Before using the following clauses in the written contract, licensees must clearly indicate whether GST, if applicable, is included in the purchase price or if it is in addition to the purchase price. The following clause should be inserted into the contract for this purpose

Purchase Price to Include/Not Include GST Clause

The purchase price to (select either include/not include) GST.

Where the buyer acknowledges responsibility for paying the GST, the licensee should insert the following clause into the contract:

Buyer’s Responsibility to Pay GST Clause

The Buyer confirms the receipt of independent GST advice concerning the obligation to pay GST and will be responsible to pay any GST and apply for any GST rebate in connection with this transaction.

Where, for some reason, the seller agrees to pay GST on behalf of the buyer, the licensee should insert the following clause into the contract:

Seller’s Agreement To Pay GST Clause

The Seller will pay any GST in connection with this transaction and the Buyer will assign any rebate entitlement to the Seller.

Of course, the above-noted clauses can be amended or worded to fit a particular situation.

NOTE: Because of the complexity of the application of the Goods and Services Tax to real estate transactions, it is strongly recommended that licensees not give advice with respect to the application of the Goods and Services Tax to particular situations. If the wrong advice is given, the licensee may be liable for any problems that might arise as a result of incorrect advice.

(xxi) GST and Lease Land

[04/09/2013 The following information updated to reflect switch back to GST]
[08/24/2010 The following information updated to reflect switch to HST]

The following information has been received from the Canada Revenue Agency:

Builders who construct, or substantially renovate, a residential building that is situated on leased land, must self-assess and pay the GST on each unit. This differs from the typical practice of charging GST to the purchaser and remitting that amount to the Canada Revenue Agency.

The GST must be based on the fair market value of each unit as it is completed or at the time a purchaser takes possession, whichever comes later. Normally this would mean that the builder would self-assess based on the current GST rate X the fair market value (before tax) of the unit at the time the transaction is complete. With respect to the New Housing Rebate which may be available to the purchaser, the value of the leased land must be excluded from the calculation. The value of the leased land is a question of fact and will vary depending on the circumstances of each case.

If you have any questions or require further information regarding this subject, please contact your local Canada Revenue Agency Office, Business Enquiries line.

(xxii) Disclosure Issues
(1) Wood Burning Stoves/Fireplace Inserts

Licensees should be aware that there are several factors which affect fire insurance coverage on dwellings which contain a wood burning appliance. Although the BCREA Property Disclosure Statement addresses the issue, it does not, in itself, provide sufficient evidence that the property is insured, or is insurable.

The following issues should be addressed:

    1. The wood burning unit itself must have the appropriate CSA, UCL or other required approval, or, failing that, specific individual approval by the Insurer.

    2. The chimney must meet current municipal building code and/or insurer’s specifications.

    3. The wood burning unit must be installed with clearances and a non-combustible base that complies with municipal and/or insurer’s specifications.

    4. Application for insurance coverage must be made and notice given to the insurer that the dwelling contains a wood burning device. The insurer may then accept, surcharge or refuse the application.

A buyer of property where a wood burning device is included should be made aware of the previously mentioned factors and the following notation should be included in the Contract of Purchase and Sale:

Wood Burner May Void Insurance Clause

The Buyer acknowledges and accepts that the (select either wood stove or fireplace insert and/or chimney) installed on the property may not be approved for legal use and may render any fire insurance void.

If required, the following condition may be added to the contract:

Wood Burner Insurance Confirmation Clause

Subject to the Buyer obtaining confirmation from his or her insurance agent on or  before (date) that the (select either wood stove or fireplace insert and/or chimney) installed on the property will not void his or her fire insurance coverage.

This condition is for the sole benefit of the Buyer.

(2) Fire/Property Insurance

Insurance companies are more frequently declining applications for insurance coverage from individuals who have a bad insurance claim history. If, in the opinion of the insurance company, an individual has had too many claims, the insurance company may decline to provide fire/property insurance. The individual may have an existing policy in place with an insurance company but when he or she attempts to insure a different property, he or she finds the insurance company no longer wants his or her business.

A second scenario involves the property itself. The current owner of a property may have had insurance on that property for many years and the insurance company continues to provide fire/property insurance. However, when the property is sold and a new buyer applies for insurance, the insurance company may deem at that time that the property no longer qualifies for insurance coverage. This could arise where the electrical service is less than 100 amps, or the roof is old (perhaps 25 years or older), or where the home contains galvanized plumbing, old wiring, or a wood stove that has not passed inspection. With the exception of wood stoves, the insurance provider may consider these unresolved maintenance issues.

In a typical real estate transaction, the issue of fire/property insurance is not addressed until after the conditions are removed and, in some cases, closer to completion date. If the buyer is unsuccessful in obtaining fire/property insurance, the mortgage company is not protected and will not provide mortgage funds. The end result may be a collapsed transaction, the buyer’s deposit may be at risk, and the seller may suffer losses as a result of the transaction not proceeding.

To adequately protect your clients, the issue should be discussed with your client, including the potential problems that might arise if the buyer were unsuccessful in obtaining insurance. The buyer should decide if a clause should be included in the offer to confirm that the property and the buyer qualify for insurance coverage. The following sample clause could be included in a Contract of Purchase and Sale in such circumstances.

Fire/Property Insurance Clause

This offer is subject to the Buyer obtaining approval for fire/property insurance, on terms and at rates, satisfactory to the Buyer, on or before (date) .

This condition is for the sole benefit of the Buyer.

Ω If not using the standard form Contract of Purchase and Sale, refer to ‘‘Contracts under Seal’’.

(3) Property Disclosure Statements (PDS)

Separate disclosure forms now exist for Residential, Strata Title Properties and Farms and Acreage. Licensees are advised to use the correct disclosure statement. The specific Property Disclosure Statement forms, while not mandatory under RESA, assist sellers and licensees in providing information about known defects. Licensees should consider the following points regarding the PDS, property inspections and disclosure:

    1. It is important to use the right PDS for the type of property being listed; e.g., use a strata title PDS for strata title properties.

    2. Because use of the PDS is not required by law, some sellers may not want to complete it. This does not, however, absolve a seller from his or her obligation to disclose any known material latent defects in the property to a buyer and similarly does not relieve the listing agent from disclosure of any known latent defects to a buyer or his or her agent. A seller who does not wish to complete a PDS should be reminded of this fact.

    3. Given that the PDS is widely used, a buyer’s agent could be negligent if he or she did not inquire if a PDS exists, and if so, to obtain and provide a copy of the form to the buyer. The PDS should also be incorporated as part of the Contract of Purchase and Sale.

In order to state clearly that the PDS is to become part of the Contract of Purchase and Sale, the following clause must be inserted in the contract:

(xxiii) Property Disclosure Statement Clause

Property Disclosure Statement Clause

The attached Property Disclosure Statement dated (date) is incorporated into and forms part of this contract.

If the PDS is not available before the offer is written, then a subject to clause should be inserted in the offer to allow for delivery and approval of the applicable PDS.

Buyer Approving the Property Disclosure Statement Clause

Subject to the Buyer on or before (date) obtaining and approving a Property Disclosure Statement with respect to the information that reasonably may adversely affect the use or value of the property.

This condition is for the sole benefit of the Buyer.

If approved, such statement will be incorporated into and form part of this contract.

NOTE: These documents have been produced by BCREA. The instruction here does not apply to any other generic disclosure statements produced elsewhere.

It is advisable for the licensee to provide, on the contract, a deadline by which the seller will provide the appropriate PDS and a slightly later deadline by which the buyer will approve or reject it.

Licensees will find it helpful to colleagues to leave copies of the disclosure statement available for review when the property is being shown.

(1) Disclosing Defects: How the Law Works

Licensees should be aware of the B.C. Supreme Court decision in Curtin v. Blewett.

The Curtins bought a strata property from the Blewetts. The PDS was incorporated into the Contract of Purchase and Sale.

The sellers answered ‘‘NO’’ to question #25 on the PDS which asked ‘‘Are you aware of any infestation by insects or rodents?’’

The sellers had a previous termite problem in March 1997 which they considered solved after treatment and a 10-year guarantee. There were no further problems up to the time the buyers took possession, and shortly thereafter, the termites appeared again.

The judge held that the sellers were not at fault because the question and others that start ‘‘Are you aware’’ is in the present tense and did not refer to past infestations.

The judge also held that there was no fraudulent misrepresentation on the seller’s part. The representation regarding infestation was not false at the time they made it.

The buyers apparently removed the subject to inspection clause without getting an inspection.

The judge quoted Mr. Justice Boyle in Arsenault v. Pedersen et al. who made the following comments about the PDS:

    I have no idea who drafted those questions but they are clearly drawn in a manner offering more protection to a vendor than to a purchaser and in a manner to provide a sales person or vendor with an air of rectitude which might not on all occasions be deserved even given the cautionary line: ‘‘buyers are urged to carefully inspect the property and, if desired, to have the property inspected by an inspection service of their choice’’.

The disclosure statement does not call upon a vendor to warrant a certain state of affairs. It requires the vendor to say no more than he or she is or is not aware of the problem.

Licensees who act for buyers should caution their clients that questions on the PDS worded ‘‘Are you aware…’’ refer only to the present tense. A negative answer does not mean that there has not been a problem in the past or that a past problem will not recur.

Buyers should be advised to obtain an independent inspection, even if a PDS exists and is incorporated into the contract.

(xxiv) Property Inspections

In recent years, pre-purchase property inspections have become more common in the marketplace. The Council considers this a positive development in that a property inspection will assist the buyer in understanding, prior to the purchase, the condition of the property and what repairs may be necessary.

For this reason, a buyer’s agent should always advise a buyer to have an independent inspection of a property and the licensee should explain the importance of why such an inspection is necessary and that licensees are typically not qualified to provide home inspection advice. If a buyer chooses not to have an inspection, the agent’s advice to do so should be documented. This documentation can take one of several forms.

Some market areas and/or agents have developed a contract addendum that specifies additional terms to be included in all Contracts of Purchase and Sale. Such an addendum might include a clause such as the one that follows, when the buyer is to have the property inspected.

Inspection of Property Clause

Subject to the Buyer, on or before (date) at the Buyer’s expense, obtaining and approving an inspection report against any defects whose cumulative cost of repair exceeds (select a monetary value) and which reasonably may adversely affect the property’s use or value.

The Seller will allow access to the property for this purpose on reasonable notice.

This condition is for the sole benefit of the Buyer.

Alternatively, where such a preprinted addendum is not used and the buyer chooses not to have the property inspected after having been so advised, the licensee should provide separate documentation of this fact by way of a letter addressed to the buyer confirming that on a particular date, the buyer was advised to have the property inspected but chose not to do so. A copy of this confirmation letter should be kept in the brokerage’s transaction file.

In some cases, in addition to a buyer wanting to have the property inspected, a seller may also want such an inspection before listing the property for sale so that the seller is aware of what issues the property inspection report may identify.

If a licensee intends to refer clients to a property inspector, the safest way to do so is to provide a list of at least three professionals with whom the licensee, or others he or she knows, has dealt and have the client call, interview, and select them independently. It is recommended that licensees avoid ‘‘steering’’ buyers towards particular service providers or communicating information about their fees.

Effective March 1, 2009, providing a property inspection for a fee became an activity for which a licence is required. Consumer Protection B.C. is the agency responsible for property inspector licensing. For further information, visit www.consumerprotectionbc.ca.

Licensees should exercise care in selecting those to be included in this list of service providers. Before making a referral, licensees should, ensure the individual is properly licensed, consider the inspector’s experience and credentials and also what insurance coverage the inspector carries, such as errors and omissions insurance, liability insurance and worker’s compensation coverage.

Once a buyer has determined which property inspector is to be used, licensees must respect the client relationship this creates between the buyer and the property inspector. The buyer is paying the property inspector for professional advice with respect to the condition of the property he or she is considering purchasing. Licensees should not attempt to thwart that relationship either by downplaying the importance of deficiencies noted by property inspectors or by making disparaging comments about the buyer’s choice of property inspectors.

As with any subject clause, the length of time allowed for its removal should be reasonable while not being unnecessarily long. In the case of property inspections, sufficient time is required to arrange and conduct the inspection, prepare the report, and have the report reviewed by the buyer. The goal is to ensure the buyer has full knowledge of the results of the inspection and, if necessary, clarification from the inspector or any other qualified person as required.

In order to avoid the possibility or even the appearance of a conflict of interest, licensees are advised not to pay the cost of the inspection report on behalf of a buyer. If the licensee were to pay, the inspector could be suspected of not wanting to jeopardize the transaction of the person paying him or her, who might or might not ask for his or her services in the future, depending on the conclusions of the inspection report.

Finally, as with any referral, section 5-11 of the Rules requires that if a licensee is to receive a referral fee or other consideration from a property inspector, this must be disclosed in writing to the licensee’s client.

A question often arises whether the seller’s agent should be present during the inspection. The Council recommends that the seller’s agent either be present or obtain permission from the seller that the seller’s agent is not required to be present during the inspection. In making this decision, the seller should be advised whether the buyer and/or the buyer’s agent intend to be present when the property inspector views the property. If the seller agrees that the seller’s agent does not need to be present, the seller’s agent should obtain the full name and address of the inspector as well as information on whether the inspector is bonded.

(xxv) Health and Environmental Concerns

[03/01/2013 The following section was updated with new information]

Buyers and occupiers of real estate are becoming more aware of health, safety, and environmental aspects of property they intend to purchase and/or occupy. Legislation reflects those concerns and mandates ever more stringent levels of safety, greater disclosure and broader responsibilities and liabilities for these matters. Buyers, sellers, and current and former owners are variously included in that responsibility and potential liability.

Asbestos insulation (see Asbestos Awareness is a Licensee’s Responsibility) and urea formaldehyde foam insulation have already attracted interest as possible health risks.  The presence of radon gas (see Radon Gas – A Health and Environmental Concern in some areas of the Province), lead pipes and even lead-based paint has become a greater concern to some buyers. Currently, no B.C. ruling requires the disclosure of the presence of a high-voltage transmission line in a neighbourhood nor of a psychologically impacted residence. However, for personally valid reasons, some consumers may well be motivationally affected by the proximity of a power line or knowledge of a death or other tragedy on a property.

 Aware of these and similar problems, a prudent buyer’s agent will take adequate steps to ensure that the client is fully informed and protected. A seller’s agent, on the other hand, must obey the client’s lawful instructions on whether or not to reveal such information but also must avoid committing fraud or misrepresentation. If there is a sound factual basis for suspecting that information from a seller is incorrect or misleading, the licensee has a duty to verify it.

(1) Contaminated Sites – Site Profile

[03/01/2013 The following section was updated with new information]

Contaminated sites legislation in B.C. requires that a site profile (Schedule 1 of the Contaminated Sites Regulation) must be provided if the owner or the occupier of land is performing any scheduled activities and if the owner is applying for subdivision, zoning, development or variance permits, soil removal, or demolition, or if the property is for sale.

The site profile must be provided to a potential buyer (unless the buyer waives this requirement in writing) of property, which the seller knows or reasonably ought to know was used for industrial or commercial purposes. Such purposes are listed in Schedule 2 of the Regulation. The profile must be given to the potential buyer at least 30 days before the transfer of the property, but if closing is less than 30 days from the date of the Contract of Purchase and Sale, then it must be given before the date of the contract.

The seller is exempted from providing the profile if: (a) an accurate site profile already exists in the Contaminated Sites Registry (access by BC Online at www.bconline.gov.bc.ca); (b) the site has already been determined to be a contaminated site; c) if the property is used mainly for residential purposes; or (d) at the time of the Contract of Purchase and Sale, the property had never been zoned for any other use than primarily residential. The Site Registry is an important source of information for buyers and their agents when conducting their due diligence searches.

Buyers can be put at great financial risk in the case of an unexpected or undisclosed environmental problem because the liability for remediation is absolute, retroactive, joint and several. Licensees are cautioned that the failure to inform sellers that a site profile may be required might be considered professionally negligent.

Licensees must discuss these issues, like others, with their client to ascertain the level of importance of each to the client. If the client wishes the licensee to do so, he or she should include a reference to the issues involved in the Contract of Purchase and Sale as they may be of material concern to the client for health reasons. In this case, the licensee should write subject to clauses covering the confirmation of required information.

The Ministry of Environment has developed a Fact Sheet for real estate licensees, sellers and buyers at this link: www.env.gov.bc.ca/epd/remediation/fact_sheets/pdf/fs11.pdf

Further information about Site Profiles can be found at this link: www.env.gov.bc.ca/epd/remediation/site_profiles/index.htm

(2) Special Knowledge Areas

**Alert**

Licensees should ensure that the public understands the scope of potential issues of concern. Clients and customers should be encouraged to disclose to the licensee particular issues they may wish to incorporate into any contract. Licensees must stress that it will be the client’s responsibility to research those issues to their satisfaction.

Just as there are different specialties within the real estate industry, so there are differences between urban and rural real estate practices, many of which can represent potentially dangerous liabilities for the practitioner who does not acquire local knowledge. A referral to a local professional may be the most responsible step to take on behalf of a buyer or seller.

The following section deals with some of the issues facing licensees in various areas of B.C. There may be additional local issues with which a licensee must be familiar. It is up to the licensee to research the local area, obtain advice, and ensure that the buyers and sellers with whom he or she is working are informed of all pertinent concerns.

The following list suggests a few of the issues which may require investigation. The Professional Standards Manual deals with some of these topics, but the prudent licensee will investigate further:

(3) Special Concerns with Rural Land

Specific rural problems that occur in significant numbers of Errors and Omissions claims include the inadequacy of sewage disposal fields and the quantity and quality of water supply.

See also information on harvesting timber and underground storage tanks.

(4) Asbestos Awareness is a Licensee’s Responsibility

[11/20/2012 The following section was added to the Professional Standards Manual]

WorkSafeBC is working to increase awareness about asbestos health and safety hazards relating to those undertaking repairs, renovations or demolitions in residential properties, whether done by property owners themselves or contractors. WorkSafeBC reports that incidences of asbestos related disease are increasing.

If not handled correctly, workers are in danger of inhaling asbestos-contaminated air and serious chronic health problems can occur. These diseases will not affect you immediately; they often take a long time to develop, but once diagnosed, it is often too late for corrective treatment. For licensees, heightened asbestos awareness is relevant when providing real estate services to buyers, sellers, landlords and strata corporations who are considering acquiring, disposing of, renovating, demolishing or undertaking repairs to a property that may have asbestos containing materials. This need for awareness applies equally to licensees who provide trading, rental or strata property management services. As licensees are regularly reminded, the Council expects licensees to take appropriate steps to alert their clients to the existence of known health or environmental concerns. This would include advising clients to have a property inspected for the presence of asbestos in advance of undertaking any of the activities described above and, further, alerting clients to the consideration of the costs, which may be substantial, associated with the removal of materials that contain asbestos.

Licensees will find a safety, health and environmental inspection/testing/government approval clause below that would be appropriate to be used by licensees representing buyers, who are offering to purchase a property in which there may be materials that may contain asbestos.

This clause is also found in the online version of the Professional Standards Manual.

According to WorkSafeBC information, building materials containing asbestos were commonly used in construction until around 1990. Materials used that may contain asbestos include, but are not limited to, insulation; shingles and felt for roofing; exterior siding; pipe and boiler covering; compounds and cement, such as caulk, putty, roof patching, furnace cement; wallboard; texture coat; acoustical ceiling tiles and plaster; vinyl floor tiles; linoleum; and wiring. Loose-fill vermiculite insulation may also contain traces of asbestos.

Licensees will find many useful online sources about asbestos and asbestos removal, which they and their clients may wish to review, including information provided by WorkSafeBC, Canada Mortgage and Housing Corporation, the Provincial Government, and many municipalities throughout the Province. Here are links to just a few:

(5) Radon Gas – A Health and Environmental Concern in some areas of the Province

[06/19/2012 The following section was added to the Professional Standards Manual]

All Licensees are reminded that they are expected to demonstrate competency and apply reasonable care and skill in their provision of real estate services to their clients, whether those services are trading, rental property management or strata property management services. In order to demonstrate competence a licensee must be knowledgeable about local environmental conditions that may be material to the interests of their clients, be they buyers, sellers, landlords, tenants or strata corporations. While licensees are not expected to be experts in all areas that impact real estate, they are expected to be alert to potential environmental/health concerns in the areas in which they practice and are obliged to advise clients to seek independent professional advice on matters outside of the expertise of the licensee.

An example of an environmental/health concern affecting real estate that has been widely reported is the presence of radon gas in some areas of the Province. The links below are excellent sources of information on radon gas that licensees may wish to review and direct any clients to, who may be impacted by the potential for the presence of radon gas in a property they occupy, are considering selling or buying.

www.healthlinkbc.ca/healthfiles/hfile42.stm
www.cmhc-schl.gc.ca/odpub/pdf/61945.pdf

The Council expects licensees to take appropriate steps to alert their clients to the existence of known health or environmental concerns, in the geographic area(s) in which they provide real estate services. A prudent licensee may wish to research and be able to provide suggestions as to where clients may obtain factual information and independent advice such as the links provided above. In addition to radon gas, this expectation would apply to other environmental/health considerations that impact real estate, including but not limited to, underground oil storage tanks, asbestos, sewage, suitability of site topography and water potability.

(6) Underground or Above Ground Heating Oil Storage Tanks

[05/09/2013 The following section was updated with new information]
[11/17/2011 The following section was updated with new information]

Licensees involved in the listing or sale of a property that contains, or may contain, an underground or above-ground heating oil storage tank (OST) should be aware that the presence of an OST can, because of the potential environmental concern, expose sellers and buyers to significant financial loss and liability. If the presence of an OST is either known or suspected, both buyers and sellers should be advised to seek the advice of an environmental professional as well as legal advice about their obligations and potential liabilities.

Many homes built before 1970 were heated using oil that was stored in an underground or above-ground OST. When homes were later converted to natural gas or electricity, underground tanks were not usually removed from the property; instead, the tanks were commonly left in place, filled with sand and capped. OSTs that remain buried may have rusted and corroded. If oil remained in the tank, leaking of that remaining oil could cause (or may already have caused) contamination of the property and adjacent properties. 

What to do if you are representing a seller 

If a seller is aware of an unused or abandoned OST, the seller has an obligation to disclose this fact in cases where the OST constitutes a material latent defect.  While an unused or abandoned OST may not be necessarily considered a material latent defect under all circumstances, it seems clear, at a minimum, that a court would find an OST to constitute a material latent defect if actual leakage could be shown to have occurred. Of course, any representation about an OST on a disclosure statement made by the seller must be accurate, and a licensee acting for a seller must not be party to a representation that he/she knows to be incorrect.  A seller may need to consult an environmental and legal professional as to whether the tank in question is a material latent defect. 

Where a seller is not aware of an unused or abandoned OST, but the licensee has reason to believe that an unused or abandoned OST may be present on the property, there is at least a possibility that an OST, if found to be present, would be considered to be a material latent defect.  The courts have also held that a licensee acting for a seller has a duty “to check the completeness and accuracy of all information which it is usual and customary for brokers to verify.”  Accordingly, it may be prudent for a licensee to advise the seller-client to take the steps necessary to determine whether in fact an OST is present, so that the later discovery of a tank, either before completion or after the sale of the property, does not leave the seller exposed to significant potential liabilities and expenses. 

What to do if you are representing a buyer

If a licensee representing a buyer has knowledge that a property contains an unused or abandoned OST, the licensee has a duty to make this fact known to the buyer-client and to advise that the presence of the OST can, because of the potential environmental concern, expose the buyer to significant financial loss and liability. If, on the other hand, a licensee acting for a buyer is not aware of an unused or abandoned OST, but suspects (or reasonably ought to suspect) the presence of an OST based on such factors as the age of the property, then section 3-3(1)(h) of the Rules requires the licensee to use reasonable efforts to determine whether an OST is present.  If the licensee’s own efforts do not answer the question, then section 3-3(1)(d) of the Rules requires the licensee to advise the buyer-client to seek any necessary professional advice, such as the advice of an environmental engineer or consultant, and possibly legal advice as well. 

What to do if you are acting as a limited dual agent

A licensee acting as a limited dual agent has a duty to be impartial to the interests of both the seller and the buyer, and must ensure that any advice about the presence or suspected presence of an OST given to one party is also given to the other.  The duty of impartiality means that if an OST is discovered after acceptance of an offer, the licensee cannot provide advice to either party, and should recommend that both the seller and the buyer seek independent legal advice. 

What to do if an OST does exist

Where it has been determined that an OST does exist, licensees and their clients should be aware of BC Fire Code provisions for the decommissioning of an underground OST that require the use of good engineering practices when removing, abandoning in place, or temporarily taking out of service, an underground OST. Additionally, licensees should refer their clients to the BC Ministry of Environment Fact Sheet entitled Residential Heating Oil Storage Tanks, which sets out concise and valuable information and advice. This Fact Sheet, and other useful information and links, can be found at the Ministry of Environment’s website at www.env.gov.bc.ca/epd/remediation/residential-heating/index.htm

Further, licensees must ensure that they or their clients enquire at their local government  (city/municipal/district/regional) office as to any bylaws, restrictions or permit requirements concerning unused or abandoned OSTs, as local governments have differing requirements and provisions for enforcing the removal or abandonment of underground or above-ground OSTs (usually administered by the local fire department). This is particularly important in areas where underground or above-ground storage tank removal enforcement is a priority. 

Lending institutions and insurers should also be consulted as they may also have corporate policy regarding underground or above-ground OSTs. 

When drafting contracts with respect to properties containing underground or above-ground OSTs, licensees should familiarize themselves with the information found in the Safety, Health and Environmental Disclosure Clauses section of the Professional Standards Manual, which can be found online at www.recbc.ca/psm/safety-health-and-environmental-disclosure-clauses/.

(7) Safety, Health and Environmental Disclosure Clauses

NOTE: The clauses in this section may be used for a wide variety of situations involving possible latent defects. Some clauses allow a seller to disclose or warrant and the buyer to acknowledge and accept (or accept the warranty of) the latent defects previously described. They can be used for situations not adequately covered by a Property Disclosure Statement.

Examples include, but are not limited to:

  • potability of water;
  • quantity of water;
  • adequacy of sewage disposal/treatment;
  • suitability of site topography;
  • drainage;
  • soil quality;
  • urea formaldehyde insulation;
  • asbestos;
  • underground oil storage tanks; and
  • contaminated material.

Inspection/Testing/Government Approval Clause

Subject to the Buyer receiving and being satisfied with a site inspection and report from (select inspecting body or expert tester or government authority) concerning (describe condition) on or before (date) .

The Seller will allow access to the property for this purpose on reasonable notice.

This condition is for the sole benefit of the Buyer.

Ω If not using the standard form Contract of Purchase and Sale, refer to ‘‘Contracts under Seal’’.

Possible Safety, Health or Environmental Condition Clause

The Seller discloses, and the Buyer acknowledges, that the (select either building or property) contains (describe condition) and the Buyer accepts the (select either building or property) in this condition.

UFFI and Asbestos Insulation Disclosure Clause

The Seller discloses, and the Buyer acknowledges, that the (select either building or property) (select either contains or has contained) (type of insulation) and the Buyer accepts the (select either building or property) in this condition.

Seller’s Disclosure Where Condition Has Been Tested Clause

The Seller discloses that the (select either building or property) was tested for (describe condition) on (date) by (name of testing contractor or government authority) .

The results of the test indicated that no (describe condition) was present (select either in or on) the (select either building or property) . As evidence of such testing, the Seller attaches the following documents:

(List)

The buyer accepts the condition of the (select either building or property) in reliance on these documents.

Seller’s Disclosure Where Condition Has Been Removed Clause

The Seller discloses that, although (describe condition) was known to have been (select either in or on) the (select either building or property)such (describe condition) to the best of the Seller’s knowledge, was (select either removed or remedied) on (date) . As evidence of the (select either removal or remedy) , the Seller attaches the following documents:

(List)

Seller’s Disclosure but Corrective Measures Taken Clause

The Seller discloses that the (select either building or property) did have (describe condition) but has undergone the following corrective measures:

(List)

The Buyer accepts the condition of the (select either building or property) in reliance on these corrective measures.

Seller’s Disclosure but Condition at Acceptable Level Clause

The Seller discloses that the (select either building or property) was tested for (describe condition) on (date) by (name of testing contractor or government authority) .

The results for such testing indicated that (describe condition) is acceptable and, accordingly, no further action has been taken.

The Buyer accepts the condition of the (select either building or property) in reliance on this testing.

Seller’s Warranty Clause

The Seller warrants that, to the best of the Seller’s knowledge, the (select either building or property) does not have (describe condition) .

Buyer’s Site Profile Clause

Subject to the Buyer reviewing and approving the site profile on or before (date) .

This condition is for the sole benefit of the Buyer.

Ω If not using the standard form Contract of Purchase and Sale, refer to ‘‘Contracts under Seal

Seller’s Site Profile Clause

The Seller, at his or her expense, will provide to the Buyer a completed site profile (Schedule 1 of the B.C. Contaminated Sites Regulation) for the subject property on or before (date) . The Seller warrants that the information contained therein is true and correct to the best of the Seller’s knowledge.

**Alert**

Sellers should be advised that the seller is responsible for all contamination on the property that the seller fails to disclose to a buyer. Sellers should be encouraged to obtain a site profile at the time the property is sold in order to prevent a buyer from later claiming that the property was contaminated.

5. Strata Sales

[04/01/2015 Content revised]

NOTE: Licensees who have a limited experience in strata property transactions should seek guidance from their managing brokers. This is a complex area of real estate where unforeseen hurdles can cause serious problems for licensees and the public. Licensees may also learn more about strata sales by participating in continuing professional education courses about condominium law, such as those offered from time to time by the Real Estate Boards and by the Real Estate Institute of British Columbia.

(a) Strata Developments – The Basics

(i) General

Licensees must exercise reasonable care and skill in the performance of their duties. They should take special precautions in the sale of any strata property to ensure that they are not involved in any misrepresentation, either by omission or by incorrect statements.

In the sale of strata properties, exercising reasonable skill and care includes the obligation to ascertain and provide buyers with current information respecting strata corporation bylaws, rules, finances, and restrictions or prohibitions relating to the use of the strata lot, and other matters that may affect the strata lot’s value or use. The Strata Property Act assists in this process by providing a mechanism for access to a great deal of information concerning a strata corporation. It requires that much of this information be certified by the strata corporation. While the process may be time consuming and complex, it should be followed rigorously.

These guidelines are intended to assist licensees in the performance of their duties. They explain various situations licensees may encounter and must be able to handle on behalf of clients.

(ii) Governing Legislation

The Strata Property Act, as amended by the Strata Property Amendment Act and including the Strata Property Regulation (the ‘‘Regulation’’), came into force July 1, 2000. The Strata Property Act replaced the Condominium Act. Since July 1, 2000, the provincial government has further amended both the Strata Property Act and the Regulation. Licensees can obtain a consolidated version of the Strata Property Act, together with the Regulation, on the Provincial Government’s Strata Property website www.gov.bc.ca/strata. This site contains helpful advice on numerous matters relating to the operation of the Strata Property Act and other pertinent information affecting strata corporations. A consolidated version of the Strata Property Act and the Regulation can also be ordered for a fee from BC Laws at www.bclaws.ca.

Licensees should ensure they reference the most current version of the Strata Property Act and Regulation as amendments occur regularly.

(iii) Strata Governance and Compliance

The Strata Property Act regulates the creation and operation of strata corporations. A strata corporation is a unique form of real estate development that permits multi-unit developments, each with an individual title, to be created on a single parcel of land. Strata plans may be filed to create multi-unit developments ranging in size from two to hundreds of units. The units may be for residential, commercial, industrial, or recreational use or some combination of these various uses. When a strata plan is filed in the Land Title Office, a strata corporation is created. Thus, a two unit duplex may be a strata corporation.

The Strata Property Act and Regulation govern the operation of all strata corporations created in British Columbia. Some of the operational requirements are that every strata corporation must have bylaws, it must hold annual general meetings and keep minutes of the meetings, it must retain records relating to the strata corporation, the owners must approve a budget annually and the strata corporation must maintain operating and contingency reserve funds.

Regardless of the size or way in which the units are to be used, the Strata Property Act and the Regulation apply to govern the strata corporation’s operation. Although provincial legislation applies to all strata corporations, there is no government body that enforces the legislation to ensure that strata corporations comply with the legislative requirements. As a result, some strata corporations will comply diligently with the governance requirements, while others will consider the legislation as a noncompulsory guide and others, particularly smaller strata corporations, may ignore the legislative requirements completely.

A strata corporation that retains a third party management company to assist in the management is more likely to comply with the legislative requirements, however there are many self-managed strata corporations that are well informed regarding the requirements of the legislation and are diligent in their efforts to comply. Small strata corporations tend to be less familiar with the requirements of the legislation, and in some cases may deny that the legislative provisions are applicable. It is not uncommon, for example, for duplex owners to deny that they are part of a strata corporation and thus fail to hold general meetings, approve budgets and maintain operating and contingency reserve funds. Some owners even believe that the legislation exempts smaller strata corporations from the need to comply with the legislation. Others believe that the Strata Property Act does not apply to strata developments used for commercial or industrial purposes. Such beliefs are incorrect. Neither the Strata Property Act nor the Regulation contains exemptions from the governance requirements for any strata corporation.  

Some licensees refer to strata corporations that do not hold meetings, or maintain the necessary operating and contingency reserve funds as “non-compliant.” In such strata corporations, meeting minutes, budgets, and/or financial statements may not exist. To ensure that sellers will not be held liable by buyers for the strata corporation’s failure to comply with the legislation and will not be liable to produce documentation that does not exist, listing licensees should insure that any subject clauses requiring the production of documents (other than the request for insurance documents which is discussed below) are deleted. Additionally, listing licensees may wish to include the following clause in the Contract of Purchase and Sale when selling these properties but care must be taken to ensure the strata corporation is “non-compliant” prior to using the following clauses or some variation thereof.

Properties without a Strata Council Clause

The Buyer acknowledges that this strata corporation has not been run in compliance with the Strata Property Act and, in particular, there is no active strata council, there have been no strata meetings, there is no budget, no strata fees have been collected, and there is no operating or contingency reserve fund or financial records.

In such cases, buyer’s agents should recommend that buyers obtain legal advice before becoming committed to buy and may wish to include the following clause making the contract subject to obtaining legal advice.

Subject to Legal Advice

Subject to the (select either Buyer or Seller) obtaining legal advice satisfactory to the Buyer or Seller concerning (select easement, builders’ lien, financing or define applicable issue) _________ by (date).

This condition is for the sole benefit of the Buyer.

Ω If not using the standard form Contract of Purchase and Sale refer to ‘‘Contracts under Seal” ….

However, notwithstanding general non-compliance by the strata corporation with the legislative requirements, a buyer’s agent should obtain a copy of the strata plan and related schedules (if any) from the land title office and the agent should insist on obtaining a copy of the strata corporation insurance documents. The Strata Property Act requires every strata corporation to maintain property insurance on the buildings on a strata plan and to maintain liability insurance. This means that the insurance policy should be in the strata corporation’s name, i.e., The Owners Strata Plan (alpha/numeric sequence identifying the strata corporation). Owners in smaller strata corporations and particularly duplex owners may believe that obtaining personal insurance is sufficient; however, such insurance does not meet the requirements of the Strata Property Act and may mean that the property is NOT insured.

(iv) Types of Strata Plans

The Strata Property Act permits either building strata plans or bare land strata plans. The floors, walls and ceilings of the unit define the boundaries of strata lots in a building strata plan, which is the most common form of strata plan. Unless something different is shown on the strata plan, the boundary of a building strata lot is midway between the surface of the structural portion of the wall, floor, or ceiling that faces the strata lot and the surface of the structural portion of the wall, floor or ceiling that faces the other strata lot, the common property or the other parcel of land. In other words, an owner’s strata lot extends to the center of the structural portion of walls, floors and ceilings.

In a bare land strata development, the boundaries of the strata lot are defined on the horizontal plane by reference to survey markers. In other words, the strata lot is the land. A bare land strata lot appears similar to a lot in a typical single family subdivision; however, the bare land strata lot is part of a strata corporation whereas the lot in a non-strata subdivision is not legally connected to any other lot.

(v) Forms of Ownership

Strata lots may be owned in fee simple or by leasehold where they are created on leased land. A review of the strata lot’s title will reveal whether the development is a freehold or leasehold strata development.

In the majority of strata developments, the developer owns the land being developed in fee simple. After completing the building, or the services if the development is a bare land development, a strata plan is prepared and filed in the Land Title Office. A title is created for each strata lot and the developer is shown as the registered owner in fee simple of each strata lot. Each purchaser acquires a fee simple title to the strata lot purchased. Such developments are referred to as freehold strata developments.

In some cases however, the developer does not own the land being developed but instead wishes to file a strata plan over land that the developer has leased. Only land that has been leased from a public authority that is identified in the Regulation may be subdivided by the filing of a strata plan. Following are the public authorities identified in the Regulation:

  • Government of British Columbia
  • Government of Canada;
  • a municipality;
  • a regional district;
  • a Nisga’a Village or the Nisga’a Nation;
  • a university as defined in the University Act;
  • the Sechelt Indian Band established under section 5(1) of the Sechelt Indian Band Self Government Act (Canada);
  • the Provincial Rental Housing Cooperation; and
  • a board as defined in section 1 of the School Act.

The owner of the land is referred to as the leasehold landlord and the developer is the leasehold tenant. The developer leases the land under a document called a ground lease (sometimes called a head lease). The lease is usually for 50 years or more. After construction of the building, a strata plan is prepared and filed in the Land Title Office. The strata plan is subject to the ground lease. Such a strata plan is referred to as a leasehold strata plan. The Land Title Office creates a fee simple title for each strata lot in the name of the leasehold landlord. The ground lease is then converted to a lease of each strata lot. The developer, as leasehold tenant, is the tenant of each strata lot. The developer sells the developer’s interest as leasehold tenant to a buyer. The buyer obtains the interest of a tenant for the remaining term of the ground lease. The term of the lease diminishes each year. The buyer effectively takes an assignment of the developer’s interest as tenant.

Licensees must obtain a copy of the ground lease/head lease in order to identify the remaining term of the lease and to discover whether the ground lease/head lease is prepaid or whether the lease requires periodic payments.

Listing licensees must identify whether the development is a freehold or a leasehold strata development in order to properly identify the interest being offered for sale and in order to accurately value the strata lot. In all cases where a buyer is considering purchasing a leasehold strata lot, the buyer’s agents should recommend that a buyer obtain legal advice with respect to the terms of the lease and the implications of buying a leasehold strata lot.

(vi) Designation of Property on a Strata Plan

Regardless whether the strata plan is a building strata plan or a bare land strata plan, the strata plan will contain two designations of property, namely strata lots and common property.

The strata lot is identified on the strata plan and, if it is building strata lot, it may include balconies, patios, decks, garages, and in rare cases parking spaces or storage lockers. The strata lot on a bare land strata plan will appear as a plot of land.

Common property is defined, in part, as that part of the land or buildings shown on a strata plan that is not part of a strata lot. In other words, everything that is not part of a strata lot is, by definition, common property.  

Every owner owns their strata lot (or owns the leasehold interest) and all owners also own an interest in the common property as tenants in common. Even though every owner can claim an ownership interest in the common property, the owner’s ability to use the common property may be restricted by bylaws, lease arrangements, or other agreements entered into by the developer or strata council. Licensees should not make assumptions about a purchaser’s ability to use common property and should confirm the use of common property with the strata council. Specifically, the use of parking and storage lockers is discussed more fully below.

The Strata Property Act permits common property to be designated on the strata plan for the exclusive use of an owner or multiple owners. Common property designated in this manner is referred to as limited common property. If property is designated as limited common property, although it continues to be owned by all owners within the strata corporation as tenants in common, it may be used exclusively by the owner whose strata lot is identified on the strata plan as being entitled to use the limited common property.

(vii) Strata Corporation Finances
(1) Operating Fund, Contingency Reserve Fund and Special Levy

Every strata corporation is required to have two funds, namely an operating fund and a contingency reserve fund. The operating fund is used to pay for common expenses that occur annually or more often than annually. The contingency reserve fund is used for the common expenses that occur less often than annually or that do not usually occur.  

A strata corporation is required to approve a budget at each annual general meeting. The budget sets out the annual operating expenses for the strata corporation and will typically include expenses for insurance, utilities, service contracts such as janitorial, elevator servicing, garbage removal,   and repair and maintenance. The budget is approved by a majority vote of the owners at the annual general meeting. Once approved, the operating expenses as set out in the budget are allocated to all owners in proportion to the unit entitlement of each owner’s strata lot relative to the total unit entitlement of all strata lots in the strata corporation, unless a different formula has been approved by unanimous vote. The contribution by the owners to the budgeted expenses forms a portion of the strata fees paid by each owner. The portion required to be paid to fund the budgeted expenses is deposited into the operating fund.  

The budget permits the strata council, on behalf of the strata corporation, to spend the money in the operating fund, on those expenses that have been set out in the budget. There is very limited authority in the Strata Property Act or the strata corporation’s bylaws for spending that has not been authorized by the budget.

Every strata corporation is also required to maintain a contingency reserve fund (the “CRF”). If the amount in the CRF is less than 25% of the total contribution to the operating fund in the prior fiscal year, the strata corporation must contribute the lesser of 10% of the contribution to the operating fund for the current year or an amount that will bring the CRF to 25% of the contribution to the operating fund for the current year. Once the CRF reaches an amount equal to or more than 25% of the total amount budgeted for the contribution to the operating fund for the last fiscal year, additional contributions are determined by the budget process at each year's annual general meeting. In other words, the amount to be contributed to the CRF, once the amount in the CRF reaches an amount equal to or more than 25% of the previous fiscal years contribution to the operating fund, is determined as part of the budget process which is approved by a majority vote. The contribution to the CRF, as set out in the budget is allocated to all owners in proportion to the unit entitlement of each owner’s strata lot relative to the total unit entitlement of all strata lots in the strata corporation. The amount determined by the budget to be deposited to the CRF is included in the strata fees paid by each owner and is transferred from the operating fund to the CRF. Except in limited circumstances, funds may only be withdrawn from the CRF by means of a ¾ vote of the owners at a general meeting.

The Strata Property Act permits strata corporations to also raise money by special levy. A special levy is sometimes referred to as a special assessment, although the term special levy and not special assessment is used in the Strata Property Act. A special levy may be used to raise funds for expenses that occur annually or less often than annually, however, most strata corporations raise funds by special levy for those expenses that occur less often than annually. Often funds are raised by special levy to pay for all or part of a major repair or refurbishment when there are funds in the CRF are insufficient to pay for the work. Each owner's contribution to a special levy is usually in proportion to the unit entitlement of the owner's strata lot relative to the total unit entitlement of all strata lots in the strata corporation. Unless the special levy is to be allocated other than in proportion to the unit entitlement of a strata lot, the special levy must be approved by a 3/4 vote of the owners at a general meeting.  

(2) Expense Allocation

The general rule contained in the Strata Property Act regarding the allocation of expenses is that all owners must contribute to all expenses in proportion to the unit entitlement of the owner’s strata lot relative to the total unit entitlement of all strata lots in the strata corporation.

The Strata Property Act or the Regulation contains limited exceptions to the general rule. If certain conditions are met, some expenses may be allocated to fewer than all owners. In other words, some owners may not be required to contribute to the expense. In addition, the Strata Property Act permits the owners to allocate costs in a manner other than on the basis of unit entitlement if the owners have first approved the new formula by unanimous vote.

(viii) Strata Corporations with Sections

The Strata Property Act permits “sections” to be created for the purpose of representing the different interests of:

  1. owners of residential strata lots and owners of nonresidential strata lots,
  2. owners of nonresidential strata lots, if they use their strata lots for significantly different purposes, or
  3. owners of different types of residential strata lots.

The bylaws of a strata corporation identify whether sections have been created. Each section is a separate legal entity and has the same powers and duties as the strata corporation with respect to matters that relate solely to the section. Sections are often referred to as mini strata corporations.

If the section and strata corporation are in compliance with the Strata Property Act, the section and the strata corporation will each have its own minutes of meetings, budget, strata fees, operating and contingency reserve funds and the section may even have its own bylaws.

When listing a strata lot that is part of a section the listing licensee must determine whether the section has maintained separate documents, and if so, must advise prospective purchasers of this fact. Additionally, the listing licensee may be required to obtain a separate Form B from the section executive in addition to obtaining the Form B from the strata corporation. The Form B is discussed more fully below. If a strata lot is part of a section, a buyer’s agent should ensure that they request copies of both strata corporation documents and section documents.

**Alert**

For the purposes of the following text, when referring to a strata corporation, a licensee should also be aware that they may also require information about the section in which the strata lot is located, if sections have been created.

(ix) Phased Strata Developments

A developer who wants to build a large number of strata lots but does not wish to build all of them at one time can deposit the strata plan in phases over a period of time. Licensees who engage in the sale of strata properties must be aware of the legal meaning and implications of phased developments and what impact this may have on their client purchasers.

When the strata plan for the first phase is deposited, the strata corporation is created. The developer will then proceed to develop the next phase, and, once completed, will file the strata plan for that phase. The strata plan is assigned the same strata plan number as the first phase and the owners in that phase become part of the original strata corporation.

Before a developer can build a development in phases, the developer must prepare a Form P, which is approved by an approving officer and registered against the land to be developed in phases. The Form P sets out the information relevant to the phased development. The Form P contains a schedule of construction, the number of phases and the number of strata lots to be constructed in each phase, the sizes and unit entitlement of the strata lots and the common facilities to be built. The developer is permitted to amend the Form P and can delay the completion of the future phases as well as amend the number of phases, the number of strata lots to be constructed, and the sizes of the units, which impacts the unit entitlement to be assigned to those strata lots. Additionally, developers can elect not to proceed with future phases. Buyers purchasing in early phases of a development should be advised that there can be no assurance that the future development will proceed as planned, or at all and should be advised to obtain legal advice on the implications of buying into a phased strata development.

Buyers of units in subsequent phases should be advised that once they become a member of the strata corporation, they become liable for the expenses that are incurred in any phase of the strata development. Where a phased development has been constructed over a period of time that spans the introduction of the Homeowner Protection Act, strata lots within that phased strata plan may be affected by a variety of warranties. Even if the earlier phases have adequate warranties, buyers in later phases will still be required to contribute to the ongoing repair and maintenance of the earlier phases.

When writing offers for units in new phases of an existing strata corporation, licensees should include the usual new construction clauses as well as clauses that are normally used for resale units. This would include clauses related to receiving the Form B Information Certificate, meeting minutes from all meetings during the past two years (minimum), as well as the other critical documents listed in the ‘‘Additional Strata Corporation Documents’’ section. It is important to note that not all of the information identified on a Form B will be applicable to the purchase of a brand new or preconstruction phased strata unit. However, the Form B remains of material importance because, among other things, the liabilities, contingency reserves and any pending litigation or pending or passed resolutions of the strata corporation, of which the new phase is a part, are disclosed on the form.

Selling strata lots in a phased development, whether the strata lot is in the first phase or a subsequent phase, involves a number of complex issues. The Council recommends that, when assisting buyers with the purchase of a strata lot within a phased strata plan, licensees should advise buyers to seek legal advice.

(x) Strata Developments in Air Space Parcels

The owner of a parcel of land owns not only the surface of the land, but also what exists above and below the surface. The land together with the air space above the land can be subdivided to create separate parcels of land (referred to as the air space parcel(s) and the remainder parcel). Although there will be only one remainder parcel, the subdivision may result in multiple air space parcels. The relationship among the various parcels will be governed by one or more air space parcel agreements. Each of the air space parcels and the remainder parcel may be further subdivided by the filing of a strata plan.

As subdivisions creating air space parcels are occurring with greater frequency, the possibility that a strata development exists within an air space plan is increasing. Licensees should therefore be familiar with the concept of air space plans and be able to advise buyers of the existence of the air space parcel agreement.

Although there are likely many reasons why a developer may choose to develop a parcel of land as an air space parcel development, one of the main reasons is the independent operation of each parcel. Other than the need to interact and cooperate with the owners of the other parcels regarding shared costs and other matters addressed in the air space parcel agreement, decisions regarding the operation of each parcel can be made without regard to the other parcels. A simple example of an air space parcel development is the subdivision of a high rise building into a commercial parcel and a residential parcel. Each parcel is subdivided by its own strata plan. The two strata corporations are separate entities and operate independently from each other. Each strata corporation will have its own bylaws, budget and contingency reserve fund. Each strata corporation will be required to contribute to the shared costs to repair and maintain the structure, elevator, building exterior, roof, and various mechanical and systems that the two parcels share.

Because an air space parcel development is divided into a number of different parcels, it is not necessarily possible to visually identify what physical areas are part of each parcel without reviewing the subdivision plans and the strata plans. For example, the lobby of a building may not be part of the residential strata development located above the lobby. The lobby may be part of another parcel and the residential owners may be permitted to access the lobby to enter the elevator as a consequence of an easement. Because the lobby is not the common property of the residential strata corporation, the residential owners will likely not have any input in how the lobby is decorated or maintained. Some buyers may find such restrictions surprising, and in some cases frustrating.

Although each strata corporation may operate independently of the other, each strata corporation must include in its budget the additional shared costs as required by the air space parcel agreement(s). A review of a strata corporation’s budget should identify the contribution to shared costs that the strata corporation must make and any revenue that the strata corporation is expected to receive from the other parcel(s).

Whether a strata corporation is part of an air space plan can be determined by reviewing the first page of the strata plan for the strata corporation. The description of the land being subdivided, which is set out on the top left corner of the strata plan, will indicate the existence of a subdivision plan. For example:

STRATA PLAN OF LOT X EXCEPT PART SUBDIVIDED BY AIR SPACE PLAN BCP 11111 …

Buyer’s agents should review the strata plan and advise buyers if the strata corporation is part of an air space plan. Being part of an air space plan may have implications in respect of the use and appearance of certain areas of the development. Additionally, being part of an air space plan will have cost implications for the strata corporation. As air space parcel agreements are often complex, buyer’s agents should recommend that the buyer obtain legal advice regarding the implications of the air space parcel agreement.

(b) Obtaining Information

(i) General

Both listing and selling licensees have a general duty to be familiar with property they are intending to market. The ability for the strata corporation to control both the use of the common property and the use of the strata lots, and the need for owners to contribute to repairs of common property are two very significant differences when selling strata lots as compared to single family homes. It is therefore necessary for licensees to be familiar with the strata lot and matters relating to the strata corporation and to obtain as much information as may be necessary to assist the buyer. The process and cost of obtaining the necessary information does not relieve a licensee from this responsibility.

Strata corporations (including strata councils), strata managers, owners who sell their strata lots, and licensees frequently give information about strata matters to others. These parties must ensure that their information is accurate when they know that the recipient will reasonably rely on it. If the recipient suffers a loss because the information is inaccurate or misleading, the person providing the information may be liable for misrepresentation. Even if the information is accurate on its face, but reasonably leads the person to whom it is given to misinterpret it, the person providing the information may be liable.

Following is an explanation of the various documents that may be available when a strata lot is offered for sale.

(ii) Strata Documents
(1) Form B Information Certificate

Under the Strata Property Act, a buyer is entitled to obtain an Information Certificate (known as a Form B). The Form B contains information about the strata lot including the monthly strata fees, whether the owner has entered into an agreement with the strata corporation regarding alterations, and what the owner owes to the strata corporation. The Form B also provides information about the strata corporation such as the amount in the contingency reserve fund, whether the strata corporation is involved in litigation or arbitration and information about the use of parking spaces and storage lockers.

Attached to the Form B must be the strata corporation’s rules, the current budget, the owner developer’s Rental Disclosure Statement, if any, and the most recent depreciation report, if obtained.

Where a strata lot is part of a section, as discussed above, if the section is in compliance with the Strata Property Act the section will have its own strata fees, its own operating and contingency reserve fund, and possibly, its own depreciation report. Thus, a Form B will be required for the section as well as for the strata corporation.

The Strata Property Act references a “current” Form B. Many licensees mistakenly believe that a Form B that is dated within the past 30 or 60 days is current. In fact, a Form B is a snapshot of the current state of affairs in respect of information relating to both the strata lot and the strata corporation. Information such as the amount that the strata lot must pay in strata fees can change if a new budget is approved at an annual general meeting. Thus, if an annual general meeting was held after the Form B was prepared, although the Form B may be less than 30 days old, it may nonetheless be out of date. Similarly, the answer to the question respecting whether the strata corporation has been sued or is subject to arbitration can change in a day.

Because the listing licensee may have obtained the Form B when the licensee listed the strata lot, when providing the Form B to the buyer’s agent, if the listing licensee provides the Form B obtained at the time the strata lot was listed, the listing licensee may be providing a Form B that is not current even though it is less than 30 days old. As there is no way to know whether any of the information on the Form B has changed, the listing licensee should provide a new Form B, or confirmation from the strata corporation that the Form B being provided is current.

Although the Form B is generally of interest to the buyer, the listing licensee should use the Form B as a guide in determining with the seller how parking stalls and storage lockers are to be recorded on the listing. Thus, to ensure they are providing accurate and complete information, it is advisable for the listing licensee to obtain the Form B before they begin marketing a strata lot.

Additionally, the listing licensee should review, with the seller, the portion of the Form B that indicates how much the seller owes the strata corporation to ensure that the seller agrees with the amount and that the seller understands that in most cases the amount will need to be paid to the strata corporation, or arrangements that are satisfactory to the strata corporation must be made, before the strata corporation will issue a Form F. The Form F must be provided to the Land Title Office in order for the sale to complete in most cases. If the seller disputes some of the charges, such as fines, chargebacks for damage, or insurance deductibles, the listing licensee should advise the seller to immediately seek legal advice in order that the matter can be resolved. Waiting until a few days before the completion date to dispute the amount owing is not generally an effective strategy.

**Alert**

In the case where the strata lot is within a section of the strata corporation, a licensee should ensure that a Form B is requested from the strata corporation and the section.

Licensees should note that in some cases, the section and the strata corporation may be managed by different strata management companies.

(2) Form F Certificate of Payment

The Strata Property Act entitles a purchaser, or a person authorized by a purchaser, to obtain a Certificate of Payment (Form F), which must be provided if

    (a) the owner does not owe money to the strata corporation; or

    (b) the owner does owe money but

      (i) the money claimed by the strata corporation has been paid into court, or to the strata corporation in trust, or

      (ii) arrangements satisfactory to the strata corporation have been made to pay the money owing.

The Form F is typically requested from the strata corporation, or the brokerage providing strata management services to the strata corporation, by a lawyer or notary public acting on behalf of either the buyer or seller with respect to the conveyance.

A Form F will not be provided if the owner owes money and has not paid it into court/trust or has not made arrangements satisfactory to the strata corporation to pay the money owing. It would be beneficial for a licensee to determine if there is money owing by the seller to the strata corporation as early as possible to avoid the Form F being withheld.

(3) Additional Strata Corporation Documents

It has long been recognized that the information on the Form B is far from sufficient for a buyer. The Form B does not attach minutes, financial statements, bylaws and other documents that a buyer wishes to review. However, the only documents that a buyer is entitled to obtain are the Form B and Form F. As a result, the right of an owner, the seller, to obtain documents from a strata corporation has often been used to obtain the documents such as minutes and financial statements for the benefit of the buyer.

The Strata Property Act requires strata corporations to maintain and retain certain documents including minutes of annual and special general meeting and council meetings, a list of council members, books of account showing money received and spent, budgets and financial statements, correspondence received and sent, written contracts including insurance policies, warranties, the registered strata plan, court and arbitrator’s decisions, engineering and depreciation reports. Many of these documents will be relevant to a prospective purchaser. The length of time that the various documents must be retained is set out in the Strata Property Regulation.

The Strata Property Act permits owners, certain tenants, or any person authorized in writing by an owner, access to all of the records and documents that the strata corporation must prepare and keep under the Strata Property Act that relate to the period during which the owner or tenant was an owner or tenant.

The common practice for listing licensees to obtain strata corporation documents that are available only to an owner is to be authorized by the owner in order to obtain them from the strata corporation.

The Council has provided licensees with an authorization form entitled “Authorization to Agent to Obtain Strata Documentation” to be signed by an owner that a licensee may present to the strata corporation as evidence of their authorization to obtain the strata corporation’s documents. Additionally, clause 1(B)(i) of the Multiple Listing Contract also contains authority for the listing licensee to obtain information about the listed property from other sources, including a strata corporation. A buyer can then request that copies of the documents be provided as a condition of the contract of purchase and sale. To enable buyers to receive and review the strata corporation documents, selling licensees generally include a subject clause in the contract of purchase and sale requiring the production of various strata documents such as the Form B, current bylaws, registered strata plan, minutes of general and strata council meetings, financial statements, and engineering reports, if any. The buyer can receive only those documents that an owner is entitled to receive. Unless a buyer is specifically authorized by the owner to obtain documents from the strata corporation, a buyer cannot request these documents other than a Form B or Form F directly.

The selling licensee should ensure that all documents that were requested have been made available and that, if some of the documents are not included, an explanation that is acceptable to the buyer has been provided as to why a particular document has not been supplied.    

Of particular concern will be the failure to produce engineering or depreciation reports that the strata corporation has obtained. In some cases, a strata council may be unwilling to release a depreciation or an engineering report because it has not had an opportunity to fully consider the report or alternatively because it believes a second opinion should be obtained. Whether such reasons are valid and properly justify the withholding of the report will not be known. In practical terms however, if a strata council is not willing to release the report, the only means for a buyer to obtain the depreciation report or an owner to obtain a depreciation or engineering report is to apply to the Court for an order that the report be released and provided to the buyer or owner. In the case of a buyer seeking this information, such a solution is impractical and unlikely.

Buyer’s agents who are advised that the strata corporation’s reports will not be provided, should warn their buyers in writing of the risks of proceeding with the purchase of a strata lot when such information is not available and should encourage the buyer to obtain legal advice.

(iii) Land Title Documents
(1) Title Search

A title is issued for every strata lot created by a strata plan. As with any other property, it is essential that a search be conducted to ascertain who owns the property, the status of the property (i.e., fee simple or leasehold) and the nature of encumbrances against the property.

Under the Strata Property Act, an owner exercises many important rights, including access to a strata corporation’s records. In the case of a freehold strata lot, section 1 of the Strata Property Act defines the term ‘‘owner’’ as a registered owner. For example, if a husband and wife buy a freehold strata lot, but only the wife is registered on title as the fee simple owner, the wife is the only person who is an owner for the purposes of the Strata Property Act. In the case of a leasehold strata plan, the Strata Property Act defines the word ‘‘owner’’ to mean the leasehold tenant. Note that in a leasehold strata plan, a leasehold tenant is not the same as a tenant under the Residential Tenancy Act, S.B.C. 2002, c.78. If there is a registered agreement for sale of the strata lot, an owner is the registered holder of the last registered agreement for sale. If there is a registered life estate, an owner is the tenant for life.

(2) Strata Plan and Schedules

The Strata Property Act requires a strata corporation to keep permanently, among other documents, copies of the registered strata plan and any registered amendments. Even though a strata corporation must keep on hand its own copy of the registered strata plan as amended, a licensee should not rely on the strata corporation’s copy of the strata plan. A licensee should look to the Land Title Office for the most reliable and up to date copies of the registered strata plan and any amendments to it. These are important documents to review, regardless whether they are provided by the strata corporation, the sellers, or are obtained from the Land Title Office. If a listing brokerage does not obtain a copy of the entire registered strata plan and any amendments, at a minimum, the listing brokerage should obtain a copy of those portions of the strata plan that show:

  • the page showing the registered strata plan number (or phase) of the strata corporation
  • the overall site plan showing the location of the buildings, etc.;
  • the portion of the site plan showing the particular strata lot and any designation of limited common property in respect of that strata lot;
  • information respecting parking, storage and other amenities that are for the use of the particular strata lot;

Strata plans filed prior to July 1, 2000 contain schedules setting out the unit entitlement of each strata lot, the voting schedule, and the schedule of interest on destruction. After July 1, 2000 the schedule of unit entitlement and the voting schedule are filed separately and must be specifically requested. For strata plans filed after July 1, 2000, there is no longer a schedule of interest on destruction. Following is an explanation of each schedule and its significance to a buyer.

(3) Other Land Title Documents

In addition to the strata plan, the Land Title Office maintains a Common Property Record and a Strata Plan General Index. These documents must be obtained separately from the strata plan and contain the following information.

(4) MyLTSA

In addition to the availability of Land Title Office search facilities through a real estate board or one of the private title search services, in most cases a licensee may carry out a search through the Land Titles Survey Authority website at MyLTSA.ca. MyLTSA permits a licensee to search certain government information, including the Land Title Office and the Corporate Registry, via the Internet. A licensee may use MyLTSA to search the title of a single strata lot or to obtain a copy of an entire strata plan, together with related documents, such as amended bylaws. Charges vary depending on the nature and extent of a search. In general, a MyLTSA search tends to be very cost effective.

When using MyLTSA to order a copy of a strata plan, a licensee should always also check the Strata Plan General Index and the Common Property Record.

(c) Restrictions on Use – Bylaws and Rules

(i) General

In addition to the need to comply with the Strata Property Act, every owner must also comply with the strata corporation’s bylaws and rules.

(ii) Bylaws

Every strata corporation must have bylaws. The bylaws serve as the constitution of the strata corporation. The bylaws may provide for the control, management, maintenance, use and enjoyment of strata lots or common property and the administration of the strata corporation. The ability of a strata corporation to regulate the conduct of owners and their ability to use a strata lot is very broad.  

When a strata plan is deposited at the Land Title Office, the strata corporation acquires, by default, the Schedule of Standard Bylaws. All strata corporations that were created prior to the coming into force of the Strata Property Act that were relying on the Part 5 bylaws of the Condominium Act also acquired the Schedule of Standard Bylaws. Regulation 17.11 of the Strata Property Regulation provided that the Standard Bylaws are deemed to be the bylaws for all strata corporations created under the Condominium Act except to the extent that conflicting bylaws are filed in the land title office.

The developer, when depositing the strata plan, or later, the eligible voters of the strata corporation in a general meeting, may amend or repeal the Standard Bylaws and may create new bylaws. An amendment to the bylaws is not enforceable until it is filed at the Land Title Office. Bylaw amendments filed at the Land Title Office can subsequently be amended. This means that the bylaws of a strata corporation may consist of the Schedule of Standard Bylaws, or the Schedule of Standard bylaws plus any amendments filed in the Land Title Office, or only the amendments as filed in the Land Title Office, if the Standard Bylaws have been amended or disapplied.

Bylaw amendments must be approved by the owners at a general meeting by 3/4 vote.

It is useful to know that only bylaw amendments need be filed at the Land Title Office so in order to determine the current bylaws of the strata corporation it may be necessary to obtain all filed bylaw amendments, as well as the Schedule of Standard Bylaws. Also, sections may have their own bylaws that are separate from the strata corporation bylaws.

(iii) Rules

Rules are optional. The term rules replaces the phrase rules and regulations used under the former Condominium Act. A rule may only govern the use, safety and condition of common property and common assets. If a rule conflicts with a bylaw, the bylaw prevails.

When a strata council creates a rule, the rule is automatically subject to a sunset provision that may limit its life span. Although the rule comes into force immediately, the rule ceases to have effect at the first annual general meeting held after council made the rule unless the eligible voters at a general meeting ratify the rule by a majority vote. Once ratified, the rule remains in force until it is later repealed or altered.

(iv) Bylaws vs. Rules

Bylaws are different from rules in three important respects:

    Source — Bylaws must be approved by a ¾ vote of the owners at a duly convened annual or special general meeting; rules are created by the strata council and take effect immediately upon being approved by the strata council. Rules must subsequently be ratified by the owners by means of a majority vote at the next general meeting after the rules were created.

    Scope — A strata corporation at an annual or special general meeting is empowered to make bylaws covering not only the common property, but also the use and enjoyment of strata lots. By contrast, a strata council can only make rules affecting the use, safety and condition of common property and common assets.

    Formality — Before it can be effective, a bylaw must be filed in the Land Title Office. Rules, however, do not need to be registered in the Land Title Office in order to be effective. Rules must, however, be in writing and must be capable of being photocopied.

(v) Enforceability

Bylaws and rules are not enforceable to the extent that they contravene the Strata Property Act, the Regulation, the Human Rights Code, or any other law. The Strata Property Act limits the enforceability of some bylaws and rules made before it came into force. Bylaws and rules of existing strata corporations ceased to have effect January 1, 2002 to the extent they conflicted with the Strata Property Act or the Regulation. Although this may appear confusing, it is important for licensees to understand that, notwithstanding an owner’s or licensee’s view, or legal opinion that a bylaw may be unenforceable for any of the reasons noted above, only a judge, an arbitrator or an adjudicator can determine that a bylaw is unenforceable. Licensees should therefore refrain from expressing any opinion on the enforceability of any bylaw or rule. Instead, licensees should explain to their clients that a question about the enforceability of a bylaw or rule is a legal matter about which the clients should seek advice from their lawyer.

A common misconception is that a developer or a strata council can waive the application of a bylaw or rule. Buyers will therefore attempt to obtain the permission of the developer or strata council which authorizes a breach of a bylaw. Some bylaws specifically require that the strata council grant permission before an event may occur, such as an alteration to common property. However, where a bylaw prohibits or restricts an activity, such as prohibiting pets, children, hardwood floors or hot tubs, etc., neither the strata council nor the developer has the authority to grant permission for an owner to act in contravention of the bylaw subject to any duty to accommodate an owner as required by the Human Rights Code. In certain circumstances it may be necessary for buyers or owners to seek the relaxation of a bylaw or rule if the bylaw or rule results in discrimination contrary to the Human Rights Code. Buyers seeking such an accommodation may wish to obtain legal advice.

(vi) Disclosure of Restrictions on Use

The Council has disciplined listing and selling licensees for failing to properly check the bylaws for restrictions. If a restriction exists in the bylaws, selling licensees must inform a buyer before he or she buys the strata lot. For example, typical restrictions include: a bylaw that prevents rentals; an age restriction; a prohibition against pets; a limitation on the size of vehicles; or on the number of occupants per strata lot.

Licensees should never assume anything about issues that could affect buyers. For instance, in many strata plans deposited before July 1, 2000, when the Strata Property Act came into force, licensees will find a declaration on or about page 2 of the strata plan, to the effect that the plan is, “entirely for residential use.” In the 2002 case of Winchester Resorts Inc. v. The Owners, Strata Plan VAS2188, a declaration on the strata plan said it was ‘‘entirely for residential use’’. At the same time, a zoning bylaw and a building scheme registered against title to an owner’s strata lot, permitted certain commercial activities. The court found that a declaration of this type had virtually no legal effect. In the Winchester case, the owner of a strata lot was permitted to carry on a fishing lodge business in accordance with the zoning bylaw and the terms of the building scheme, despite the ‘‘residential use’’ declaration on the strata plan.

It is essential that the most current information, including bylaws, be obtained and, if there is an upcoming meeting regarding any change in bylaws and rules, that these changes be monitored and conveyed to the buyer. The following are common restrictions on an owner’s ability to use a strata lot.

(1) Age Restrictions

When considering age restrictions, licensees should be careful to determine whether the strata corporation has passed and registered an age restriction bylaw. In some cases, developments are advertised as adult oriented or adult only; however the developer or the strata corporation has never passed and registered a bylaw that restricts age. If there is no age restriction bylaw, an advertisement that the development is adult oriented is not enforceable.

Licensees should always review the bylaws to determine whether the strata corporation has passed an age restriction bylaw. Licensees should not rely on the lack of ‘‘adult only’’ signage or the presence of children to determine whether the strata development restricts the age of occupants.

The Strata Property Act specifically permits strata corporations to restrict the age of occupants of a strata lot notwithstanding the Human Rights Code. A bylaw restricting the age of persons who may reside in a strata lot does not apply to someone residing there when the bylaw is passed.

Discipline Record — Age Restriction Bylaw

The Council received a complaint that a buyer’s agent had failed to advise buyers of an age restriction bylaw in a strata development that prohibited children under the age of 19. The buyers had a young daughter and became aware of the bylaw after they purchased a strata lot. As a result of the bylaw, the buyers were forced to sell the strata lot and could no longer afford to purchase another home.

At the time the buyer’s agent showed the strata lot to the buyers, a sign at the entrance stated that the complex was adult oriented. When the buyer enquired, the buyer’s agent explained that “although the complex was geared toward adults, there were probably a few children.” The evidence established that, although the buyer’s agent provided the bylaws to the buyer, the buyer’s agent had overlooked the bylaw restricting the age of the residents. At the conclusion of the hearing, the Council found that the buyer’s agent was negligent in failing to ascertain and disclose that there was an age restriction bylaw prohibiting children.

The Council suspended the licence of the buyer’s agent for 14 days and ordered the buyer’s agent to successfully complete the portion of the licensing course regarding Condominiums and Agency.

(2) Rental Restrictions

A bylaw may either prohibit rentals of residential strata units or limit the number or percentage of residential strata units that may be rented or limit the period of time for which they may be rented.

If a strata corporation passes a bylaw restricting rentals under the Strata Property Act, the date the rental restriction applies may vary from strata lot to strata lot. Where a strata corporation passes a rental restriction bylaw, there is a grace period of one year before the bylaw applies to any of the residential strata lots in the strata plan. If a tenant occupies a strata lot on the day that the bylaw is passed, the one year grace period for that strata lot starts to run when the tenant vacates the unit. Rental restriction bylaws do not apply to family members, who are defined to include a spouse, a spouse arising from a marriage-like relationship that has lasted at least two years, a parent or child of the owner, or a parent or child of the spouse. Additionally, if the developer filed a Rental Disclosure Statement that applies to the residential strata lot under consideration, depending on the year that the Rental Disclosure Statement was filed, the rental restriction bylaw may not apply to that strata lot if the Rental Disclosure Statement continues to be valid. A Rental Disclosure Statement is filed by a developer before any strata lots are offered for sale and indicates which strata lots are designated as rental strata lots and the rental period. In most cases the developer will identify all strata lots in the development as rental strata lots on the Rental Disclosure Statement.

For all developments for which the Rental Disclosure Statement was filed on or after January 1, 2010, a rental bylaw passed by a strata corporation does not apply to a strata lot identified in the Rental Disclosure Statement until the expiry of the Rental Disclosure Statement.

The ability to rent a strata lot can be of great importance to a buyer so licensees need to understand the change and alert buyers to it.

Whether they act for a seller, a buyer, or both, licensees are accountable for any information they provide regarding the real estate or a trade in real estate. Therefore, if a licensee is uncertain about the answer to any question a seller or buyer may have regarding the rental of a strata lot they should advise that person to obtain independent legal advice.

(3) Pet Restrictions

Section 3(4) of the Schedule of Standard Bylaws in the Strata Property Act prohibits pets, other than one dog or cat, up to two caged birds, and a reasonable number of small caged mammals, fish or other aquarium animals. This bylaw can be amended by the owners to prohibit all or certain types of pets or to create further restrictions regarding the keeping of pets, or alternatively, to expand the numbers or types of pets that may be kept in a strata lot. A bylaw prohibiting or restricting pets does not apply to a pet living with owners, tenants, or occupants at the time when the bylaw is passed.

(4) Sales Restrictions

Section 122 of the Strata Property Act allows a strata corporation to pass a bylaw governing activities relating to the sale of a strata lot, including locations for the posting of signs and times for the showing of common property and holding of open houses, but the bylaw may not prohibit or unreasonably restrict those activities.

(5) Miscellaneous Restrictions

Many strata corporations restrict:

  • use of a strata lot, in regard to what cannot take place (such as running a business or an illegal activity);
  • colour of window coverings — to allow for uniformity of window covering colour;
  • waterbeds — often an outright prohibition, insistence on proof of insurance, or restriction on location within building;
  • hot tubs — often a prohibition especially on roof decks due to concerns with leaks or weight;
  • hardwood floors — may be prohibited or certain standards for underlay and noise abatement may be imposed especially in frame buildings
  • barbeques – may be prohibited on balconies, or the type of barbeque may be restricted; and
  • smoking – may be prohibited on common property, and possibly on balconies, decks and in some cases in strata lots.

(d) Additional Issues for Listing Licensees

(i) Recovery of Special Levies or Proceeds Payable to the Strata Corporation

Where a strata corporation has passed a special levy and the amount collected exceeds the amount required, the Strata Property Act requires that the strata corporation return the excess funds to the owners. Because “owner” is defined as the person shown on the title, if the seller has sold the strata lot prior to the repayment of the excess special levy, the funds will be repaid to the buyer who is the “owner” of the strata lot at the time the refund is paid.

In addition, in some circumstances, strata corporations are receiving funds to offset costs they have incurred in relation to defective construction and/or water penetration. These funds might be the result of judgments, insurance/warranty claims, or settlements. When such funds are received a strata corporation may decide that some or all of these funds are to be returned to the owners. By the time the recovery is realized, the owner who paid the special levy to repair the building or fund the litigation may no longer be the registered owner. Although the Strata Property Act does not address the repayment of such funds, many strata corporations will pay out the funds to the current owner as if the funds were a repayment of an excess special levy. In other cases, a strata corporation may require the consent of the former owner and the current owner before funds are paid out.

When licensees list strata units for sale, they should determine from the seller whether there have been any special levies for which there may be an excess. Additionally, licensees should determine whether insurance or warranty claims have been filed. Licensees should also know whether there is any litigation under way or pending that may result in a financial recovery.

As with all real estate transactions, licensees must be careful in conducting transactions involving strata properties located in market areas that are unfamiliar to them. Information regarding particular strata properties that may be known to licensees working in a particular area may not be common knowledge outside that area.

Where there is an indication of the possible future recovery of funds, the seller should be made aware that typically the assets and liabilities of the strata corporation flow with the registered owners as shown on title at the time of disbursement and proportionate to their unit entitlement. If the seller expresses a desire to retain certain rights or benefits (e.g., the right to recover funds payable after completion of a sale, the right to vote on future decisions with respect to the possible recovery, etc.), the seller should be made aware that retaining these rights or benefits should be negotiated with a prospective buyer. As a result, the seller should seek legal advice from a lawyer familiar with strata property issues prior to entertaining offers.

In situations where the possibility of future recovery of funds is uncertain, the least complicated approach may be to ensure that both the seller and buyer are aware of the current status of any anticipated recovery and related expenses. With that knowledge the end price negotiated will reflect how the parties have valued the possibility and uncertainty of future recovery and related expenses, knowing that if there is a recovery, any funds disbursed will be payable to the registered owner at the time of disbursement.

If the seller and/or buyer wish to negotiate an agreement that involves the seller receiving the repayment of funds in the future, each should be advised to seek independent legal advice, prior to entering into an unconditional contract of purchase and sale, from a lawyer who is familiar with strata property matters. Licensees should be cautious about drafting clauses in these circumstances, given the uncertainty of future events and the difficulty in identifying issues that may or may not be readily apparent or foreseeable.

If a seller or buyer asks to make the contract subject to entering such an agreement, the contract of purchase and sale should include a subject clause, as follows:

Recovery of Proceeds Payable to Strata Corporation Clause

Subject to the Buyer and Seller entering into a written contract prepared by the Seller’s lawyer on or before (date) that provides for the assignment from the Buyer to the Seller for nominal consideration of all the Buyer’s right, title and interest in any funds payable by the strata corporation to the Buyer as a result of (Enter the reason for the payment such as the return of money assessed by a special levy between _________certain dates).

This condition is for the sole benefit of the Seller. (Buyer)

Ω If not using the standard form Contract of Purchase and Sale, refer to ‘‘Contracts under Seal

Discipline Record — Failure to Advise Sellers

Sellers of a strata lot complained to the Council that the listing representative did not advise them that they would not be entitled to the recovery of litigation proceeds and other such funds and that such funds would be paid to the buyer.

The Consent Order entered into between the Council and the licensee provided that the licensee

  • failed to inform the sellers that recovery is expected to flow to the owners as shown on the title at the time of recovery;
  • failed to advise the sellers to negotiate with the buyers the right to share in the recovery; and
  • failed to advise the sellers to obtain independent legal advice before entering into the Contract of Purchase and Sale.

The Council suspended the licensee for 30 days and ordered the licensee to enroll in and attend Condo 202 Advanced Strata Law for Realtors, and Legal Update. The licensee was also required to pay costs.

(ii) Disclosure Issues
(1) Latent Defects

Listing licensees should explain the concept of latent defects to sellers at the time a listing is taken. A material latent defect is one that is not visible upon ordinary inspection, but which materially affects a strata lot’s use or value. If sellers know about a material latent defect, they must fully inform potential buyers about it. Additionally, section 5-13 of the Rules requires that if a licensee knows about a material latent defect, the licensee must disclose the material latent defect to all other parties to the trade. The disclosure must be before any agreement for the purchase and sale of the real estate is entered into and the disclosure must be in writing. Additionally, section 5-8 of the Rules requires that the disclosure be separate from any agreement giving effect to a trade in real estate.

In strata developments, a latent defect can occur inside or outside an owner’s strata lot. Significant building deficiencies anywhere in the strata corporation’s property can materially affect the value of each strata lot because of the potential for special levies. If sellers know about significant building deficiencies, whether confirmed or under investigation, they must disclose the problems to buyers in writing. If sellers know that other strata lots in other parts of the strata development have been subjected to water leakage through the building envelope and that the strata council has asked an engineering firm to investigate and report on the matter, the sellers must disclose the problem to buyers or risk a lawsuit. This is a latent defect. The presence of problems serious enough to warrant professional investigation elsewhere in the development is not something that buyers would necessarily discover upon ordinary inquiry, and these problems can certainly affect the value of a strata lot.

(2) Property Disclosure Statement

In listing a strata property for sale, the Council recommends that licensees have the sellers complete a Property Disclosure Statement — Strata Title Properties. This document should be provided to all prospective buyers. Refer to the comments regarding Property Disclosure Statements below.

In the past, the Council has taken disciplinary action against both listing and selling licensees for failing to properly check the strata bylaws for restrictions.

(3) Bylaws

The Council expects that the seller’s agent will review the current bylaws in order to advise the buyer or buyer’s agent of any significant restrictions that the bylaws may contain, and provide this in the listing documentation.

(e) Additional Issues for Buyer's Agents

(i) Generally

Licensees acting for buyers have a general duty to provide buyers with information that is current, relevant and necessary for them to decide whether to acquire a property. For information with respect to obtaining strata documents, please refer to the “Obtaining Information” section above. Licensees also have a duty to be well informed, which includes the obligation to ascertain information necessary to protect their principal’s interests, particularly when they are relying on the licensee’s skill and judgment. With respect to strata properties, this requires licensees to exercise a reasonable degree of skill and care to be informed of the unique issues that can arise.

By relying on an owner’s ability to authorize the listing licensee to obtain documents from the strata corporation, buyers can gain access to a number of documents that may have a bearing on whether buyers wish to acquire a particular strata lot, the price they are willing to pay, and the day-to-day operation of the strata development in which the strata lot is located. In providing this information to buyers, licensees should stress the importance of buyers reading the documents carefully, looking for any evidence of major repairs, continuing unresolved maintenance issues, use restrictions, or other concerns. Licensees should be aware that this process does not relieve them of the responsibility to use reasonable care and skill in the performance of their duties. Where there are matters beyond a licensee’s scope of knowledge, buyers should be referred to an appropriate expert.

**Alert**

Licensees should fully explain and confirm what services they will be performing on behalf of the buyers and what the buyers will be attending to themselves. It is in a licensee’s interest to confirm this in writing.

Licensees should always advise buyers to make their purchase “subject to” a property inspection. If buyers decline to have an inspection, licensees should confirm in writing to the buyer that they have advised the buyer to obtain an inspection and that the buyer has declined. Because such confirmation is not a term of the contract, the confirmation should not be included in the contract.

Some property inspections are restricted to the strata lot; others will include a limited investigation of the common property. Licensees should advise buyers to clarify with the inspector what services will be provided. An inspection that includes the common property is preferable, although more expensive than one that only includes the particular strata lot. An inspection of common property may also take additional time to co-ordinate access (to roofs or mechanical rooms for example) through the strata council or strata manager. Buyers may wish to confer with their property inspector about matters arising from the buyers’ review of the documentation they have received or from the inspection itself.

If there are any expert reports regarding the building (e.g., building envelope, engineer’s, etc.), licensees should make buyers aware of the existence of such reports and where they may be examined. (Refer to “Obtaining Information,” noted previously, for further information respecting accessing the records of a strata corporation.) Licensees should stress to buyers the importance of reading them. Again, buyers may wish to confer with their property inspector or lawyer regarding these reports. If a report cannot be obtained, buyers should be advised to obtain legal advice before being bound to a contract of purchase and sale.

Licensees should always refer to the source of any information they pass on regarding the building and should always avoid making any personal representations about the building or about any of the information they pass on that has not been independently confirmed.

(ii) Strata Plan not Registered at the Time the Contract is Signed

A strata lot does not exist until the strata plan is deposited at the Land Title Office. In the event that a strata plan has not been registered at the time that a sales contract is executed, licensees should include in the contract a clause such as the following:

Strata Plan not Registered at the Time Contract Signed Clause

It is a fundamental term of this contract that a strata plan for the property, in the form provided to the Buyers at the time of signing this contract and attached as addendum, is fully registered in the appropriate Land Title Office on or before the Completion Date.

If the strata plan is not filed when a licensee prepares an offer for a proposed strata lot, any deposit must be paid into trust pending the filing of the strata plan at the Land Title Office, the readiness of the unit for occupancy, and the registration of the buyer’s interest in the property. Whether the deposit is held in the licensee’s brokerage trust account, or with the developer’s lawyer or notary, section 18 of the Real Estate Development Marketing Act requires that the person holding the deposit holds it for the developer and the purchaser, and not as an agent for either of them. For details, see the section on deposits under the heading Real Estate Development Marketing Act.

(iii) Property Disclosure Statement

Often the first document that licensees working with buyers see regarding the condition of a property is the Property Disclosure Statement (PDS). This document is useful as a starting point for buyers to begin their due diligence process.

A buyer’s agent should always recommend to the buyer that the PDS be incorporated into the Contract of Purchase and Sale. A buyer’s legal remedies are severely curtailed if the buyer does NOT make the PDS part of the contract.

Merely attaching a PDS to a Contract of Purchase and Sale does NOT incorporate the PDS into the contract. Clear evidence must exist that all of the parties intend to make the PDS part of the contractual obligations between them. To clearly state that the PDS is incorporated into the Contract of Purchase and Sale, the following clause must be inserted into the contract:

Property Disclosure Statement — Strata Title Properties Clause

The attached Property Disclosure Statement — Strata Title Properties dated (date) is incorporated into and forms part of this contract.

If the Property Disclosure Statement — Strata Title Properties has not been attached to the offer at the time it was written, the licensee must use a subject clause to allow for approval of the Property Disclosure Statement — Strata Title Properties, as follows:

Buyer’s Approval of Property Disclosure Statement — Strata Title Properties Clause

Subject to the Buyer on or before (date) obtaining and approving a Property Disclosure Statement — Strata Title Properties, with respect to information that reasonably may adversely affect the use or value of the strata lot, including any bylaw, item of repair or maintenance, special levy, judgment or other liability, whether actual or potential.

This condition is for the sole benefit of the Buyer.

 

If approved such statement will be incorporated into and form part of this contract.

 

A buyer’s agent should still recommend a property inspection, even where there is a PDS that is incorporated into the Contract of Purchase and Sale. A buyer’s agent should also recommend that the buyer carefully discuss the Property Disclosure Statement with the buyer’s property inspector.

(iv) Bylaws

The bylaws of a strata corporation may contain provisions that can affect every aspect of life in the strata corporation. The bylaws may restrict the age of occupants, how strata lots may be used and whether the strata lot can be rented, who must repair and maintain strata lots and limited common property and when permission may be required to carry out alterations.

The buyer’s agent should review the bylaws with the buyer to indicate those bylaws that may affect the buyer’s ability to use the strata lot in the manner intended by the buyer. For additional information on bylaws, see the section entitled “Restriction on Use - Bylaws and Rules.”

(v) Minutes

Discipline Record — Strata Minutes

The Commercial Appeals Commission found a buyer’s agent negligent under section 9.12 of Real Estate Regulations, B.C. Reg. 75/61, in part, for failing to read the strata minutes in the 1999 sales of two Lower Mainland strata units. In this case, the buyer’s agent did not ask about any problems with the strata building during the buyers’ initial viewing or the parties’ negotiations. The buyer’s agent first raised questions about the building after the buyers had removed their subject clauses. When, under the contract of purchase and sale, the buyer’s agent obtained copies of the minutes of the previous annual general meeting and the last 12 strata council meetings, the buyer’s agent passed the documents to the buyers without reading them. Although the buyer’s agent did not read the strata minutes, she recommended to one of the buyers that he read them. During her appeal, the buyer’s agent argued, in part, that the 1995 Licensee Practice Manual, on which she apparently relied, required only that an agent provide the minutes to the buyer for review. Taking particular note of the “leaky condo” epidemic in the Lower Mainland, the Commission held the buyer’s agent negligent for failing to sufficiently inquire into the building in question and for failing to read the minutes.

The Commercial Appeals Commission did not cite any legal authority, or offer any specific reasoning, to support its conclusion that failure to read the strata minutes amounted to negligence under the Real Estate Act. Nor did the Commission say what the buyer’s agent is supposed to do with the information acquired by reading the minutes.

In view of this decision, a buyer’s agent who does not read the strata minutes can never rule out the risk that he or she may be found negligent. It appears, however, that in this case, the licensee’s duty to read the minutes emerged because she earlier failed to ask any questions about the condition of the building, which was located in an area known for leaky condos.

If a buyer’s agent elects not to read the available strata minutes, the licensee should ensure that he or she has already made all the inquiries reasonably expected of a competent licensee acting as a buyer’s agent. These inquiries include, but are not limited to, asking one or more of the sellers, the listing agent, or a strata council member about the history of any problems with the building and the strata lot, as well as reading the bylaws. The Council expects a buyer’s agent to read the bylaws for restrictions.

**Alert**

Where the buyer’s agent intends not to review certain other documents, such as minutes, as part of his or her services to the buyer, the licensee should make that very clear to the buyer to avoid any misunderstanding.

The licensee should also explain to the buyer the significance of the document in question and warn the buyer about the risks of not carefully reviewing the material himself or herself. The licensee should also warn the buyer to obtain professional advice if a document raises a question of a technical nature; for example, to get legal or engineering advice, where appropriate. Finally, it is recommended that the licensee record these communications in writing in case any dispute later occurs over the matter.

If the licensee reads the strata minutes, the licensee need only accurately pass on the relevant information in the minutes to the buyer. There is no general duty requiring the licensee to go behind the minutes to investigate matters reported in the minutes. A buyer’s agent should warn the buyer that the licensee does not take exclusive responsibility for reviewing the minutes and that the buyer should still carefully read the minutes himself or herself. The buyer’s agent should tell the buyer that the licensee reviews the minutes from a licensee’s perspective and only to check for certain information about the property. The minutes will inform the buyer about more than the property; they will also give the buyer important information about the strata community. The licensee should also warn the buyer to obtain professional advice if the minutes raise any technical question. It is recommended that the licensee record these communications in writing.

(vi) Documentation

The concerns noted in the section “Obtaining Information” noted previously apply to the duties of licensees working with buyers as well. Licensees should ensure that buyers are provided with a current Form B. The safest approach for licensees acting for buyers is to obtain the buyer’s written authorization and use it to request a current Form B at the time an offer is written. It may also be possible to avoid duplication of costs by providing a copy of that Form B to the buyer’s lawyer or notary public.

Licensees should also refer to section “Land Title Documents” noted previously for information regarding strata plans.

(vii) Buyer has Reviewed the Documentation

Licensees are encouraged to use the Receipt of Strata Corporation Documentation Form, which can be downloaded from the Council’s Forms web page, when providing copies of documents to interested buyers or their agents. For details, see Documents to Request and Their Significance.

Whether or not licensees have used the Receipt of Strata Corporation Documentation form, they are encouraged to use the following form of acknowledgement clause. Documents listed should include those documents itemized in the Receipt of Strata Corporation Documentation form.

Receipt of Strata Documentation Clause

The Buyer acknowledges having received and being satisfied with:

A Form “B” Information Certificate from the strata corporation dated (date), attaching the strata corporation’s rules, current budget, the developer’s Rental Disclosure Statement (if any), and the most recent depreciation report obtained by the strata corporation (if any).

If relevant, a Form “B” Information Certificate from the section dated (date), attaching the section’s rules, current budget, the developer’s Rental Disclosure Statement (if any), and the most recent depreciation report obtained by the strata corporation (if any).

A copy of the registered strata plan, any amendments to the strata plan, and any resolutions dealing with changes to common property.

The current bylaws and financial statements of the strata corporation, and any section to which the strata lot belongs.

The minutes of any meetings held between the period from (date) to (date) by the strata council, and by the members in annual or special general meetings, and by the members or the executive of any section to which the strata lot belongs.

The current insurance cover note explaining the strata corporation’s insurance coverage and deductibles.

(*)

(*)

(*) Add all other documentation actually received.

 

(viii) Buyer has not Received or Reviewed the Documentation

Sections 36(3) and 59(1) of the Strata Property Act and section 25 of the Interpretation Act effectively give the strata corporation eight days, following a request, to deliver a Form B - and up to 15 days to provide copies of the other records referred to in the following clause. Additionally, Under the Strata Property Act, unless a request for documents is personally presented to a strata council member, the strata corporation is deemed not to have received the request for 4 days. Therefore the 8 and 15 day periods do not start until 4 days after the request was faxed, mailed or emailed to the strata corporation or strata manager. Licensees should recommend a subject removal date that allows enough time for the strata corporation or strata manager to receive and respond to a request and for buyers to review the records provided by the strata corporation. Where the listing licensee has not already obtained the documents, such that the listing licensee must now request them from the strata corporation, it may take up to 18 days for subject removal. However, a prudent listing licensee will ensure that most, if not all, of the documents referred to in the clauses below are obtained at the time of taking a listing. This may enable buyers to shorten the due diligence period if there is no change in the information contained in these documents since the time of taking the listing. Licensees should add or delete documents from the list if they have already been reviewed or if they do not apply.

Strata Documentation to be Provided Clause

Subject to the Buyer, on or before (date) * receiving and approving the following documents with respect to information that reasonably may adversely affect the use or value of the strata lot, including any bylaw, item of repair or maintenance, special levy, judgment or other liability, whether actual or potential:

A Form ‘‘B’’ Information Certificate from the strata corporation, attaching the strata corporation’s rules, current budget, the developer’s Rental Disclosure Statement (if any), and the most recent depreciation report obtained by the strata corporation (if any);

If relevant, a Form ‘‘B’’ Information Certificate from the section, attaching the section’s rules, current budget, the developer’s Rental Disclosure Statement (if any), and the most recent depreciation report obtained by the strata corporation (if any);

a copy of the registered strata plan, any amendments to the strata plan, and any resolutions dealing with changes to common property;

the current bylaws and financial statements of the strata corporation, and any section to which the strata corporation lot belongs;

the minutes of any meeting held between the period from (date) to (date) ** by the strata council, and by the members in annual or special general meetings, and by the members or the executive of any section to which the strata lot belongs; and

the current insurance cover note explaining the strata corporation’s insurance coverage and deductibles.

[Include any other information, document, record or report the Buyer needs before being committed to buy.]

Immediately upon acceptance of this offer or counter-offer, the Seller will authorize the (Seller’s/Buyer’s) agent, to request***, at the (Seller’s/Buyer’s)† expense, complete copies of the documents listed above from the strata corporation or other source and to immediately, upon receipt, deliver the documents to the Buyer (or the Buyer’s agent).

This condition is for the sole benefit of the Buyer.

*When an owner asks a strata corporation for one of the strata records listed here, in most cases section 36(3) of the Strata Property Act, when read together with section 25 of the Interpretation Act, and section 63(2) of the Strata Property Act, which deems that the request for documents is not received by a strata corporation until 4 days after they are received,   permits the strata corporation up to 19 days to deliver the relevant records to the owner. If the listing licensee already has all of the records listed above, choose a reasonably short subject removal date. If the records are not available, allow up to 22 days from the date the offer is accepted. The 22 days represent four days to allow the strata corporation to receive the request, 15 days for the statutory delivery period plus three days for the buyer to review the documents.

**The Council recommends two years, but cautions licensees that this is just the beginning of the investigation. Any indication of issues regarding the finances or physical condition of the strata corporation or building may necessitate the further investigation of minutes beyond the two-year requirement.

***Use an authorization form such as the “Authorization to Agent to Obtain/Deliver Documentation” for this purpose.

† The wording of this clause allows for the parties to negotiate who will pay for the cost of obtaining these documents.

(ix) Strata Fees and Related Items

In addition to collecting strata fees for a strata lot’s contribution to the operating fund and the contingency reserve fund, some strata corporations/sections charge user fees (sometimes called rent) for parking, storage facilities, or other services. In instances where there are charges in excess of the monthly strata fees, licensees should include the following clause in the Contract of Purchase and Sale:

Additional Fees Clause

The Buyer is also aware that the strata corporation (or the section if applicable) charges an additional (monthly, yearly, etc.) fee(s) for

(parking, storage, etc.) in the amount of $ (amount).

(x) Acknowledgement of Restriction on Use

The issue of restrictions on use is discussed previously in “Restrictions on Use” above. If the bylaws contain rental restrictions or there are other prohibitions, licensees should ensure that these restrictions have been disclosed to buyers.

(xi) Mixed Use

To more effectively enforce a quiet lifestyle in a mixed-use development, a strata corporation may amend its bylaws to restrict the activities of certain businesses that might operate in a non-residential strata lot. For instance, a bylaw may prohibit the owner of a non-residential strata lot from operating a nightclub or prevent operating a commercial business after 7:00 p.m.

If the strata corporation does not have a bylaw that limits the types of business or their activities that operate in the non-residential strata lots, a buyer’s agent should point this out to the buyer. It is also a good idea to obtain a copy of the relevant zoning bylaw that shows what kinds of activities are permissible in the area in question and give it to the buyer.

In situations where the buyer wishes to make an offer conditional upon receiving a copy of the zoning bylaw and being satisfied with permitted activities, the following clause should be inserted in the Contract of Purchase and Sale.

Receipt of Zoning Bylaw Clause

Subject to the Buyer receiving a copy of the relevant zoning bylaw for the property and approving the uses permitted by (date).

This condition is for the sole benefit of the Buyer.

Ω If not using the standard form Contract of Purchase and Sale, refer to ‘‘Contracts under Seal

Change in Bylaws

The possibility exists that changes may be made in a strata corporation’s bylaws between the date of acceptance of an offer and the completion date, particularly following annual general meetings or extraordinary meetings.

As outlined previously, licensees should obtain the minutes of the strata corporation’s last Annual General Meeting, and any strata council meetings held in the interim, and deliver them to the buyers along with the amended bylaws. These minutes may contain changes in bylaws or a notice of motion to change bylaws that would be significant to the buyers’ decision to purchase.

Notification of Changes in Bylaws or Rules Clause

The Seller will notify the Buyer before the completion date of any notice of a resolution to amend the bylaws or rules of the strata corporation, or the bylaws or rules of a section to which the strata lot belongs, or any amendment to such bylaws or rules, that the Seller has not previously disclosed to the Buyer. The Seller will promptly deliver a copy of the relevant resolution or notice of resolution to the Buyer.

Ώ Where such notification is provided to buyers, licensees should advise buyers to seek legal advice.

(xii) Special Levies

Generally

Owners are personally responsible for the contribution due from their strata lot for a special levy (formerly called a special assessment) which may be payable in one lump sum or by installments as set out in the ¾ Vote Resolution authorizing the special levy.

Before the completion date, the seller is the owner and is responsible for the contribution due from their strata lot. The buyer becomes the owner on the date the seller conveys his or her interest in the strata lot to the buyer. The conveyance marks the transition where the buyer becomes the owner who is responsible for the contribution due from the strata lot. Section 109 of the Strata Property Act states:

    If a special levy is approved before a strata lot is conveyed to a purchaser,

    (a) the person who is the owner of the strata lot immediately before the date the strata lot is conveyed owes the strata corporation the portion of the levy that is payable before the date the strata lot is conveyed, and

    (b) the person who is the owner of the strata lot immediately after the date the strata lot is conveyed owes the strata corporation the portion of the levy that is payable on or after the date the strata lot is conveyed.

Special Levy Clauses

Sometimes the buyer may want protection against paying any portion of a special levy due after the completion date. These matters are often the subject of negotiation. Some sample clauses are shown below.

Where a special levy will likely be approved before the completion date, a licensee may use one of the following two clauses:

Seller Agrees to Hold Back to Pay for Special Levy Approved Before Completion Clause

If a special levy is approved before the completion date, the Seller shall credit the Buyer with the entire portion of the special levy that the Buyer is obligated to pay under the Strata Property Act and the Seller hereby directs the Buyer’s lawyer or notary public to hold back such credit from the sale proceeds and to remit it to the strata corporation.

Seller and Buyer Negotiate the Portion of the Special Levy Due After Completion that the Seller Will Pay Clause

If a special levy is approved before the completion date, the Seller shall credit the Buyer with __% of the portion of the special levy that the Buyer is obligated to pay under the Strata Property Act and the Seller hereby directs the Buyer’s lawyer or notary public to hold back such credit from the sale proceeds and to remit it to the strata corporation.

Where a special levy will likely be approved after the completion date or the licensee is uncertain whether the special levy will be considered for approval before or after the completion date, the licensee should use the following holdback clause:

Seller Agrees to Hold Back a Portion of the Purchase Price Where There is the Possibility of a Special Levy being Assessed in the Near Future Clause

A portion of the purchase price in the amount of $____, (the “Holdback”) will be held by the lawyer or notary public acting for the Buyer in an interest bearing account until ____, 20__ (the “End Date”). The lawyer or notary public acting for the Buyer will pay to the strata corporation out of the Holdback and accrued interest any special levies (or similar levies charged by the strata corporation) that are levied and due and payable before the End Date. On the first business day after the End Date the lawyer or notary public acting for the Buyer will pay any remaining balance of the Holdback plus accrued interest to the Seller.

Ώ NOTE: Licensees should be aware that there are situations where the potential for levies arises and should advise their clients to seek legal advice as to the possible ramifications. Sellers should consult with their lawyer should they wish the buyers to appoint them as proxy on votes relating to a special levy resolution occurring after completion.

(xiii) Property Transfer Tax

The Property Transfer Tax Act has been amended to change the application of the property transfer tax to pre- sold strata units. Previously, tax was based on the fair market value of a pre-sold strata unit on the day the transfer was registered at the Land Title Office. Because the registration could be a year or more after the purchase and because the price of the strata unit generally appreciated over that time, a buyer would not know at the time the unit was purchased what amount of property purchase tax would need to be paid at the time of transfer. As a result of the amendment, tax will now be based on the consideration paid for the unit, including upgrades, at the time of purchase.

6. Real Estate Development Marketing Act

The marketing of development property is regulated by the Real Estate Development Marketing Act. Such activity was previously regulated by Part 2 of the Real Estate Act.

The Real Estate Development Marketing Act applies to developers who market various types of real estate developments that are included in the definition of development property. Marketing is defined in the Real Estate Development Marketing Act as selling or leasing.

The Real Estate Development Marketing Act is intended to protect the public by ensuring that the appropriate and necessary steps are taken in relation to the development of the property; that the developer has sufficient financing to ensure that the title and services will be in place at the time of transfer, and that the developer deals with purchasers’ deposits appropriately. Additionally, the Real Estate Development Marketing Act protects the public by requiring that developers disclose specific information about the development property to prospective purchasers. This requirement is satisfied by the requirement that developers file a Disclosure Statement with the Superintendent of Real Estate and provide a copy of the Disclosure Statement to prospective purchasers.

The Real Estate Development Marketing Act is administered by the Superintendent of Real Estate. Licensees with questions related to the Real Estate Development Marketing Act may contact that office at 604-660-3555, toll-free at 866-206-3030, or visit www.fic.gov.bc.ca.

(a) Real Estate Development Property

The Real Estate Development Marketing Act defines development property in relation to the number of development units created. Development property is any of:

    (a) 5 or more subdivision lots in a subdivision, unless each lot is 64.7 ha or more in size;

    (b) 5 or more bare land strata lots in a bare land strata plan;

    (c) 5 or more strata lots in a stratified building;

    (d) 2 or more cooperative interests in a cooperative association;

    (e) 5 or more time share interests in a time share plan;

    (f) 2 or more shared interests in land in the same parcel or parcels of land;

    (g) 5 or more leasehold units in a residential leasehold complex;

Unless an exemption applies, sections 3 and 14 of the Real Estate Development Marketing Act require the filing of a Disclosure Statement before a developer markets a development unit. The Real Estate Development Marketing Act defines a development unit as any of the following in a development property:

    (a) a subdivision lot;

    (b) a bare land strata lot;

    (c) a strata lot;

    (d) a cooperative interest;

    (e) a time share interest;

    (f) a shared interest in land;

    (g) a leasehold unit.

The definition of development unit and the corresponding requirement that a Disclosure Statement be filed before a development unit may be marketed confirms that even the marketing of one property may trigger the requirement for a Disclosure Statement if the property is located within a development property. For example, if a developer owns five or more strata lots in a stratified building but intends to market only one strata lot, the developer is marketing a development unit in a development property. Before marketing a development unit, the developer must comply with all the requirements of the Real Estate Development Marketing Act, including, the need for a Disclosure Statement.

Licensees acting for developers should verify that the developer is in compliance with the requirement of the Real Estate Development Marketing Actgenerally, and specifically, that a Disclosure Statement has been prepared and filed before offering any property for sale that meets the definition of a development unit.

In the past, the Council has disciplined licensees for offering land for sale prior to the filing of a Disclosure Statement.

(b) Exemptions

The Real Estate Development Marketing Regulation sets out a number of exemptions from the requirements of the Real Estate Development Marketing Act. The sales of properties covered by the exemptions do not require the filing of a Disclosure Statement and are exempt from the requirements with respect to the manner in which deposits are handled.

Exemptions apply to the following transactions:

Marketing between developers

  • The marketing of development property in a single transaction.

Developments used for industrial or commercial purposes

  • Development property that is within an area that is zoned for only industrial or commercial use, and is used and advertised only for industrial or commercial use.
  • Development property that is located within a comprehensive use zoning that includes residential use, but the property is used and advertised only for industrial or commercial use, if the developer notifies prospective purchasers that the protections of the Real Estate Development Marketing Act and the provisions of the Real Estate Development Marketing Act requiring Disclosure Statements and the manner in which deposits are handled do not apply.

Leases of three years or less:

  • Leases of development units where the term of the lease (including options or covenants for extension or renewal) do not exceed three years.

Sales or Leases Subject to the Securities Act:

  • Development property for which the developer has filed a prospectus under the Securities Act and complies with the requirements of the Securities Act relevant to the marketing of the development.

Subdivisions within a municipality:

  • Marketing of subdivision lots within a municipality if the developer has complied with the requirements of the Local Government Act or Vancouver Charter regarding servicing agreements and subdivision control and has deposited any security that the municipality may require.

Continuing exemptions:

  • Developments previously exempted from the need for a Disclosure Statement.

Low equity cooperative interests:

  • Cooperative interests if the acquisition cost to the purchaser is $5,000 or less.

(c) Disclosure Requirements

If a development unit is not exempted, section 14 of the Real Estate Development Marketing Act requires that before marketing a development unit, the developer must prepare and file a Disclosure Statement with the Superintendent of Real Estate. The Disclosure Statement must be in the form and include the content required by the Superintendent and, without misrepresentation, plainly disclose all material facts.

A developer may not enter into a purchase agreement with a purchaser for the sale or lease of a development unit unless a copy of the Disclosure Statement has been provided to the purchaser, the purchaser has been afforded an opportunity to read the Disclosure Statement, and the purchaser has signed a written statement acknowledging that the purchaser had an opportunity to read the Disclosure Statement. The Real Estate Development Marketing Act requires developers, or licensees offering the property for sale on the developer’s behalf, to retain the written statement from the purchaser for a period of three years.

It is not acceptable under the Real Estate Development Marketing Act to create a ‘‘subject to’’ clause to the effect that the offer is subject to the buyer receiving, reading and approving the Disclosure Statement. It is also not acceptable for a term to be created in the contract, which states that the seller will provide a copy of the Disclosure Statement to the buyer.

Licensees should ensure that the proper procedure has been adhered to when selling properties which require a Disclosure Statement, as improper compliance with this procedure could result in the buyer being able to revoke the offer and, subsequently, could result in the seller taking legal action against the licensees involved.

Disclosure Receipt Clause

The Buyer acknowledges having received and having had an opportunity to read the developer’s Disclosure Statement.

The Superintendent’s office has prepared a number of Policy Statements which set out the requirements for the Disclosure Statement for each type of development property. The Policy Statements require that the content of each Disclosure Statement must be set out in the order prescribed in the Policy Statement.

The Real Estate Development Marketing Act requires that if the developer becomes aware that the Disclosure Statement contains a misrepresentation, the developer must file either a new Disclosure Statement or an amendment to the Disclosure Statement and provide copies to new purchasers and to those who have entered into a purchase agreement but who have not yet received title or the interest for which the purchaser has contracted. A new Disclosure Statement must be filed if the identity of the developer has changed, or a receiver or liquidator has been appointed.

(d) Additional Disclosure under the Real Estate Development Marketing Act

Effective November 1, 2007, the Superintendent of Real Estate implemented new Policy Statements 14 and 15. These Policy Statements require additional information to be included in new Disclosure Statements, and in Amendments to existing Disclosure Statements, that are submitted to the Superintendent of Real Estate for filing under the Real Estate Development Marketing Act on or after November 1, 2007.

Policy Statement 14 requires additional disclosure with respect to development property that has not yet been completed (i.e., units marketed on a ‘‘pre-sale’’ basis). Policy Statement 15 applies to all development property marketed under the Real Estate Development Marketing Act, whether completed or not, and requires additional disclosure with respect to the developer’s background and any conflicts of interest.

Further information about disclosure requirements under the Real Estate Development Marketing Act, including a copy of all of the Policy Statements, is available on the Superintendent’s website at www.fic.gov.bc.ca.

(e) Forms of Development Property under the Real Estate Development Marketing Act

(See also information regarding strata properties.)

Cooperative Interests

A cooperative interest is the interest that includes both a right of ownership in the shares of a cooperative association or to be a partner or member in the cooperative association and the right to use or occupy a part of the land in which the cooperative association has an interest.

The Real Estate Development Marketing Act defines a cooperative association as

    (a) a corporation, as defined in the Business Corporations Act;

    (b) a limited liability company as defined in the Business Corporations Act;

    (c) a partnership; and

    (d) an entity incorporated or other wise created outside British Columbia that is similar to one described in paragraphs (a) to (c).

Thus, an owner of a cooperative interest acquires shares, or some other form of ownership in a corporate entity or partnership, which carry with them the right to occupy only a portion of the land that the cooperative association owns. The particular portion may be an apartment or a recreational vehicle site.

Sellers are unable to carry primary or secondary financing on cooperative interests by way of a mortgage registered against the title or by an Agreement for Sale, as there is no title in a cooperative interest to encumber. It is, therefore, strongly recommended, in a situation where the seller is asked to carry any financing, that the seller’s lawyer and the buyer’s lawyer be consulted before the acceptance of any offer.

Licensees are also advised to consult their financial advisers, including experienced mortgage brokers, for guidance in such financing, as well as ascertaining from the cooperative’s rules and regulations whether or not there is a prohibition on financing in any way.

A Disclosure Statement must be filed with the Superintendent of Real Estate before a developer or a developer’s agent can market one cooperative interest if the cooperative interest is part of a development consisting of two or more cooperative interests. Accordingly, licensees involved in the sale or purchase of a cooperative interest by or from a developer should familiarize themselves with the content of and the requirements associated with the Disclosure Statement. It is possible for a cooperative association to own a strata lot. Hence, the Strata Property Act may also be applicable.

Regardless of whether the transaction involves a developer or a single unit resale, licensees should be knowledge- able with respect to the proportion of the share capital acquired by the purchaser, the allocation of ongoing maintenance and operating costs, the presence of any other assets or liabilities that the cooperative association may have, the terms of the agreement which restricts an owner to using only a portion of the land that the cooperative association owns, the applicability of the homeowner’s grant and property transfer tax, and the particulars of the cooperative association’s share capital, such as provisions related to voting rights or restrictions on transfer.

Rental Leases and Head Leases

Another type of ownership, which fits between cooperative and strata on leased land, is the rental lease, where the cooperative building sits on leased land. It is financed like a cooperative, although sometimes private leaseholders will allow for less down payment and provide financing directly themselves. The holder of the head lease, the corporation which owns the building, determines how units in the building are purchased. As with cooperatives, these are purchases of shares in exchange for the exclusive right to occupy a designated unit in the building. Owners do not have title to the unit itself. Owners must not make alterations to the unit (unlike strata ownership) without permission from the cooperative association. These are long-term leases (often 99 years). Licensees are advised to consult experienced financial advisers, lawyers and mortgage brokers for guidance.

The following clause should be used in the purchase of cooperative interests. This clause may also be used for the purchase of rental-lease properties but it is strongly recommended that the buyer seek legal advice and ensure understanding of the head lease’s restrictions and duration.

Co-operatives-Suite/Townhouse Clause

This contract is for the purchase of (number of shares) shares in (name of co-operative association) together with a lease of (unit number) to the Buyer, and other considerations as may accompany said lease.

Buyer to assume payments of the monthly maintenance charge of $(amount) (which includes a proportionate share of annual taxes).

Buyer has approved the Rules and Regulations, the Memorandum and Articles of Association, any lease documentation and any financial obligations of (name of co-operative association) including the following specific restriction(s):

 

Subject to the approval of the Buyer by the Board of Directors of (name of co-operative association) on or before (date) .

This condition is for the benefit of both the Buyer and the Seller.

 

Ώ Warning re Approval of buyer by Directors: The Board of Directors of a Cooperative is allowed to make a decision as to the suitability of any buyer. The reasons for such a decision are to be kept confidential to the Board of Directors.

Optional Assumption of Portion of Mortgage Clause

NOTE: The Buyer should obtain legal advice before assuming a mortgage in these circumstances.

Buyer will assume obligations on an assigned portion under the existing first mortgage held by (name of mortgage lender) registered against the property at (address) with an outstanding balance on the assigned portion of approximately $(amount) at an interest rate of ___% per annum, calculated (frequency)not in advance, with an original (number of years)-year amortization and a ‘‘balance due” term date of (date), with blended payments of $ (amount) per month including principal and interest.

(i) Shared Interests in Land

A shared interest in land is a person’s interest in one or more parcels of land, if the parcel or parcels are owned or leased by the person and at least one other person and as part of any arrangement relating to the acquisition of the person’s interests, that person’s right of use or occupation of the land is limited to a part of the land.

Thus, an owner of a shared interest in land acquires a direct ownership interest in land, typically an undivided fractional fee simple interest, which carries with it, by agreement amongst the co-owners, a right to occupy only a portion of the land.

A Disclosure Statement must be filed with the Superintendent of Real Estate before a developer or the developer’s agent can market one shared interest in a development containing at least two shared interests. Accordingly, licensees involved in the sale or purchase of a shared interest in land by or from a developer should familiarize themselves with the content of and the requirements associated with the Disclosure Statement.

Regardless of whether the transaction involves a developer or a single unit resale, licensees should be knowledge- able with respect to the proportionate fractional interest acquired, the allocation of ongoing maintenance and operating costs, the applicability of the Homeowner’s Grant and Property Transfer Tax, and the particulars of the agreement which restricts owners to using only a portion of the land that they own, such as voting rights or restrictions on transfers.

(ii) Time Share Interest

A time share interest is defined in the Real Estate Development Marketing Act as a person’s interest in a time share plan. A time share plan is a plan in which the persons participating each have a right of recurring use, of all or part of the land. A time share plan does not require that the persons acquire an ownership interest in the land that is the subject of the plan.

A Disclosure Statement must be filed before a developer may market one time share interest in a development containing five or more time share interests. Accordingly, licensees involved in the sale or purchase of a time share interest by or from a developer should familiarize themselves with the content of and the requirements associated with the Disclosure Statement.

(iii) Real Estate Securities

In some cases, the offering of a real estate development unit may constitute the offering of an investment contract, which is a security within the meaning of the Securities Act. Where a real estate development includes an interest in land and an ancillary agreement, usually with the developer, for management of the property, combined with financial commitments such as rental guarantees or revenue and expense pooling, the arrangement may meet the requirements of a security. A typical example of such an offering is the marketing of strata lots in a hotel or resort in which there is an agreement that the strata lots will be rented out by a manager. The agreement may include a rental guarantee or revenue or expense pooling, or it may simply be a mandatory requirement that the strata lot be provided to the manager for rental as part of the overall development. In such cases, both the Real Estate Development Marketing Act and the Securities Act apply. Policy Statement 13 issued by the Superintendent’s office sets out an explanation of real estate securities and includes reference to the related documents issued by the Securities Commission. Licensees involved in the purchase and sale of real estate offerings, where the purchaser must rely on the promoter for an investment return, should familiarize themselves with these requirements.

(iv) Leasehold Units

A leasehold unit is a unit in a residential leasehold complex which is defined as containing one or more buildings capable of being used for leasehold residential purposes other than buildings comprised of strata lots, cooperative interests or shared interests in land.

Although not specifically identified in the Real Estate Development Marketing Act, a common form of leasehold unit that has been marketed in British Columbia is a life lease. A life lease in its broadest sense is a leasehold interest in land, the term of which extends for the life of the lessee. In many ways, it resembles a life estate. In particular, life leases typically must prepay a large portion or all of the rent, and the possessionary interest of a life estate and a life lease both terminate with the life of the person holding the interest. However, a life estate is a freehold interest in land whereas a life lease is a leasehold interest in land that creates a landlord and tenant relationship.

The distinction between a life lease and a life estate should not be forgotten because a life lessee is subject to a lease. Accordingly, most, if not all, aspects of the law governing landlord and tenant relationships will apply and licensees should be aware of their duties and responsibilities, which apply to all lease transactions. The following characteristics of many life leases should also be considered.

Most, if not all, life lease offerings obligate the landlord to repay some or all of the prepaid rent to the lessee, or his or her heirs, on the death of the lessee or the termination of the lease. The obligation to repay the rent (capital payment) results from the contractual terms of the lease. The repayment term is basically peculiar to life leases. Licensees should familiarize themselves with the security arrangements, if any, associated with the obligation to repay and the financial ability of the landlord to make the repayment.

Additionally, landlords can generally terminate a life lease for non-payment of rent or a breach of any other covenant in the lease. The life lease may or may not be registrable. Section 4 of the Residential Tenancy Act provides that the Act does not apply to living accommodation rented under a tenancy agreement that has a term longer than 20 years. Life lessees generally may not assign or sublet their lease as the landlord typically controls the renting of the premises. Life leases generally obligate the lessees to pay monthly charges related to the maintenance and operation of the development. Often, these charges are payable as rent.

The Real Estate Development Marketing Act requires that a developer file a Disclosure Statement before marketing a leasehold unit of a term of three years or more in a development property containing five or more residential leasehold units. All long-term leases, including life leases contained within developments other than buildings comprised of strata lots, cooperatives or shared interests, are subject to the requirements of the Real Estate Development Marketing Act. Because the marketing of strata lots, cooperative interests and shared interests are specifically addressed in the Real Estate Development Marketing Act and because the definition of marketing includes selling or leasing, the offering of a long-term lease of a strata lot, cooperative interests or shared interests already requires compliance with the Real Estate Development Marketing Act.

Each offering of a leasehold interest, including a life lease, requires that a current Disclosure Statement, which has been filed with the Superintendent of Real Estate, be provided to the lessee. Developers may therefore be required to update the Disclosure Statement to ensure that it is current before each new leasehold interest is marketed. In other words, as lessees die or otherwise terminate their lease, the developer will offer a new leasehold interest which requires an up to date Disclosure Statement. Developers re-selling life leases must therefore provide a current Disclosure Statement to new lessees.

(v) First Nations Lands

The Superintendent of Real Estate has advised that his opinion is that RESA applies to the sale of real estate on First Nations property. However, the Superintendent is of the view that the Real Estate Development Marketing Act is not applicable to the sale or lease of development units on First Nations property and a developer is not required to file a Disclosure Statement or comply with any other requirements contained in the Real Estate Development Marketing Act when a development is located on First Nations property.

Licensees should advise consumers that the Real Estate Development Marketing Act does not apply and that the disclosure requirement and rescission rights contained in the Real Estate Development Marketing Act also do not apply. Furthermore, the Strata Property Act does not apply to multi-family developments located on First Nations land.

(f) Market Testing Prior to Filing a Disclosure Statement

The Real Estate Development Marketing Act prohibits marketing of development units unless a Disclosure Statement has been filed with the Superintendent of Real Estate. The Policy Statements prepared by the Superintendent’s office describe ‘‘Marketing’’ as ‘‘engaging in any transaction or other activity that will or is likely to lead to a sale or lease’’.

The Policy Statements indicate that the use of ‘‘letters of intent’’, ‘‘priority lists’’, ‘‘reservation agreements’’, ‘‘conversion rights’’, ‘‘rights of first refusal’’, or any similar agreement that carries with it the right to acquire a

development unit, falls within the meaning of marketing. Licensees should be very careful to avoid the use of such agreements and to avoid receiving any deposits prior to the filing of a Disclosure Statement.

The Policy Statements permit developers to advertise a proposed development and communicate with potential purchasers as long as potential purchasers do not gain the impression that they have a right to acquire the development unit. To avoid confusion, the Policy Statements recommend that every advertisement contain the name and address of the developer, the telephone number of at least one representative from whom information and a Disclosure Statement (when available) can be obtained, and a prominent disclaimer stating that the advertisement is not an offering for sale and that such an offering can only be made after filing a Disclosure Statement.

(g) Early Marketing

The Real Estate Development Marketing Act permits developers to begin marketing development units prior to meeting the requirements for approvals and permits if the developer has received approval in principle to construct or otherwise create the development and the permission of the Superintendent of Real Estate to begin marketing.

The Real Estate Development Marketing Act also permits developers to begin marketing development units prior to meeting the requirements relating to the assurance of services if the developer satisfies the requirements established by the Superintendent in a policy statement.

Policy Statements 5 and 6 allow a developer to market strata lots, subject to certain restrictions, without a building permit (#5) or a firm financing commitment (#6).

Licensees should be aware that in both cases, any Contract of Purchase and Sale entered into by a buyer must:

  • be terminable at the option of the buyer for a period of seven days after receipt of the amended Disclosure Statement if the building permit materially changes the layout or size of the applicable development unit, the construction of a major common facility, including a recreation centre or clubhouse, or the general layout of the development;
  • if an amendment to the Disclosure Statement that sets out the particulars of the building permit or financing was not received within 12 months after the initial Disclosure Statement was filed, be terminable by the buyer until an amendment is filed;
  • require that no greater than 10% of the purchase price be paid by way of deposit or other wise; and
  • require that all such funds including, where applicable, interest earned, be returned to the buyer forthwith upon notice of cancellation by the buyer without deduction.

Risks Associated with Purchasing ‘‘Pre-Sale’’ Residential Units

The following information has been provided by the Superintendent of Real Estate (see the Superintendent’s website at www.fic.gov.bc.ca/pdf/real_estate/REDMA-07-02.pdf). Licensees who work with buyers are encouraged to familiarize themselves with this information and to make it available to their clients.

(h) Pre-Sale Contracts

Developers in British Columbia commonly pre-sell residential units such as strata titled apartments and townhouses. These ‘‘pre-sales’’ include any residential unit that is purchased prior to the completion of construction. Typically developers enter into contracts that provide for units to be built within two years at a fixed price, and require deposits to be paid by the prospective purchasers. The deposits are held in trust by a lawyer, notary public or real estate brokerage, unless deposit protection insurance is obtained, in which case the deposits may be released to the developer. If a proposed development does not proceed and the purchase contract is terminated, pre-sale purchasers are entitled to have their deposit money repaid.

However, unless the pre-sale contract requires interest to be paid, the purchaser may not receive interest on that deposit. This is something that a purchaser will want to clarify at the time that they enter into a contract.

Obtain Professional Advice

In order to better understand the development, the prospective purchaser may wish to consult with a real estate licensee before entering into any contract. A licensee can explain real estate terms and practices and provide information about available properties in the purchaser’s price range. Additionally, prospective purchasers may wish to consult a lawyer to better understand their rights and obligations in respect of an existing or proposed pre-sale contract. A lawyer will be able to provide advice with respect to the purchaser’s responsibilities under the contract, including any termination or extension rights.

Review the Disclosure Statement

A prospective purchaser should carefully review the developer’s Disclosure Statement. TheReal Estate Development Marketing Act provides that a developer must not enter into a contract to sell a development unit unless a copy of the Disclosure Statement has been provided to the purchaser and the purchaser has been given a reasonable opportunity to read it. The Disclosure Statement explains what the developer is selling and describes the purchaser’s right under the Real Estate Development Marketing Act to cancel the pre-sale contract within seven days of signing it. It is important for prospective purchasers, who either already have a pre-sale contract or are considering entering into one, to appreciate the risks associated with them. Some of these risks are explained below. There may also be other risks, depending on the specific terms in the pre-sale contract and the specific circumstances of the development.

Pre-Sale Risks

A proposed development may be delayed, or may not proceed at all, for a variety of reasons including: inadequate sales; delays in obtaining financing or building permits; higher than expected costs for construction materials; and an inability to hire skilled construction workers.

If a proposed development is delayed beyond the completion date set out in the presale contract, the contract may provide that it is terminated unless both the purchaser and developer have agreed to an extension. If market prices have increased during a delay in construction, a purchaser may be asked to pay a higher purchase price in order to extend the original contract or obtain a new contract. There is also a risk that the developer may not agree to an extension or new contract and instead sell the unit to another purchaser. Purchasers who initially sought legal advice on their pre-sale contract will be aware of any potential termination dates or may return to their lawyer for clarification of the options available. Prospective purchasers who wish to complete their purchases should, with the appropriate professional assistance, seek a written extension of their pre-sale contract before the termination date set out in that contract.

Delays in development may require prospective purchasers to arrange temporary accommodation or delay moving from their existing homes. As delays that occur in a rising market may also be accompanied by price increases, prospective purchasers should consider how to invest their purchase monies during that time so as to keep pace with any increase in real estate prices. For example, if an existing home is to be sold to fund the purchase of a proposed unit, the homeowner may wish to delay the home sale and use any increase in the home’s value to help fund the ultimate purchase of the proposed unit. There is also a risk that real estate prices may decline in the future. If the developer completes a pre-sale contract within the time set out in the contract, the purchaser may be obligated to complete the purchase at the agreed price, even though the real estate may have declined in value. If a purchaser fails to complete the purchase, the specific terms of the contract may authorize the developer to not only keep the deposit but also pursue other legal remedies. Such remedies may include legal action to seek compensation from the purchaser for any losses beyond the amount of the deposit, or actual performance of the contract. A purchaser may wish to assign the contract to another purchaser prior to the completion date. Depending on the specific terms of the pre-sale contract, assignments may not be permissible, or may require a substantial assignment fee to be paid to the developer. The risks associated with pre-sales apply to a new purchaser who is assigned a pre-sale contract.

Additionally, depending on the specific terms of an assignment, the new purchaser may not recover any payments made to the initial purchaser and developer to allow the assignment. A pre-sale contract may allow the developer to substitute equivalent materials or make adjustments to the layout of the unit or the development. In the current real estate market, purchasers at several developments have had their pre-sale contracts terminated and this has led to complaints about some of the risks that are described above. It is important for all prospective purchasers to appreciate those risks in order to better understand any existing pre-sale contract and make a more informed decision about whether or not to enter into a pre-sale contract.

For further information on real estate transactions and contact information for government offices and industry associations, visit the Superintendent’s website at www.fic.gov.bc.ca/usefullinks/default.htm or the Homeowner Protection Office website at www.hpo.bc.ca/files/download/Bulletins/BuyingANewHome.pdf. Various industry groups also provide information and seminars relating to the purchase and sale of real estate. First-time home buyers may wish to take advantage of these educational events to increase their knowledge in this area.

(i) Deposits

The ability of developers to hold deposits is prevented by the Real Estate Development Marketing Act. The Real Estate Development Marketing Act requires that a developer, who receives a deposit, must place the deposit with a brokerage, lawyer or notary public, who holds the money as a trustee for the developer. The trustee holds the funds on deposit for the developer and purchaser and not as agent for either of them.

The deposit may only be released as follows:

  • if the money was paid into the trust account in error;
  • to the purchaser with the written consent of the purchaser and the developer;
  • if the developer certifies that the rescission period has expired, the subdivision or strata plan has been filed, the development may be lawfully occupied, and the purchaser’s interest is either registered or evidenced in an instrument delivered to the purchaser;
  • if the developer certifies that the rescission period has expired and the purchaser has failed to pay a subsequent deposit and the contract permits the developer to cancel the contract under those circumstances;
  • if the developer will use the deposit as permitted under the Real Estate Development Marketing Act;
  • if the purchaser rescinds the purchase agreement within the time provided by the Real Estate Development Marketing Act;
  • if the funds are unclaimed as provided for in section 32 of RESA;
  • if there are adverse claims to the funds and the trustee pays the fund into court in accordance with section 33 of RESA;
  • in accordance with a court order; and
  • in accordance with any regulations under the Real Estate Development Marketing Act.

The Real Estate Development Marketing Act permits a developer to use deposits for purposes related to the development property, including the payment of expenses relating to the construction and marketing of the development, if a developer has obtained deposit insurance (i.e., entered into a deposit protection contract). Before the trustee may pay the funds to the developer, the developer must enter into a deposit protection contract with an insurer and provide an original or true copy of the contract to the trustee. Additionally, the developer must provide notice of the deposit protection contract to the purchaser in the Disclosure Statement.

(j) Remedies and Enforcement

The Real Estate Development Marketing Act provides that a purchaser may rescind a purchase agreement within seven days after the later of the date that the purchase agreement was made or the date that the developer received the written statement from the purchaser acknowledging that the purchaser had an opportunity to read the Disclosure Statement.

If a purchaser is entitled to receive a Disclosure Statement but does not receive the Disclosure Statement, the purchaser may rescind the purchase agreement at any time including after the title or other interest has been transferred to the buyer.

Licensees should also be aware that no contract to purchase or lease a development unit is enforceable against a buyer or tenant by a developer who has breached the requirements of the Real Estate Development Marketing Act relating to the requirements for approval, the filing and provision of Disclosure Statements and the handling of deposits.

The Real Estate Development Marketing Act permits the Superintendent of Real Estate to conduct an investigation if the Superintendent has reason to believe that a developer is either contravening the provisions of the Real Estate Development Marketing Act or has failed to comply with an order of the Superintendent. At the conclusion of an investigation, the Superintendent may require the developer, or an officer, director, controlling shareholder or partner of the developer, to attend at a hearing.

At the conclusion of the hearing, the Superintendent may order that the developer pay an administrative penalty of up to $50,000 in the case of a corporation and up to $25,000 in the case of an individual.

Licensees must be particularly careful when acting as an agent of a developer that they ensure compliance with the requirements of the Real Estate Development Marketing Act, including the requirement to deliver a Disclosure Statement that plainly discloses all facts and, if the brokerage retains the deposits, that they are only released in accordance with the provisions of the Real Estate Development Marketing Act.

(k) Interacting with a Developer’s Sales Representatives

Sometimes when a licensee working with a buyer introduces that buyer to a new home or strata title project, the developer’s onsite sales team will ask that licensee to hand the buyer over to them. This can happen whether the developer’s marketing team is licensed or employed directly by the developer and not licensed.

The developer and/or its sales team are more knowledgeable about the project and various finishing issues; therefore, they might believe negotiations will be smoother if handled by them. Typically, the licensee who has introduced the buyer to the project is told that he or she will be paid remuneration if the buyer purchases a unit.

Licensees and buyers both need to be aware that their relationship and the buying process will change if this proposal is accepted. First, the buyer will likely not have any agent representing his or her interests in the purchase. Second, when it comes time to write an offer, this will often be done using a contract that has been prepared by the developer’s lawyers. The preprinted clauses in this contract may be more beneficial to the seller (Developer) than those contained in the standard Contract of Purchase and Sale most licensees use. Finally, the buyer may not receive timely advice with respect to appropriate holdback or deficiency provisions.

If a licensee is prepared to hand the buyer over in this situation and the buyer agrees, the licensee should confirm in writing that:

  • the licensee will be receiving remuneration from the developer if the buyer purchases;
  • there is a change in the agency relationship, and the nature of the agency relationship, if any, the licensee will be providing; and
  • the buyer should seek independent legal advice before signing a contract to purchase.

A final note of caution. Sometimes after this has taken place and the buyer is in the midst of negotiations or concerned about something, that buyer will contact the licensee for advice. Licensees need to be careful not to step back into the role of the buyer’s agent unless they are ready, willing and able to accept that responsibility. It may be more appropriate to refer the buyer to his or her lawyer or the developer’s sales team.

7. New Construction

Licensees should be aware that there are special considerations when dealing with transactions that see buyers acquiring properties that require the seller construct a new building on the property pre or post closing. Similarly there are special considerations when dealing with transactions that see buyers acquiring properties that have partially constructed or substantially constructed buildings on the property. Although some of these issues are discussed in the section below, a licensee who is not experienced in this area should seek guidance from their managing broker.

(a) Agreement with Seller/Builder to Construct a New home for a Buyer

[12/03/2010 The following information updated]

Licensees should be aware that there are special considerations when dealing with transactions that see buyers acquiring properties that require the seller to construct a new building on the property pre or post closing. It is not advisable to include an agreement to build a house or substantially renovate a house in a standard form of contract of purchase and sale. Either you will need a specially crafted contract of purchase and sale or use a standard contract of purchase and sale in conjunction with a building contract.

In situations where the seller will be building the house prior to completion, or where the seller will build the house post-closing, a real estate licensee should recommend that both parties obtain independent legal advice, so that they fully understand their respective rights and obligations under the agreement. The parties should also verify the GST and Property Transfer Tax considerations through independent legal and accounting advice.

Some properties are sold with independent warranties on appliances, furnaces, roofs, etc. in addition to any new home warranty that may be provided.

(b) Building Contracts

[12/03/2010 The following information updated]

A specially crafted contract of purchase and sale may have the terms relating to the building of the house contained within that contract, or the parties may set out those provisions in a separate building contract. In either case, the contract should address the following issues (this list is not exhaustive):

  • describe the building to be constructed in significant detail, typically by attaching architectural or building plans and landscaping plans;
  • include detailed specifications as to the materials to be supplied and improvements constructed, including dollar allowances for such things as floor coverings, light fixtures, plumbing fixtures and cabinets;
  • specify who is responsible for obtaining building and all other permits required as well as any other approvals required;
  • specify the degree of finishing and the standard or quality of work;
  • provide for a mechanism to deal with any changes the buyer wants to the building after the building contract has been entered into, and how cost overruns are to be dealt with;
  • specify the work that will not be included as part of the contract;
  • establish timelines including when construction should begin, when certain stages of construction should be reached and when construction should be completed;
  • specify payments schedules and whether the contract will be for specified amount (“fixed price”) or the total cost of all work plus a fee for the builder (“cost plus”) and how and when payments will be made;
  • detail any and all warranties to be provided by the builder including any new home warranty required under the Homeowner Protection Act;
  • address who will carry insurance on the building while under construction
  • provide that the builder and all sub-trades will carry Worker Compensation Insurance and liability insurance;
  • address how deficiencies will be identified and corrected;
  • provide for a builder lien holdback (see below) as well as a deficiency holdback (see below);
  • specify what triggers the Completion Date (issuance of an occupancy permit etc.)
  • address GST issues; and
  • include dispute resolution provisions.

As you can imagine building contracts can be long, complex documents. Both parties (builder and buyer) should obtain independent legal advice prior to entering into a building contract, whether its terms are contained within a contract of purchase and sale or are contained within a separate building contract.

(c) Deficiencies

[12/03/2010 The following information updated]

The building contract should provide for a mechanism of identifying construction deficiencies, the date by which they must be repaired, any holdback mechanism and a dispute resolution process.

The typical deficiency provision will require that representatives of both the buyer and the seller (builder) jointly conduct a walk-through of the property prior to possession in order to identify any work that requires correction. The parties should prepare a written deficiency list at the time that this walk-through is completed, and both seller and the buyer must sign and date the list. A copy of the list should be retained by both parties.

If there is a dispute as to any particular deficiency, the contract should provide for a neutral third party to determine the extent of the deficiencies (typically an architect or engineer), the cost of repairing the deficiencies and whether or not they are satisfactorily completed.

If the builder agrees to a deficiency holdback, a licensee can use the following clause to provide for such a holdback.

Walk-Through Inspection Deficiency List Clause

The Buyer and an authorized representative of the Seller will jointly conduct a walk-through inspection of the property no later than (number of days) days before the Completion Date.

The Parties will, immediately after completion of the walk-through inspection, complete a deficiency list of mutually agreed upon items that are to be remedied by the Seller (the “Deficiency List”). The Deficiency List, which will form part of the contract will identify the deficiencies and include a mutually agreed upon value for each of the deficiencies to be remedied. Both parties will sign, date and retain a copy of the Deficiency List. The quality of work and materials used to correct the deficiencies will be equal to or better than that of the surrounding construction.

In the event that the deficiencies are not rectified (number of days) days prior to the Completion Date, the Buyer’s conveyancer will hold back from the sale proceeds the amount specified for any uncorrected deficiency until all the deficiencies specified on the Deficiency List are completed, and will place this holdback in the Buyer’s conveyancer’s trust account.

The Seller agrees that if the conveyance of the Property has completed and any of the specified deficiencies have not been corrected, the Buyer’s conveyancer will retain the specified holdback until the Seller corrects the deficiencies, which shall not be later than (number of days) days after the Completion Date. The Seller agrees that if the deficiencies have not been corrected by the later date, the Buyer’s conveyancer may release the balance of holdback to the Buyer and the Buyer may correct the deficiencies himself/herself.

Any dispute concerning the identification and pricing of deficiencies, the rectification of the deficiencies, and release of the holdback will be settled by _________________ [or the following alternative language: “arbitration under the British Columbia Commercial Arbitration Act” at the expense of (the Buyer, the Seller, or both)]

* The Homeowner Protection Office has outlined a number of additional methods for resolving disputes, including mediation, arbitration and litigation. For owners of homes that are required to have new home warranty insurance under the Homeowner Protection Act (homes built by licensed residential builders with building permits applied for on or after July 1, 1999), a mandatory mediation process has been set up. Owners who are in a dispute with their home warranty insurance providers can compel them to mediation. In addition, the Notice to Mediate (Residential Construction) Regulation allows any party to a Supreme Court action involving a residential construction dispute to compel the other parties of the dispute to a structured mediation session. Both mediation processes are performed independently of the HPO. For further information, refer to the HPO website at www.hpo.bc.ca

A well drafted deficiency holdback clause will provide a dispute resolution mechanism for any dispute that arises between the parties. If the deficiencies are not corrected in accordance with the deficiency clause, the clause will typically provide that the buyer may (but not must) elect to use any retained deficiency holdback to cure the defects. Alternatively they may refer the matter to the designated arbitrator (if one is designated in the deficiency clause) or if the clause simply refers to the Commercial Arbitration Act, they may start the process of invoking that Act and choosing an arbitrator. Or they may elect to sue the seller/builder for breach of contract if arbitration is not provided for or if the arbitration clause allows for such actions. If there is a new home warranty provided as part of the transaction, the buyer may also pursue a claim through the new home warranty provider. In any case, the parties should be referred to their respective legal advisers if such a dispute arises.

(d) Builders Lien Holdback

[12/03/2010 The following information updated]

The Builders Lien Act allows contractors, sub-contractors, workers and suppliers to file a lien against the title to properties where they supply work or materials. The lien provides some level of security for the lien claimants to ensure they get paid. Liens can be filed at any time up to 45 days after the work has been completed, and thus when buying a newly constructed home, a buyer can find a validly registered lien registered against the title to their property, that was filed after their closing but within 45 days of the work being substantially completed. Buyers can protect themselves from the potential for such liens by holding back a portion of the purchase price, until the lien period has expired. The holdback can be used to pay out the lien claimant or paid into court to discharge the lien.

It is a common belief that buyers are entitled to retain a builders lien holdback from the seller when purchasing newly constructed property. The belief may have developed because when the current Builders Lien Act was introduced in 1997, it included provisions allowing buyers of newly constructed homes to retain a holdback. However, this provision has never been brought into force. Additionally, because the Strata Property Act does provide for a holdback for newly constructed strata lots (see below), many buyers assume that a builders lien holdback is also permitted on non-strata titled property.

For new single-family construction, a buyer is not entitled to retain a holdback under the Builders Lien Act unless the contract of purchase and sale or building contract specifically allows for it. A buyer should attempt to negotiate such a provision into their contract of purchase and sale or building contract with the builder. However, a buyer must be advised that the builder may not agree to such a provision. If a holdback is not negotiated into the contract of purchase and sale or building contract, the builder has no obligation to allow a holdback and typically will not consent to such a holdback later.

If the builder agrees to a builders lien holdback, a licensee can use the following clause to provide for a holdback. A building contract typically will have much more extensive provisions detailing the builders lien holdback process that is in place throughout the entire construction period, not just a holdback on the conveyance.

Builders Lien Holdback Clause

The Buyer will holdback from the sale proceeds, as a builders lien holdback under the Builders Lien Act, an amount equal to 10% of the value of the improvements for (number of days) days after the date of issuance of the certificate of completion or, where there is no certificate, for (number of days) days after the later of the date the head contract is completed, abandoned or terminated or the occupancy permit is issued. The Buyer’s lawyer or notary will place the holdback in an interest-bearing trust account with interest accruing to the benefit of the Seller. The parties agree the improvements are valued at $(amount).

NOTE: Licensees are advised that the timing requirements for builders lien holdbacks is a complex area of law and they are well advised to have their clients seek legal advice in situations involving new or recent construction.

If builders liens are filed against the title to the property, the builder’s liens holdback funds can be used as part of the process of clearing the lien off title. The parties should be referred to their respective legal advisers if liens are filed.

It should be noted that unless the parties agree otherwise, a builders lien holdback cannot be used as a deficiency holdback and a deficiency holdback cannot be used as a builders lien holdback, as they serve two distinct purposes at law. To fully protect a buyer, both a deficiency holdback and a builders lien holdback should be negotiated as part of the contract.

If no builders lien holdback is provided for, the buyer will still be obligated to close on their purchase. The title should be monitored by the buyer’s conveyancer to see if a lien is filed within the lien period. If it is, the buyer, typically with the assistance of a lawyer, should demand the seller take steps to have the lien discharged. If the seller fails to do so, the buyer will have to seek a discharge, which may require payment of a substantial sum to the lien claimant or at least the payment of a sum equal to the amount of the lien into trust or into court. The buyer may be able to sue the seller for damages, but that may not be an easy or successful task.

(e) Builders Lien Holdback – Strata Lots

[12/03/2010 The following information updated]

The Regulation to the Strata Property Act provides that, upon the purchase of a new strata lot from an owner/developer, the purchaser may retain a holdback of 7% of the gross purchase price whether or not such a holdback is provided for in the contract of purchase and sale. Accordingly, in contracts of purchase and sale of strata lots, no holdback clause is needed.

If the buyer is buying a strata lot from an owner other than the owner/developer, where the seller has carried out renovations to the strata lot, the buyer should attempt to negotiate a builders lien holdback into their contract of purchase and sale as the Strata Property Act only provides for a holdback where the buyer is purchasing a new strata lot from an owner/developer. The buyer should be advised that the seller may not agree to such a provision.

(f) Agreement to Purchase a New Home Already Substantially Completed

[12/03/2010 The following information updated]

When drafting a contract of purchase and sale for a new home that is largely completed at the time of writing the contract, licensees should still consider inserting a provision in the contract of purchase and sale detailing what work remains to be completed and providing that it will be completed by the seller. Licensees should also consider providing for a deficiency inspection mechanism and both a deficiency and builders lien holdback.

(g) Remaining Work to be Completed

[12/03/2010 The following information updated]

Where the work is substantially completed, a standard contract of purchase and sale may be used, provided it is amended or additional terms are added to the contract of purchase and sale relating to the completion of the building and that address the following issues (this list is not exhaustive):

  • include detailed specifications as to the remaining work to be completed;
  • specify that the builder is responsible for obtaining an occupancy permit;
  • specify the degree of finishing and the standard or quality of work [similar to other homes constructed by the seller or existing work etc.];
  • provide for a mechanism to deal with any changes the buyer wants to the building after the building contract has been entered into, and how cost overruns are to be dealt with;
  • specify the work that will not be included as part of the contract;
  • establish timelines including when construction should be completed;
  • specify payments regarding any extra work;
  • detail any and all warranties to be provided by the builder including any new home warranty required under the Homeowner Protection Act;
  • address how deficiencies will be identified and corrected;
  • provide for the builder lien holdbacks (see below) as well as a deficiency holdbacks (see below);
  • address GST issues; and.
  • include dispute resolution provisions;

Both parties (builder and buyer) should obtain independent legal advice prior to entering into a contract of purchase and sale that provides for completion of construction of a new home.

(h) Deficiencies to be Corrected Prior to Closing

The contract of purchase and sale should provide for a mechanism of identifying construction deficiencies, the date by which they must be repaired, any holdback mechanism and dispute resolution.

The typical deficiency provision will require that representatives of both the buyer and the seller (builder) jointly conduct a walk-through of the property prior to possession in order to identify any work that requires correction. The parties should prepare a written deficiency list at the time that this walk-through is completed, and both seller and the buyer must sign and date the list. If there is a dispute as to any particular deficiency, the contract should provide for a neutral third party to determine the deficiencies (typically an architect or engineer). A copy of the list should be retained by both parties.

The Walk-Through Inspection Deficiency List Clause set out above can be used.

(i) Builders Lien Holdback on Walk-Through Inspection Deficiencies

[12/03/2010 The following information updated]

The Builders Lien Act allows contractors, sub-contractors, workers and suppliers to file a lien against the title to properties where they supply work or materials. The lien provides some level of security for the lien claimants to ensure they get paid. Liens can be filed at any time up to 45 days after the work has been completed, and thus when buying a newly constructed home, a buyer can find a validly registered lien registered against the title to their property, that was filed after their closing but within 45 days of the work being substantially completed. Buyers can protect themselves from the potential for such liens by holding back a portion of the purchase price, until the lien period has expired. The holdback can be used to pay out the lien claimant or paid into court to discharge the lien.

It is a common belief that buyers are entitled to retain a builders lien holdback from the seller when purchasing newly constructed property. The belief likely has developed because when the current Builders Lien Act was introduced in 1997, it included provisions allowing buyers of newly constructed homes to retain a holdback. However that provision was never brought into force when the Builders Lien Act was proclaimed and is still not in force. Additionally, because the Strata Property Act does provide for a holdback for newly constructed strata lots, many buyers assume that a builders lien holdback is also permitted on non-strata titled property.

For new single-family construction, a buyer is not entitled to retain a holdback under the Builders Lien Act unless their contract of purchase and sale specifically allows for it. A buyer should attempt to negotiate such a provision into their contract of purchase and sale with the builder. However, a buyer must be advised that the builder may not agree to such a provision. If a holdback is not negotiated into the contract of purchase and sale or building contract, the builder has no obligation to allow one and the builder typically will not consent to such a holdback later.

If no builders lien holdback is provided for, the buyer will still be obligated to close on their purchase. The title should be monitored by the buyer’s conveyancer to see if a lien is filed within the lien period. If it is, the buyer, typically with the assistance of a lawyer, should demand the seller take steps to have the lien discharged. If the seller fails to do so, the buyer will have to seek a discharge, which may require payment of a substantial sum to the lien claimant or at least the payment of a sum equal to the amount of the lien into trust or into court. The buyer may be able to sue the seller for damages, but that may not be an easy or successful task.

If the builder agrees to a builders lien holdback, a licensee can use the Builders Lien Holdback Clause set above.

(j) Homeowner Protection Act Matters

(i) Homeowner Protection Office
(1) What is the Homeowner Protection Office?

The Homeowner Protection Office (HPO) is a provincial Crown Corporation formed in response to the need to introduce basic consumer protection legislation and regulatory improvements within the residential construction sector. The HPO was established under the Homeowner Protection Act.

The HPO is responsible for:

  • licensing residential builders and building envelope renovators, as well as administering owner-builder authorizations;
  • monitoring the performance of the third-party home warranty insurance system under written by the private sector; and
  • carrying out research and education which benefits the residential construction industry and consumers. The Homeowner Protection Office can be reached at:

Homeowner Protection Office
Branch of BC Housing
650 – 4789 Kingsway, Burnaby, BC V5H 0A3
Phone: 604-646-7050, Toll-free: 1-800-407-7757
Website: www.hpo.bc.ca

(ii) New Homes Registry

The Homeowner Protection Office offers a free online New Homes Registry. Licensees can use this tool to help clients make more informed decisions when buying a new home in British Columbia by quickly checking the licensing and home warranty status of a new home or a new home under construction.

Licensees can find out if the home has a policy of home warranty insurance and is built by a Licensed Residential Builder, or whether it is built without home warranty insurance under an exemption, such as an Owner- Builder Authorization. Both single detached homes and multi-unit homes, including duplexes can be searched on the registry.

The New Homes Registry allows licensees to search online for new homes or new homes under construction by using the civic address. Information available also includes: the name and contact number of the warranty provider, the builder’s warranty number and whether an owner-built home can be legally offered for sale. Homes suspected as being illegally built along with the status of related compliance investigations will also be included on the registry.

All homes registered with the HPO on or after November 19, 2007 are searchable on the New Homes Registry. If searching for a home registered after July 1, 1999 and before November 19, 2007, or cannot find a property on the registry, contact the HPO.

The free New Homes Registry can be accessed by visiting the Homebuyers section of the HPO website.

(iii) New Homes – Residential Builder Licensing and Home Warranty Insurance Requirements

All residential builders in British Columbia are required to be licensed by the Homeowner Protection Office and arrange for third-party home warranty insurance on proposed new homes prior to obtaining a building permit. In geographic areas where building permits are not required for new home construction, licensing and warranty insurance must be in place prior to the commencement of the construction. Owner-built homes are an exception to the licensing and warranty insurance requirements.

Home warranty insurance can only be provided by insurance companies that have been approved by the Financial Institutions Commission (FICOM) and meet the requirements of the Homeowner Protection Act. (See more information available on the HPO website.)

Standards of coverage, commencement dates, exclusions and limits on coverage are set by government to ensure clarity and a consistent base-level of consumer protection.

(1) Minimum Standards of Coverage Required: 2-5-10

Home warranty insurance on new homes includes a minimum of two years on labour and materials, five years on the building envelope, including water penetration, and 10 years on structure. However, licensees should be aware that the coverage on labour and materials may, in some cases, be only 12 months.

In general, the two-year labour and materials coverage is broken down as follows: Any defect in materials and labour:

  • 12 months on detached homes and on non-common property in strata units (includes fee simple homes); and
  • 15 months on common property of strata buildings.

Defects in materials and labour related to the delivery and distribution systems (electrical, plumbing, heating ventilation, air conditioning, etc.):

  • 24 months for all buildings.

See the Homeowner Protection Act regulations available at in the HPO website for more details on minimum standards of coverage.

In order to minimize confusion about warranties, the HPO created a 2-5-10-year home warranty insurance logo. This logo can be used in the marketing efforts of licensed residential builders province-wide for homes that have the 2-5-10-year home warranty insurance required by the Homeowner Protection Act. The 2-5-10 year warranty insurance logo has been trademarked by the HPO. Licensed residential builders must sign a logo licensing agreement with the HPO in order to use the logo to identify new homes constructed with the mandatory 2-5-10-home warranty insurance. Enforcement of the use of the 2-5-10-year warranty insurance logo occurs through the HPO.

 


(2) Commencement Dates

Commencement dates on home warranty insurance are:

  • Fee simple (primarily detached dwelling units):
    • Custom homes: date of first occupancy or date of first occupancy permit, whichever transpires first.
    • Speculation homes: date of first occupancy or date of transfer of legal title to first owner, whichever transpires first.
  • Strata homes:
    • Strata unit: earliest of date of first occupancy or date of transfer of legal title to first owner.
    • Common property: earliest of date of first-unit occupancy in strata building or date of transfer of legal title to first owner in building.
(iv) Disclosure Requirements

For new homes constructed by licensed residential builders, a warranty provider must, as soon as reasonably possible after the commencement date for the home warranty insurance, provide an owner with a schedule of the expiry dates for coverages under the home warranty insurance as applicable to the dwelling unit and, in the case of a dwelling unit which is part of a strata plan, the schedule must include the expiry dates of the coverages applicable to the common property.

(v) New Home Warranty
(1) Home Warranty Insurance Exclusions

The Homeowner Protection Act regulations specify what the home warranty insurance companies can exclude from their policies.

General exclusions can include: landscaping; non-residential detached structures (however, parking structures, recreational and amenity facilities in multi-unit buildings are covered); commercial-use areas; roads, curbs and lanes (however, driveways are covered); site grading and surface drainage; the operation of municipal services; septic tanks and fields; and water quality and quantity.

Defect related exclusions can include: normal wear and tear; normal shrinkage of materials from construction; use of new home for non-residential purposes; materials, labour and design supplied by the owner; damage caused by anyone other than the residential builder; damage caused by insects or rodents; failure of an owner to prevent or minimize damage and acts of nature.

(2) Limits on Coverage

Coverage on claims is as follows:

  • Fee simple (primarily detached dwelling units):
    • The lesser of the first owner’s purchase price or $200,000.
  • Strata homes:
    • Strata unit: lesser of the first owner’s purchase price or $100,000.
    • Common property: the lesser of $100,000 X the number of dwelling units in the building or $2.5 million per building.

The following are suggested clauses for use with respect to new-construction warranties where the seller is not an owner-builder:

Licensed Builder and Warranty Insurance Clauses

Subject to the Buyer confirming on or before (date) that the Seller is duly licensed pursuant to the Homeowner Protection Act and that the mandatory warranty insurance pursuant to that Act is in place.

This condition is for the sole benefit of the Buyer.

OR

The Seller represents and warrants that the Seller is duly licensed pursuant to the Homeowner Protection Act and that the mandatory warranty insurance pursuant to that Act is in place.

The Seller will provide to the Buyer on or before (date) all details of the warranty insurance coverage pursuant to the Homeowner Protection Act.

(3) Home Warranty Insurance on Homes under Construction

A buyer may be purchasing a new home being built by a residential builder (not an owner-builder) that has not been completed when the Contract of Purchase and Sale is negotiated. The home warranty insurance provided by a warranty provider generally begins on the earlier of when the home is occupied or upon transfer of title to the buyer. While it does not frequently occur, it is possible that the company providing the warranty insurance could revoke their commitment to do so prior to that time.

(4) Permission To Sell New Homes under Construction

Under the Homeowner Protection Act, new homes that are under construction but not complete may not be sold (or offered for sale) unless the home is covered by home warranty insurance or exempt. This affects new homes that originally had home warranty insurance coverage but are de-enrolled for a variety of reasons, including: cancellation of a builder’s contract, owner bankruptcy or cancellation of builder’s acceptance by a warranty provider. Such homes may no longer be offered for sale or sold ‘‘as is.’’ Owners must write to the HPO for the registrar’s express permission, and may be subject to conditions, such as that the home is sold to a licensed residential builder to enrol with home warranty insurance. This ensures that a partially complete new home is not inadvertently sold without the protection of the legislation in place for a new homebuyer. The prohibition applies to new homes at all stages of construction.

The Homeowner Protection Act states that a new home built by a residential builder may not be built, offered for sale, or sold without warranty insurance. The following clause could, however, make a buyer’s position more certain should the warranty insurance commitment be revoked for any reason.

Mandatory Warranty Insurance Coverage Clause

It is a fundamental term of this contract that the mandatory warranty insurance coverage required pursuant to the Homeowner Protection Act be provided.

(vi) Home Warranty Insurance on Resale Homes

The Homeowner Protection Act creates certain warranty insurance disclosure requirements for warranty providers, but does not place any requirement on future owners to ensure that they provide details on the home warranty insurance to subsequent buyers.

Home warranty insurance stays with the property. Therefore, if information on the warranty insurance is not provided to a subsequent buyer, it does not mean that a claim cannot be made on the policy.

Subsequent buyers should be provided copies of home warranty insurance documents, including information regarding the expiry dates associated with the policy. Not being aware of the expiry dates could result in missing the opportunity to submit a claim under the policy. If such documents have not been provided to a buyer at the time an offer is being written, the Contract of Purchase and Sale should include a clause that makes the contract conditional on the seller providing home warranty insurance documents to the buyer, and the buyer having an opportunity to review and accept the policy. While the buyer will not be able to change the level of coverage provided under warranty, he or she may be concerned about the length of the remaining term of the policy. Wording such as the following should be used in these circumstances.

Receipt of Home Warranty Insurance Documents Clause

Subject to the Seller providing to the Buyer a copy of the home warranty insurance policy, and the Buyer being satisfied as to this policy, on or before (date) .

This condition is for the sole benefit of the Buyer.

Ω If not using the standard form Contract of Purchase and Sale, refer to ‘‘Contracts under Seal

(vii) Owner-Built Homes – Changes to the Homeowner Protection Act

No person may build, sell or even offer to sell a new home except in compliance with the HPA.  Under that Act, a new home is defined to include a home that is "substantially reconstructed".  Sections 20.1 and 22(1.1) prohibit the offer or sale of an owner-build home and new home respectively unless specified conditions are met.  A licensee may not accept a listing of a new home unless and until the owner has complied with the requirements of the HPA.

When the Homeowner Protection Act regulations, came into effect on July 1, 1999, owner-builders were permitted to be exempt from licensing and home warranty insurance requirements provided that they built a detached, self-contained dwelling for their own personal use not more than once every 18 months. Owner-builders who sold their home within 10 years of completion were required to provided prospective purchasers with an Owner-Builder Declaration and Disclosure Notice identifying that the builder was not licensed and was not providing a policy of home warranty insurance, however a 10-year statutory warranty would apply, giving the purchaser some rights against the owner-builder should defects occur during the 10-year period.

There was a sizeable abuse of this owner-builder exemption, involving either an owner who was not actually building or managing the construction of the home himself or herself or an unlicensed builder who was trying to avoid meeting the requirements of licensing and the cost to provide 2-5-10-year home warranty insurance for the home buyer.

As of November 19, 2007, changes to the Homeowner Protection Act and Regulation regarding owner-built homes enhanced protection for homebuyers, including the following changes:

  • Individuals planning to build a new home for their personal use are required to meet stricter eligibility requirements, pay a fee, and obtain an Owner-Builder Authorization from the HPO prior to commencing construction of the home.
  • Owner builders must occupy the new home themselves for at least one year after obtaining an occupancy permit and are not permitted to sell or rent the new home during that one-year period. The owner-builder is also not permitted sell a new home during construction ‘‘as is’’ without permission from the HPO.
  • Owner builders who sell their home within the first 10 years after obtaining an occupancy permit are obligated to subsequent purchasers for defects in the new home during that 10-year period. The legislation clarifies that an owner-builder’s obligations under the statutory warranty are similar to obligations of a licensed residential builders under a policy of home warranty insurance. That is, 2 years for material and labour, 5 years for defects in the building envelope and 10 years for structural defects. The statutory warranty enables subsequent purchasers to sue the owner-builder for defects as set out on the statutory warranty. There are some reasonable exceptions to the statutory warranty (for example, defects caused by someone other than the builder, natural disasters) and these are set out in detail in the Regulation.

Licensees acting for either an owner-builder or a potential purchaser can check the HPO’s New Homes Registry to determine whether a new home built under an Owner-Builder Authorization can be legally sold as having met the occupancy requirement.

Buyers should be aware that the statutory warranty from an owner-builder is only as good as the ownerbuilder’s ability to pay and/or their ability to rectify the defects of the home. Factors such as ongoing financial stability, continued local presence and an owner-builder’s willingness to fulfill his or her obligations, may affect the buyer’s ability to seek recourse for these defects. Licensees acting for buyers of such homes should advise buyers to consider these issues in making their purchase decision.

(viii) Owner-Builder Disclosure Notice

Owner builders who built their home prior to November 19, 2007 must continue to provide prospective purchasers with the old-form Owner-Builder Declaration and Disclosure Notice within the first 10 years after occupancy.

Owner builders building under an Owner-Builder Authorization (after November 19, 2007) are required to provide an Owner-Builder Disclosure Notice, obtained from the HPO, to prospective purchasers within the first 10 years after occupancy. The owner-builder must advise the HPO of the occupancy date and the HPO does not release the Disclosure Notice until the one-year occupancy requirement has been verified. Subsequent purchasers are also required to provide the Disclosure Notice if they sell the home within the 10-year period. The Disclosure Notice will state that the home was built under an Owner-Builder Authorization, when the 10-year period started, and whether or not there is a voluntary policy of home warranty insurance in place for the home.

NOTE: A survey of owner-builders conducted in 2007 found that the majority of purchasers of owner-built homes did not receive a disclosure notice and did not know whether or not their home had home warranty insurance. Not providing a disclosure notice is an offence under the legislation and, thanks to stronger compliance tools now available to the HPO, the requirement to provide the disclosure notice will receive increased attention.

When a licensee represents a seller who is an owner-builder, or who is a subsequent owner within the first 10 years as required by the HPA Regulations, the licensee should insert a clause in the Contract of Purchase and Sale confirming delivery of the Owner-Builder Disclosure Notice as follows:

Receipt of Owner-Builder Disclosure Notice Clause

The Buyer acknowledges having received a copy of the Owner-Builder Disclosure Notice dated (date) , prior to making this offer, in accordance with the Homeowner Protection Act and regulations.

(ix) Permission To Sell

Despite the occupancy requirement for owner-builders, the Homeowner Protection Act does allow an ownerbuilder to apply to the HPO on the basis of undue hardship for permission to sell during construction or earlier than 12 months after occupancy. For homes built under an Owner-Builder Authorization, applicants can download an application form from the HPO website and mail in the completed form along with any required supporting documentation and the applicable processing fee. Such approvals are not given lightly and conditions may be imposed on any approval given. An owner-built home may not be offered for sale or sold either during construction or earlier than the 12 months from obtaining an occupancy permit without approval.

(x) Illegal Sales under the Homeowner Protection Act

Licensees acting for either owner-builders or purchasers can avoid becoming a party to an offence under the HPA by remembering the following:

  • Owner-built homes may not be offered for sale or sold without providing the Owner-Builder Disclosure Notice to all potential purchasers.
  • For owner-built homes since November 19, 2007, Owner-Builder Disclosure Notices must be obtained from the HPO and will not be released until the one-year occupancy requirement has been verified.
  • The HPO is advised by the Land Title Office whenever the title of an owner-built home is transferred and pursues enforcement action if the sale is illegal (which may include compliance orders, monetary penalties, court injunctions, or convictions under the Homeowner Protection Act).

Licensees can assist owner-builder clients by advising that occupancy permit information should be filed early with the HPO (owner-builders can file using their online account) so the HPO will have time to verify the information and provide an Owner-Builder Disclosure Notice well in advance of any offers for sale.

(xi) Homes with Building Envelope Renovations

Repair contractors who perform building envelope renovations, which meet a certain dollar value and percentage of building face to be repaired thresholds, are required to be licensed by the HPO as building envelope renovators and arrange for warranty insurance on the repair in order to obtain a building permit or commence construction in geographic areas where building permits are not required. Some exceptions apply. Contact the HPO for more details.

Coverage for warranty insurance on building envelope repairs subject to the licensing and warranty insurance provisions of the Homeowner Protection Act regulations includes two years on labour and materials and five years on the building envelope including water penetration. In strata title developments, the ‘‘holder’’ of the policy for repairs is typically the strata corporation. A warranty provider must, as soon as reasonably possible after the commencement date for the materials and labour warranty or water penetration warranty, provide the original holder with a schedule of the expiry dates for coverages under the materials and labour warranty and water penetration warranty.

Licensees wishing to determine whether or not a particular building envelope renovator is licensed may visit the public registry of licensed builders on the HPO website at www.hpo.bc.ca. Further information regarding the Building Envelope Renovation Regulation may also be viewed on the HPO website.

(xii) Final Inspection or Certificate of Occupancy

Some cities or municipalities will issue an occupancy permit, while others will carry out a final inspection. If there is any doubt as to whether this final step has been concluded, an inquiry should be made at the building or permits department of the municipality or city.

 

(xiii) Construction To Be Finished Before Completion Date (for New or Unfinished Construction)

Licensees should discuss the progress of construction with the builder before inserting the Completion Date in the Contract of Purchase and Sale in order to allow enough time to completely finish the house. However, if it appears that unforeseen delays in construction will prevent the house being finished on time, the parties can always agree to extend the Completion and Possession Dates.

Because the parties can disagree on whether the house is ‘‘finished’’ for the purpose of the Completion Date, the use of an Occupancy Permit provides a convenient way to rely on a qualified third party.

Occupancy Certificate Clause

It is a fundamental term of this contract that the Seller must have finished all work, and delivered to the Buyer on or before the Completion Date, an unconditional Municipal/City/Regional District Occupancy Certificate or other evidence satisfactory to the Buyer that construction is finished.

This clause is onerous on the seller because it enables a buyer of an unfinished house to back out if the house is not finished by the Completion Date.

Licensees must remember that an Occupancy Permit does not mean that all deficiencies have been finished (i.e., landscaping). It just means that the buyer can safely occupy the house; however, the clause also says the seller (builder) ‘‘must have finished all work’’, so if there are still deficiencies at the time of completion, the deficiency holdback clause should be added as an addendum to the Contract of Purchase and Sale and delivered to the conveyancer, who will then hold back the appropriate amount.

(xiv) Importance of Regulated Electrical and Gas Work Being Done Properly in Homes

It is a legal requirement in the province that regulated electrical and gas work is done properly by licensed contractors who take out permits. Homeowners can do the work themselves, provided they have the required knowledge and skills and that the home is a single family residence and does not contain a suite. In both instances, permits must be taken out for the work – these are separate permits to municipal building permits and in most case are obtained through the BC Safety Authority. Prospective new homeowners should always be encouraged to check that those permits are in place, especially if there are indications that recent electrical or gas work was done in the home. This will give them peace of mind that it was done properly and is safe.

The BC Safety Authority (BCSA) is responsible for licensing contractors, to make sure they are qualified to do regulated work, and issuing permits for electrical and gas installations in most municipalities in BC.

Regulated work includes all work where electrical wiring or gas piping is extended or modified in any way, or where new or replacement gas fireplaces, water heaters, furnaces, ranges or cook tops are installed; such work requires a permit issued by the BCSA. Connecting gas barbecues to existing gas outlets and replacement of receptacles, dimmer switches, residential furnace thermostats, lamps and lighting fixtures do not require a permit.

Regulated gas or electric work done without the necessary permits in place is considered to be a material latent defect (MLD). All known MLDs must be disclosed by a seller and his or her agent before a transaction is agreed to. Failure to do so could lead to future legal issues or safety issues.

Regulated electrical and gas work can be done by certified or qualified electricians or gas fitters; however, they must either be licensed contractors or working for a licensed contractor to do this work. Only a licensed contractor can take out the required permit. The licensed contractor must also be bonded and the BCSA can call in that bond to have any unsafe installation work made safe.

BCSA inspects all work done by homeowners, thus providing assurance the work is done safely and to required codes.

For a list of licensed contractor s or information about permits, visit the BCSA’s website at www.safetyauthority.ca. and click on the Homeowners tab. Licensees can also call the BCSA toll-free at 1-866-566-7233.

The BC Safety Authority is an independent, self-funded organization that inspires safety excellence in British Columbia by partnering with business, industry and the general public to enhance the safety of technical systems, products, equipment and work.

8. Tenant Occupied Properties

(a) Application of the Residential Tenancy Act

The Residential Tenancy Act applies to residential tenancies in British Columbia. The Residential Tenancy Act contains exemptions for tenancies such as not for profit housing cooperatives, accommodation provided to students or employees, and living accommodation occupied as vacation or travel accommodation. The Residential Tenancy Act does not apply to commercial tenancies or to tenancies in a manufactured home park unless the tenant is renting the home and the home site from the same landlord. Tenancies in a manufactured home park are regulated by the Manufactured Home Park Tenancy Act.

The Residential Tenancy Act provides for a number of approved forms which must be used, such as the Condition Inspection Report, Notice of Rent Increase, Notice to End Tenancy and Application for Arbitration.

Licensees should contact the Residential Tenancy Branch at 1-800-665-8779 or www.gov.bc.ca/landlordtenant for more information and the required forms. 

(i) Key Provisions

Written Tenancy Agreements

Every tenancy agreement between a landlord and tenant must be in writing. The Residential Tenancy Act requires that the tenancy agreement set out the standard terms which are included as a schedule to the Residential Tenancy Regulation, as well as other relevant details, such as legal names of the landlord and tenant, the address of the rental unit, the date the tenancy agreement is entered into and the agreed terms regarding the start date of the tenancy, the amount of rent, the date the rent is due and the services that are included in the rent.

Condition Inspections at Start and End of Tenancy

Tenants and landlords must inspect the rental unit and sign condition reports at the start and end of each tenancy. A failure to do so will result in the landlord losing the right to claim damage against the security deposit or the tenant losing the right to the return of the deposit.

Re-keying Locks

The Residential Tenancy Act requires that, if requested to do so by a tenant, the landlord must re-key or alter the locks so that previous tenants do not have access to the rental unit. The cost of re-keying or altering the lock must be paid by the landlord.

Deposits and Rent Increases

Landlords may require a tenant to pay a security deposit but only at the time that the landlord and tenant enter into the tenancy agreement. Landlords may also require the tenant to pay a pet damage deposit if the landlord permits the tenant to keep a pet. The security or a pet damage deposit may not be greater than the equivalent of one-half of one month’s rent.

The security and pet damage deposits must be repaid to the tenant, subject to the ability of the landlord to withhold certain amounts, with interest, within 15 days after the date the tenancy ends, or the date the tenant provides a forwarding address in writing, whichever is later.

The interest that must be paid on a security or pet damage deposit is prescribed by the Regulations to the Residential Tenancy Act. A deposit interest calculator can be accessed at www.gov.bc.ca/landlordtenant.

Landlords may also collect deposits for access devices, such as garage door openers.

Landlords may not charge a tenant for accepting or processing an application for a tenancy, investigating the applicant’s suitability, or accepting the person as a tenant.

Landlords are permitted to increase the rent annually after giving three months’ notice. Rent may be increased by a percentage equal to the Consumer Price Index plus 2%. If the landlord increases the rent in accordance with the Residential Tenancy Act, a tenant may not dispute the increase at arbitration.

Pets

A landlord may prohibit pets or restrict the size, kind, or numbers of pets. The Residential Tenancy Act also permits a landlord to create rules governing a tenant’s obligations in respect of pets. A pet damage deposit may be charged either at the time the landlord and tenant enter into the tenancy agreement or during the tenancy if the landlord permits a pet after the commencement of the tenancy. The landlord may only require one pet damage deposit, regardless of the number of pets that the landlord permits.

Illegal Activities

A landlord may end a tenancy for illegal activity carried out by the tenant or a guest of the tenant if the illegal activity has caused or is likely to cause damage to the landlord’s property, has adversely affected the quiet enjoyment, security, safety or physical well-being of another occupant, or has jeopardized the lawful right or interest of another occupant or the landlord.

Quiet Enjoyment and Landlord’s Right To Enter

The Residential Tenancy Act provides that a tenant is entitled to reasonable privacy and the freedom from unreasonable disturbance. However, under the Residential Tenancy Act, the rights of the tenant are balanced with the landlord’s right to inspect the rental unit. The tenant may simply give the landlord permission to enter the property at the time that the landlord is seeking entry. Alternatively, the Residential Tenancy Act permits the landlord to provide written notice giving at least 24 hours’ and not more than 30 days’ notice to enter the property. The purpose for entering must be reasonable and must be provided in the notice. The Residential Tenancy Act specifically permits a landlord to inspect the rental unit monthly.

(b) Unauthorized Accommodation

Real estate licensees are to avoid advertising illegal suites as a possible source of revenue for homeowners. Section 4-7 of the Rules prohibits false or misleading advertising as follows:

A licensee must not publish real estate advertising that the licensee knows contains a false statement or misrepresentation concerning real estate, a trade in real estate or the provision of real estate services.

In order to avoid any confusion, licensees should use the following clause:

Properties Containing Unauthorized Accommodation Clause

The Buyer is aware that the property contains unauthorized accommodation and has been informed of the consequences of such ownership and the potential loss of income should the rental use be discontinued.

NOTE: Licensees should be aware that issues involving unauthorized accommodation often include construction or improvements to the property which could result in an order for demolition of the structure, a requirement by a municipal/city authority to upgrade to present bylaw requirements or for the removal of the addition and changes since the last inspection, the nullification of insurance, and a potential difficulty to mortgage the property.

(c) Sale of Rental Properties

It is recommended that the amounts of security deposits held on behalf of each unit, whether that unit is authorized or not, be specified in any Contract of Purchase and Sale. Information as to the date of the last rent increase for each unit should be included.

Confirmation of Tenancy Details Clause

The Seller warrants that (tenant’s name) is a (type of tenancy); the monthly rent is (amount) including (utilities included); payable on (day of the month rent is due) a security deposit of $(amount) was taken on (date) and the last rental increase was (date) .

A licensee who is listing or selling a tenanted property should ask for a copy of the tenancy agreement, if available. After January 1, 2004, the tenancy agreement must be in writing; however, tenancies entered into prior to that date may not have a written agreement. If a tenancy agreement is available, the licensee should attach a copy of it as part of the Contract of Purchase and Sale.

(d) Showing Rental Properties and the Use of Lockboxes

The Residential Tenancy Act permits a landlord to enter a rental unit either with the tenant’s permission or upon written notice of no less than 24 hours and no more than 30 days. If a tenant is unwilling to voluntarily agree to showings, it will be necessary for the landlord to comply with the specific terms of the Residential Tenancy Act in order to gain access to the rental unit.

The Residential Tenancy Act gives the landlord the right to enter with written notice between the hours of 8 a.m. and 9 p.m. Although not specifically provided for in the Residential Tenancy Act, presumably the listing agent falls within the definition of landlord as an agent of the owner. As a result, either the landlord or the listing agent may give notice to enter the property and must be present when the property is entered. A selling agent does not have the authority to enter the rental unit without the landlord or the landlord’s agent unless the selling agent has the permission of the tenant.

The tenant is permitted to have exclusive possession of the rental unit subject to the landlord’s right to enter. As a result, the landlord cannot require that the tenant vacate the property when it is shown.

The presence of a lockbox would permit access to people other than the landlord and the landlord’s agent. The entry of such individuals, if not accompanied by the landlord or landlord’s agent, may only occur with the permission of the tenant. As a result, lockboxes may only be used with the permission of the tenant.

(e) Terminating Tenancies

The Residential Tenancy Act permits a landlord to terminate a tenancy for a variety of reasons, including the late payment of rent and illegal activities. Additionally, a landlord may terminate the tenancy if the landlord or a close family member intends to occupy the rental unit, if the landlord intends to demolish the rental unit, or renovate or remodel the rental unit in a manner that requires the rental unit to be vacant.

Of importance to licensees is the ability of the landlord to terminate the tenancy when the rental unit is sold. A landlord may terminate the tenancy if the landlord has entered into an agreement to sell the rental unit and the purchaser asks the landlord to give notice to end the tenancy because the purchaser intends to occupy the rental unit. It is important to note that until the title has transferred to the purchaser, the only person entitled to give notice to the tenant is the seller/landlord.

Before a landlord can give written notice to a tenant on behalf of a purchaser, all conditions on the contract must have been removed.

If the rental unit is purchased by an individual, the notice to terminate the tenancy may be given because either the purchaser or a close family member wishes to occupy the rental unit. If the purchaser is a family corporation, the notice to terminate the tenancy may be given if a person owning voting shares in the corporation or a close family member intends to occupy the rental unit.

The Residential Tenancy Act requires that two months’ notice be given to terminate a tenancy or in the case of a fixed term tenancy, the date of termination may not be earlier than the specified end of the tenancy.

If a landlord has terminated the tenancy because the rental unit is to be occupied by the landlord, or a family member, or a purchaser or a family member, or because the landlord intends to demolish, renovate, or convert the premises to strata lots, not-for-profit housing, a caretaker’s suite, or to non-residential use, the landlord must pay the tenant, before the effective date of the notice, an amount equivalent to one month’s rent. If steps have not been taken to accomplish the stated purpose for ending the tenancy within a reasonable time or the rental unit is not used for that stated purpose for at least six months, the landlord or purchaser must pay the tenant an amount that is the equivalent of two months’ rent.

Licensees must ensure that the compensation that must be paid to a tenant if the landlord is required to provide a notice to end the tenancy on a purchaser’s behalf is negotiated between the buyer and the seller at the time the contract for the purchase and sale of the rental unit is entered into.

(f) Notice To Tenants

The Residential Tenancy Act permits a landlord to end a tenancy if the landlord has entered into an agreement to sell the rental unit, all conditions on which the sale depends have been removed, and the purchaser asks the landlord in writing to give notice to end the tenancy. A buyer may request that the seller give notice to end the tenancy if the buyer or a close family member of the buyer intends to occupy the rental unit, or, if the buyer is a family corporation and a person owning voting shares in the corporation, or a close family member intending to occupy the rental unit.

Notice to Tenants Clause

The Seller will give legal notice to the Tenant to vacate the premises, but only if the Seller receives the appropriate written request from the Buyer to give such notice in accordance with the requirements of section 49 of the Residential Tenancy Act.

Ώ NOTE: The Seller cannot give notice to the tenant until all the subject clauses have been removed.

(g) Seller To Remain as Tenant

In some cases, a seller wishes to remain as a tenant after the title has transferred to the buyer. The Residential Tenancy Act requires that all tenancy agreements be in writing and, additionally, that certain standard clauses be included in the tenancy agreement. As a result, the tenancy agreement should be a separate document from the Contract of Purchase and Sale. In addition to the clauses required in the tenancy agreement, the buyer and seller should also consider clauses relating to:

  • what is included in rent;
  • buyer access to premises — storage
  • garden maintenance;
  • insurance; and
  • notice.

However, in order to make it clear when the buyer may occupy the premises, the termination date should be settled at the time of the purchase negotiations. A clause such as the one below may be used, or for greater clarity, a tenancy agreement may be attached as a term of the offer. The benefit of attaching a completed tenancy agreement is that it leaves neither party the option of backing out of the transaction at a later date due to any uncertainty of terms.

Seller To Remain as Tenant Clause

Subject to the Seller and Buyer entering into a tenancy agreement on or before (date) for the Seller to occupy the premises as a tenant until (date) .

This condition is for the benefit of the Buyer and the Seller.

Ω If not using the standard form Contract of Purchase and Sale, refer to ‘‘Contracts under Seal

(h) Proper Handling of Security Deposits

Pursuant to section 19 of the Residential Tenancy Act, a landlord may require a tenant to pay a security deposit equivalent to one-half of one month’s rent. There is no requirement that a landlord holds the security deposit in a trust account but the landlord is required to pay the tenant interest on the security deposit at the rates specified in the Regulations.

Section 28 of RESA provides that when a security or pet damage deposit is paid to a licensee and deposited into the brokerage’s trust account, the funds are not held by the brokerage as a stakeholder.

It is, therefore, possible for the security or pet damage deposit to be paid to or on behalf of the landlord, without the need for written consent on the part of the tenant. Such consent would otherwise be required if the brokerage held the funds as a stakeholder.

Under the Residential Tenancy Act, the landlord must return the security or pet damage deposit, with interest, within 15 days of the end of the tenancy agreement or the date the landlord receives the tenant’s for warding address in writing.

The Residential Tenancy Act requires that the rental unit be inspected at the start and the end of the tenancy. If the tenant has failed to participate in the inspection, either at the beginning or the end of the tenancy, the tenant’s right to the return of the security or the pet damage deposit is extinguished. Correspondingly, if the landlord fails to inspect the rental unit or prepare a condition inspection report, the right of the landlord to claim against a security or pet damage deposit is extinguished.

A landlord may only retain an amount from a security or pet damage deposit that is agreed to by the tenant in writing, at the end of the tenancy, or is awarded by an arbitrator. In order to make a claim against the security or pet damage deposit, the landlord must file an Application for Arbitration. The application must be made within 15 days of the end of the tenancy.

9. Manufactured Homes

(a) Manufactured Home Sales

(NOTE: ‘‘Manufactured’’ homes include units known as ‘‘mobile’’ homes.)

(b) Licensing Requirements

Manufactured home dealers who provide real estate services are required to obtain a licence under the RESA. The Superintendent of Real Estate considers that the following real estate services require a licence under RESA:

  • negotiating the price or terms of a lease, even if the lease is a month-to-month lease;
  • making representations about the land, such as availability, value or price; and
  • taking deposits for the lease of land.

The Superintendent of Real Estate considers that the following are examples of activities that do not require a licence under RESA:

  • selling a new manufactured home at a dealer’s showroom or lot;
  • selling a manufactured home alone, without making any representations as to the land to which it is affixed; and
  • referring a prospective purchaser to the owner/manager of a manufactured home park.

(c) Sale of New or Used Manufactured Homes

[09/23/2014 The following section was amended with expanded information]
[04/03/2012 The following section was amended with new and expanded information]
[01/16/2011 The following section was amended with new and expanded information]

Acting for Sellers of Used Manufactured Homes

In order to list new or used manufactured homes for sale, licensees must:

  • verify that an approval mark, affixed by either an accredited certification or inspection body as listed in the BC Safety Authority Information Bulletin (see reference link below), or BC Safety Authority, is displayed in the home (see section 21 of the Electrical Safety Regulation),
    and
  • confirm that the home is registered with BC’s Manufactured Home Registry or that it has been de-registered under an existing exemption (see sections 4 and 5 of the Manufactured Home Regulation for details).
electrical-box

Manufactured Homes Checklist

  • Is there a CSA sticker or other approval mark in the home?
  • Is there an MHR sticker?
  • Have there been alterations?
    • When alterations to wiring are done under permit, the original CSA sticker is not invalidated
    • When alterations were done without a permit, the home must be inspected by a licensed electrical contractor under permit.

Used manufactured homes (whether deregistered or not) may only be offered for sale in BC provided they bear an approval mark such as a Canadian Standards Association (CSA) certification label (sticker).

If the home’s wiring has been altered, licensees should take steps to discover whether the alterations were done under permit. When alterations to the wiring have been done under permit, this does not invalidate the original CSA sticker. When wiring has been altered without a permit, before the manufactured home can legally be offered for sale, it must be inspected by a licensed electrical contractor under permit, or accredited inspection body acceptable to the appropriate provincial safety manager to certify electrical equipment for a specific installation. In the case of an accredited inspection body, a new approval sticker must be applied to the home.

The following scenarios illustrate some of the situations licensees should be aware of when listing manufactured homes for sale.

The Case of the Altered Wiring

Reiko is an experienced real estate licensee who has handled a number of sales of manufactured homes. She knows that without a valid CSA sticker or silver label, a used manufactured home cannot be offered for sale in BC. So when a recent client asked her to list his manufactured home, she made sure the CSA sticker was in place before listing the home.

However, when the new owners applied for a permit to make renovations to the home, they learned there had been previous alterations to the electrical wiring. Because the alterations had been done without a permit, the CSA sticker was now invalid. In order to offer the home for resale the owners would have to pay for an inspection, which could cost several thousand dollars. Upset, the new owners filed a complaint against Reiko.

What could Reiko have done differently?
When taking the listing, Reiko should have asked her clients whether there had been any alterations to the wiring, and if so, whether the work had been done with the appropriate permits. When she learned that the wiring had been altered without a permit, invalidating the CSA sticker, she should have recommended that her clients have the home’s electrical system inspected by a licensed electrical contractor under permit. If the clients were not willing to have the home inspected, Reiko would need to cease listing the property.

Certification or approval mark required for electrical equipment

21 (1) Subject to subsections (3) and (4), a person must not use electrical equipment in British Columbia, or offer for sale, sell, display or otherwise dispose of electrical equipment for use in British Columbia, unless the electrical equipment displays a label or mark as follows:

(d) in the case of used manufactured homes, used factory-built structures and used recreational vehicles, a label supplied by the appropriate provincial safety manager.

Source: Safety Standards Act, Electrical Safety Regulation

The Case of the Missing CSA Sticker

Ramon’s new clients want to sell their manufactured home. Ramon knows that he must note the CSA number, so he checks for a CSA sticker on the electrical panel, then on the exterior near the front door, and finally in the kitchen cupboards. He can’t find one.

Puzzled, he asks the clients to tell him more about the home, and learns that there has been a recent kitchen renovation. He concludes that the CSA sticker must have been removed along with the old cupboards.

What should Ramon do now?
When a licensee cannot find a CSA number or a silver label, they should discuss the requirements of section 21 of the Electrical Safety Regulation with their client, and suggest that the client hire a licensed electrical contractor under permit. In this case, an approval label would be required.

If the client is unwilling to have the property inspected and the licensee continues to be unable to locate a CSA sticker or silver label, the licensee should cease with the listing of the property.

The Non-Existent CSA Sticker

Roberta’s clients want to sell their older manufactured home. Roberta discovers that the home was built in 1963, before manufactured homes were required to conform to CSA certification standards. There is no CSA sticker in the home.

What should Roberta do?
Roberta must recommend to her clients that they have the home inspected by a licensed electrical contractor or an accredited inspection body acceptable to the appropriate provincial safety manager, to ensure that it meets current electrical safety standards. Once the appropriate label has been applied to the home, Roberta can list the property.

The Mysterious Manufactured Home

As Rasheed, a new licensee, pulls up into the driveway of his prospective clients’ property, he notes that it is a large two-storey home on an extensive, landscaped lot. When he talks with his clients about their intention to sell the home, Rasheed doesn’t ask whether it is a manufactured home— he assumes it isn’t one, because it doesn’t look like a “trailer.”

Spot the Difference

CSA number...

MHR number...

May be found on the

  • electrical panel
  • near the front door
  • kitchen cupboard
  • various other places depending on make/model of home.

May be found on the

  • electrical panel
  • left front corner of the home
    MHR Office may be able to advise of other locations where sticker may be found
 

Numeric (contains no letters)

But is Rasheed right? Manufactured homes can take many forms: from the traditional single or double-wide located in a manufactured home community (previously known as a mobile home park), to two-storey homes on rural properties, urban lots, or suburban streets.

When manufactured homes are sold with land, and/or have been altered, it can be difficult to tell by simply looking at the home whether or not it is manufactured. To be certain, licensees can consult the BC Assessment Roll Report. If the home is manufactured, the legal description of the home in the Roll Report will include the home’s Manufactured Home Registration (MRH) number.

However, if the number in the Roll Report begins with an A, B or Z, this indicates it is a “dummy number” issued by BC Assessment. When property assessors observe a manufactured home on the land and cannot locate an MHR number for the home, these dummy numbers are issued. They are a good indication that the home was likely built prior to April 1, 1978, when the Manufactured Home Registry was established, and has remained on that property since that time. The dummy number should alert licensees that the home has likely never been registered with the Manufactured Home Registry and may not meet CSA standards.

Sticker Confusion: CSA or MHR?

Rick, a new licensee, is preparing the listing information for a client’s manufactured home. The client isn’t sure what the home’s CSA number is, so Rick, who knows that CSA stickers are often found on a home’s electrical panel, asks to have a look at the panel. Sure enough, there is a sticker, and Rick immediately notes down the number.

But is Rick right?
Licensees must be careful not to confuse CSA stickers with Manufactured Home Registration (MHR) stickers. Both stickers can often be found on the electrical panel. However, the MHR number indicates that the home is registered with BC’s Manufactured Home Registry, a central register of ownership details that controls the movement of manufactured homes in BC. The MHR number is not an indication that the manufactured home is CSA approved.

 

Exemptions

Licensees should be aware that, when manufactured homes are sold with land, owners can apply to be exempt under section 21 of the Manufactured Home Act from the registration requirement with the Mobile Home Registry (this does not exempt the mobile home from the requirements under section 21 as noted above for a valid CSA sticker). Reasons for this exemption are provided for in section 5 of the Manufactured Home Regulation as follows:

5 (1) For the purposes of section 21 of the Act, the registrar may exempt a manufactured home from the operation of the Act or any provision of it if

(a) the manufactured home is located on and intended to be attached to land, each lessor-owner or other secured party with a security interest in the manufactured home who registered a financing statement in the personal property registry under the Personal Property Security Act using the registration number assigned under the Act consents to the exemption application and

(i) at least one registered owner of the manufactured home is registered in the land title office as an owner of the fee simple interest in the land, or

(ii) at least one registered owner of the manufactured home is registered in the land title office as a tenant pursuant to a lease for a term of not less than 3 years,

(b) the manufactured home is no longer capable of being used for residential accommodation, or

(c) the circumstances are such that the registrar considers it practicable to exempt the home from the operation of some or all of the provisions of the Act for a specified period of time.

When a manufactured home is exempt from registration, it may be difficult for a licensee to ascertain whether the home is actually a manufactured home. Licensees should look at the BC Assessment roll report which, in the legal description, should indicate a MHR number, specifically if the owner used the exempt manufactured home to qualify for a CMHC-insured mortgage of the land and premises. The MHR number is numeric and will not contain any letters.

Licensees are alerted to be aware of “dummy numbers” that are issued by BC Assessment. These numbers do not mean that the manufactured home has been de-registered. In the absence of an MHR number being provided by the Manufactured Home Registry, BC Assessment issues these numbers when they are assessing properties and observe a manufactured home on the land. These “dummy numbers” are indicated by an alphanumeric entry beginning with an A, B or Z, and are a good indication that the manufactured home in question was likely built prior to April 1, 1978 and has remained on the property since that date. As such, the manufactured home has likely never been registered with the Manufactured Home Registry and may not meet CSA standards.

New Manufactured Homes

New manufactured homes must conform to CSA testing and certification standards and are required to show evidence of conforming to the applicable standard.

When a new manufactured home is missing the approval mark, the owner or seller of that unit must apply to the certification agency for special acceptance and labeling. Applications for BC Safety Authority approval of new commercially produced manufactured homes will not be accepted.

Used Manufactured Homes

Used manufactured homes (whether de-registered or not) may only be offered for sale in British Columbia without re-inspection provided they bear an approval mark (CSA or Silver Sticker from an approved source – see BC Safety Authority) and  the wiring has not been altered. Additional wiring done under permit does not invalidate the original label. When the electrical wiring has been altered without a permit, the manufactured home must be inspected and a new approval label applied.

Alternate documentation, indicating that the unit was originally approved, cannot be accepted in place of an approval label. However, if original documentation exists, and there have been no unpermitted modifications to the unit, then an approval label may be applied by a Safety Officer.

For BC Safety Authority approval, a licensed electrical contractor must:

  • Obtain an installation permit;

  • Complete FRM-1143 Used Manufactured Home Inspection Report form. Submit this form if requested by a Safety Officer;

  • Check any additional wiring added without permit, and check any structural additions added to the manufactured home for additional wiring. These additional checks are to be noted on the declaration form;

  • Complete any repairs required and note on the declaration form;

  • Submit a FRM-0206-07 Electrical Contractor Authorization and Declaration Form  confirming that the installation complies with this directive, and add any notes required by this directive; and

  • Upon acceptance, the BC Safety Authority label will be applied to the electrical panel cover.

Questions regarding electrical approval of manufactured homes can be directed to the BC Safety Authority, online or toll-free at 1-866-566-7233.

(d) Manufactured Homes on Rented/Leased Pads

When licensees are involved in the sale of manufactured homes on leased or rented land belonging to a third party, a number of precautions must be taken at the time of taking the listing and when writing the Contract of Purchase and Sale. The British Columbia Real Estate Association has created the ‘‘Contract of Purchase and Sale of a Manufactured Home on a Rental Pad.’’

It is recommended that the seller’s representative do a title search on the land containing the rental pad to ascertain ownership and the presence of any head leases or options which could have an impact on future rents to be charged. The sale of the park may compromise rental agreements that are not properly in force. Provision for future escalation in rents or lease payments between the landowner and lessee may come as a surprise to inadequately informed tenants.

The Manufactured Home Park Tenancy Regulation sets out an orderly process for assigning and subletting manufactured home pad tenancy agreements.

Key features of the regulation are:

  • a process and form for homeowners to use when requesting the park owner’s consent to assign to a purchaser or sublet to a subtenant;
  • a process and form for park owners to respond to the request;
  • park owners will have up to 10 days to consider the request;
  • the park owner’s consent will be deemed if the home owner does not receive the response within 10 days; and
  • the park owner may only withhold consent for one of the permitted grounds set out in the regulation. The regulation also clarifies the meaning of assignment and sublet.

When a homeowner assigns to the buyer of the home, the tenancy agreement continues on the same terms, including the rent, as existed before the assignment. The buyer becomes the tenant of the park owner and takes on the rights and responsibilities arising under the Manufactured Home Park Tenancy Act and the tenancy agreement.

When a homeowner sublets, the homeowner becomes the landlord to the subtenant, but the homeowner also continues to be the tenant of the park owner and continues to be responsible for the rent and other terms of the tenancy agreement during the subtenancy.

In addition to the regulation, the Manufactured Home Park Tenancy Act allows arbitrators to order an assignment or sublet if the park owner withheld consent unreasonably or arbitrarily or for a reason not permitted by the regulation.

The request for consent to assign and request for consent to sublet forms are available in Residential Tenancy Offices and on the RTO website.

Sale of Leasehold Interests Clause

Seller will deliver leasehold interest free and clear of all financial encumbrances. Seller will assign the Buyer all rights, title and interest and the Buyer will assume all payments, obligations and covenants in the lease. Seller will provide reasonable assistance, at the expense of the Buyer, in obtaining consent to the assignment of the lease before the Completion Date. If the consent to the assignment cannot be obtained, this agreement will be null and void. It is understood that the lease has a term ending (date) .

Subject to the Buyer receiving and reviewing the head lease and any schedules of rules and regulations to the Buyer’s satisfaction and approval on or before (date) .

A copy of the head lease with each page initialed by the Buyer as having been read and approved will be required by the Seller.

This subject clause is for the sole benefit of the Buyer.

Ω If not using the standard form Contract of Purchase and Sale, refer to ‘‘Contracts under Seal’’

At the time of sale, the buyer may require a number of conditions which are peculiar to manufactured homes on rented pads. Many parks have rules and regulations for tenants dealing with usage, pets, age, children, etc., and the buyer/tenant must have an opportunity to review their contents. The licensee must not assume that all leases or rental agreements from a common landlord are identical. A copy for the specific pad must be obtained in every case.

Buyer’s Approval of Rules and Regulations of Manufactured Home Park Clause

Subject to the Buyer approving the rules and regulations of (name of manufactured home park) and being accepted as a tenant on or before (date) .

This condition is for the sole benefit of the Buyer.

OR

The Buyer has received copies of the rules and regulations of (name of manufactured home park) and acknowledges acceptance of them.

Ω If not using the standard form Contract of Purchase and Sale, refer to ‘‘Contracts under Seal

If a buyer requires financing, the lender may require the buyer to obtain a priority agreement signed by the landlord, allowing the lender to register a security interest and to acknowledge that the park owner has no financial interest in the manufactured home.

Buyer’s Permission To Register a Security Interest in a Manufactured Home Clause

Subject to the Buyer obtaining a site lease or priority agreement in a form acceptable to (the lender) on or before (date) which will allow the lender to register a security interest in the manufactured home.

Ω If not using the standard form Contract of Purchase and Sale, refer to ‘‘Contracts under Seal

Licensees should recognize that under section 28 of the Manufactured Home Park Tenancy Act, a seller and buyer of a manufactured home in a manufactured home park must obtain the consent of the landlord to sublease the pad from the former tenant (the seller). Some park managers require an interview with the prospective buyer/tenant. Although the Manufactured Home Park Tenancy Act states that consent may not be unreasonably withheld, a buyer must not be placed in the position of having an unconditional purchase of a manufactured home with no pad to rent. If the landlord withholds consent, the tenant should seek legal advice.

Seller’s Permission To Sublet a Pad for a Manufactured Home Clause

Subject to the Seller receiving consent to sublet to(name of proposed occupant) his or her interest in the tenancy agreement for pad number (number) as provided by section 28 of the Manufactured Home Park Tenancy Act on or before (date) .

This clause is for the benefit of the Seller and the Buyer.

(e) Registration of Manufactured Homes

Land Title Offices have what is commonly called ‘‘Instant Registration’’. However, registration in the Manufactured Home Registry normally takes from two to three days.

Licensees must ensure that buyers of manufactured homes are aware they may be required to place money in trust with their conveyancer three or more days in advance of the completion date.

When there is a series of related purchases and sales which include one or more manufactured homes, licensees are advised to consult with the conveyancers involved in the transactions in order to establish achievable completion dates.

For further information, refer to the Registry website at www.bcregistryservices.gov.bc.ca/bcreg/mhrpg/index.page

10. Sale Of A Business

(a) Sale of a Business under the Former Real Estate Act

Under the former Real Estate Act, the sale of ‘‘a business and the goodwill and assets of it’’ with or without a real estate component, was included in the definition of ‘‘real estate’’. As such, assisting in the sale of a business was an activity for which a real estate licence was required and deposit monies had to be held, in trust, by brokerages, in accordance with section 16 of the former Real Estate Act.

Under the new Real Estate Services Act, the sale of a business is not included in the definition of ‘‘real estate’’ and the requirement for licensing under the Act depends on whether the sale of a business includes a real estate component (i.e., includes the sale or lease of real property, including an assignment of a lease).

(b) Sale of a Business under the new Real Estate Services Act

(i) Sale of a business by assets

The sale of a business by assets that includes a real estate component (i.e., includes the sale or lease of real property, including an assignment of a lease) is an activity that requires a real estate licence. A real estate licence is not required where the sale of a business by assets does not include a real estate component.

(ii) Sale of a business by sale of shares of a corporation

In a share transaction, all of the assets and liabilities of the corporation are in effect the indirect subject matter of the transaction, since the buyer is buying the shares of the corporation which owns the assets and is responsible for those liabilities. The Courts have determined that where there is:

    (a) a purchase of 100% of the issued and outstanding shares in the capital of a corporation, the buyer is in effect acquiring an interest in the underlying property of the corporation; or

    (b) a purchase of less than 100% of the issued and outstanding shares in the capital of a corporation, the buyer does not acquire an interest in the underlying property of the corporation. As a result:

      (i) if the transaction involves the acquisition of disposition of 100% of the issued and outstanding shares in the capital of a corporation that has a real estate component (sale or lease of real property, including an assignment of lease), a real estate licence is required by third parties providing trading services in relation to the transaction; i.e., this is considered a trade in real estate;

      (ii) if the transaction involves the acquisition of disposition of 100% of the issued and outstanding shares in the capital of a corporation that does not have a real estate component (sale or lease of real property, including an assignment of lease), a real estate licence is not required by third parties providing trading services in relation to the transaction; i.e., this is not considered a trade in real estate; or

      (iii) if the transaction involves the acquisition of disposition of less than 100% of the issued and outstanding shares in the capital of a corporation regardless of whether or not it has a real estate component (sale or lease of real property, including an assignment of lease), a real estate licence is not required by third parties providing trading services in relation to the transaction; i.e., this is not considered a trade in real estate. The British Columbia Securities Act applies to all trading (or selling) of securities (including shares). The Securities Act requires a person to be registered under the Securities Act and to file and obtain a receipt for a prospectus from the British Columbia Securities Commission before trading securities. There are a number of exemptions available from these registration and prospectus requirements, but a person using these exemptions must follow specific conditions.

Licensees are cautioned to seek legal advice, or contact the British Columbia Securities Commission, prior to listing and marketing securities to determine whether there is an exemption from the registration and prospectus requirements of the Securities Act that fits their circumstances.

(c) Compliance with the Real Estate Services Act

Licensees are cautioned that before proceeding with the sale of a business, brokerages and licensees must determine whether the transaction includes a real estate component in circumstances where there is a sale of assets or the sale of 100% of the shares of the corporation owning the business. If there is a real estate component and a licence is required in these circumstances, the licensee must comply with the provisions of the Real Estate Services Act.

(d) Disclosure Obligations and Deposit Requirements

If there is no real estate component in the sale of a business by assets or sale of 100% of the shares of the corporation that owns the business, or in circumstances where there is the sale of less than 100% of the shares, licensees must advise the party that engages the licensee to list and sell the business that they are not acting as a licensee and that the licensee is not regulated under RESA in relation to the sale, including holding the deposit. This advice would also be applicable if licensees are involved in the sale of a business that initially involves the sale of assets with a real estate component which would require a real estate licence but subsequently changes to the sale of less than 100% of the shares of the corporation owning the real estate which would not require a real estate licence. Section 27(5) of RESA provides that a brokerage must ensure that no money, other than money held in relation to real estate services, is paid into its brokerage trust account. This would, for example, exclude a deposit in relation to the sale of a business by assets or the sale of 100% of the shares of the business without a real estate component or a deposit in the sale of a business by way of less than 100% of the shares. Deposits in these circumstances would have to be held in a separate trust account other than the brokerage’s statutory trust account.

(e) Exemption from Licensing

The Regulations provide that an accountant, who is authorized to practice public accounting as a CA, CGA, or CMA and who provides trading services in relation to the purchase and sale of a business, is exempt from the need for licensing as long as both the purchase and sale and the trading services arise in the course of the practice of public accounting.

(f) Form of Contract

The standard residential Contract of Purchase and Sale is to be used for residential sales only, not for sales of businesses. Licensees should obtain professional advice from lawyers and accountants regarding the form of a contract. Suitable forms may be available for commercial transactions from board/association offices.

The standard residential Contract of Purchase and Sale addressed the matter of subjective clauses by including a provision that the seller’s acceptance was irrevocable and providing that the contract was signed under seal. Because the standard residential Contract will not be used for a commercial transaction, licensees should consider whether the subject clauses used in the contract are overly subjective. Licensees should review the section regarding ‘‘ Contracts under Seal’’.

It is recommended that all offers be written subject to the approval of the seller’s lawyer and the buyer’s lawyer and accountant within a specific time limit.

Approval by Seller’s/Buyer’s Lawyer Clause

Subject to (select either Seller’s or Buyer’s) lawyer approving the terms and conditions of the contract on or before (date) .

This condition is for the sole benefit of the Seller/Buyer.

Approval by Seller’s/Buyer’s Accountant Clause

Subject to the Buyer’s accountant approving the financial statements on or before (date).

This condition is for the sole benefit of the Buyer.

(g) Relevant Documents

Although the sale of a business that includes real property is governed by RESA, neither RESA, the Regulations nor the Rules stipulate what documents must be provided by the seller.

A prudent licensee will ensure that all the appropriate documents are obtained for review by a prospective buyer.

The following clauses are designed to assist licensees in obtaining important financial and other information from the seller:

If the financial statements are not available, a licensee should advise the buyer to obtain professional advice from an accountant.

Buyer To Approve Documents in Sale of Business Clause

Subject to the Buyer receiving, perusing and being satisfied with:

    (a) a profit and loss statement showing the revenue and expenses of the business for a period of 12 months ending not more than 120 days before the signing of the agreement;

    (b) a statement of assets and liabilities; and

    (c) a statement containing a list of fixtures, goods, chattels, rights and other assets relating to or connected with the business that are not included in this transaction, on or before (date) .

This condition is for the sole benefit of the Buyer.

Sale of Small Business Clause

The Buyer is buying the (select either assets or shares) of the business known as (name of business) and located at (location) , B.C.

Purchase price includes all assets, goods and chattels listed as included in the sale of the business, according to the attached schedule, except inventory on hand.

Subject to the Buyer receiving and approving the list of assets on or before (date) .

This condition is for the sole benefit of the Buyer.

NOTE: The decision as to whether assets or shares are being purchased should be made with an accountant’s advice.

(h) Inventory Valuation

The inventory of the business is often purchased separately from the purchase of the business itself. The method for valuing the inventory should be referred to the parties’ advisers and a valuation date agreed upon by the parties prior to entering into the Contract of Purchase and Sale.

Licensees must be aware of the problem associated with inventory. It is important to seek the guidance of those experienced in evaluating inventory.

Some concerns are described in the following examples:

  • shoe stores: stock on hand includes not only current styles, but also boxes of out-of-fashion shoes;
  • grocery stores: stock includes large amounts of time-dated products and foods;
  • florist shops: stock includes aging, wilting, and dying flowers;
  • gift stores: stock includes items that a buyer is not interested in buying at all or for which he or she does not see a market; and
  • lawn mower and small engine repair shops: stock includes boxes of parts for old and obsolete engines.

One of the differences between residential and business/commercial transactions is that often the parties involved in the transaction are far more knowledgeable than the licensees in the operation of the particular business and, more than likely, meetings and discussions have taken place previously between the parties. Frequently, the function of the licensee is to put into an agreement format those things that have already been discussed and agreed to by the parties.

The contract must state clearly whether or not the price includes inventory. The following clause can be used:

Inventory Clause

Purchase price(select either includes or does not include) (select either inventory or stock) .

This offer is conditional on the Seller and Buyer and their respective advisers establishing an agreed method for the purpose of valuing the inventory/stock. This agreement is to be in place and in writing within (number of days) days of acceptance of this offer. Inventory/Stock taking is to be performed within (number of days) days before the completion of this transaction. The Seller will allow reasonable access to the Buyer for purposes of reviewing the inventory for purposes of this condition.

This condition is for the benefit of both the Buyer and the Seller.

If the business is occupying leased space, the following clause should be inserted in the contract:

Lease of Premises Clause

Subject to the Buyer being able to arrange on or before (date) a lease for the premises satisfactory to the Buyer.

This condition is for the sole benefit of the Buyer.

OR

The Buyer will assume all payments, obligations and covenants of the existing lease covering the business premises.

Subject to the Buyer receiving, perusing and being satisfied with the said lease on or before (date) .

This condition is for the sole benefit of the Buyer.

OR

The Buyer will assume all payments, obligations and covenants of the existing lease covering the business premises.

Subject to the Buyer receiving approval of the lessor to such assumption on or before (date) .

This condition is for the benefit of both the Seller and the Buyer.

Subject to the Buyer receiving, perusing and being satisfied with the said lease on or before (date) .

This condition is for the sole benefit of the Buyer.

Adequate time must be allowed within the contract for the buyer to receive the documents and review them. A specific date on the contract for the provision of the documents to the buyer by the seller, in addition to the date for their acceptance, is recommended.

(i) Sale of Franchise Requires Real Estate Licence

Subject to the licensing exemptions, a sale of a franchise as an operating business, whether sold on behalf of the franchisor or of the franchisee, is governed by the requirements of RESA if the business also includes the sale or lease of real property.

Buyer Approving Franchise Agreement Clause

Subject to the Buyer receiving, perusing and being satisfied with the franchise agreement on or before (date) .

This condition is for the sole benefit of the Buyer.

The licensee should allow time on the contract for the seller to provide the documents to the buyer and to allow the buyer time to review them.

Franchisor Approving Assignment of Franchise Clause

Subject to the franchisor’s written approval of the assignment of the franchise on or before (date) .

This condition is for the benefit of both the Buyer and the Seller.


Strata Management Services

1. Overview

The Real Estate Services Act (RESA) requires that all individuals or companies who provide ‘‘real estate services’’ in expectation of remuneration, unless specifically exempted, obtain licensing. In addition to rental property management services and trading services, ‘‘real estate services’’ includes the provision of strata management services.

    ‘‘strata management services’’ means any of the following services provided to or on behalf of a strata corporation:

      (a) collecting or holding strata fees, contributions, levies or other amounts levied by, or due to, the strata corporation under the Strata Property Act;

      (b) exercising delegated powers and duties of a strata corporation or strata council, including

        (i) making payments to third parties on behalf of the strata corporation,

        (ii) negotiating or entering into contracts on behalf of the strata corporation, or

        (iii) supervising employees or contractors hired or engaged by the strata corporation but does not include an activity excluded by regulation;

The Council has established educational requirements for those wishing to obtain a licence or to amend an existing licence in order to provide strata management services. The education requirements depend on whether an individual currently holds a real estate licence and whether the individual has carried out strata management in the past.

Information about the educational requirements applicable to the various groups is available from the Council’s website at www.recbc.ca. Information about the Strata Management Licensing Course can be obtained from the Real Estate Division at the Sauder School of Business, University of British Columbia at www.realestate.ubc.ca.

(a) Exemptions from Licensing

(i) Strata Council Members

Since licensing is required of those providing real estate services ‘‘to or on behalf of another, for or in expectation of remuneration’’, licensing and the other requirements of RESA do not apply to strata council members who are not licensees and who volunteer their time. In addition, the following exemption applies to strata council members who are strata lot owners and who are not licensees.

(ii) Exemptions for Strata Lot Owners

a) Exemption for an owner not licensed under RESA (Section 2.17 of the Real Estate Services Regulation)

    (1) Subject to subsection (2), an individual is exempt from the requirement to be licensed under Part 2 of the Act in respect of strata management services if the individual

      (a) is the owner, as defined in the Strata Property Act, of a strata lot,

      (b) provides the strata management services to or on behalf of the strata corporation of which the person is a member by reason of being the owner of the strata lot, and

      (c) provides strata management services under the exemption provided by this section to no more than 2 strata corporations.

    (2) On receipt of any strata fees, contributions, levies or other amounts levied by, or due to, the strata corporation under the Strata Property Act, the exempt individual must promptly deliver the money to the strata corporation.

b) Exemption for an owner who is a licensee (Section 9-3 of the Rules)

    (2) … subject to the Rules, this Act [RESA] applies to every licensee who provides real estate services, even if the licensee

      (a) provides real estate services on the licensee’s own behalf,

      (b) provides real estate services to or on behalf of another but not for or in expectation of remuneration, or

      (c) would other wise be exempted by this Act or the Regulations from the requirement to be licensed in relation to the provision of those real estate services. (Section 2(2) of RESA)

Insofar as strata management is concerned, this section of RESA means licensees can only rely on the following exemption. Aside from this exemption, a person licensed to provide only trading or rental property management services must generally become licensed to provide strata management services.

    (1) Subject to this section, the Act and these Rules do not apply to a managing broker, associate broker or representative who is a strata lot owner in relation to strata management services provided to or on behalf of the strata corporation of which the licensee is a member by reason of being a strata lot owner, if all the following conditions are met:

      (a) the licensee provides strata management services under this section to no more than 2 strata corporations;

      (b) the licensee discloses in writing to the strata corporation, before providing the services, that

        (i) even though they are licensed under the Real Estate Services Act, they are not acting as a licensee in this case,

        (ii) the licensee is not regulated under the Real Estate Services Act in relation to the strata management services, and

        (iii) the strata corporation is not entitled to the same protections applicable under the Real Estate Services Act to persons who deal with licensees who are not acting under this section of the Rules;

      (c) the licensee provides a copy of the written disclosure under paragraph (b) to the managing broker of the related brokerage;

      (d) the licensee does not have sole signing authority for withdrawals of any funds of the strata corporation and does not other wise have sole authority for expenditures of any funds of the strata corporation;

      (e) the strata management services are not provided for or in expectation of remuneration.

    (2) On receipt of any strata fees, contributions, levies or other amounts levied by, or due to, the strata corporation under the Strata Property Act, the licensee must promptly deliver the money to the strata corporation.

    (3) Part 4 [Discipline Proceedings and Other Regulatory Enforcement] of the Act applies in relation to a contravention of subsection (2).

Note that, under this exemption, the strata management services may not be ‘‘provided for or in expectation of remuneration’’ and that the manager may not hold money on the strata’s behalf.

(iii) Exemption for caretakers, resident managers and other employees

a) An employee of one strata corporation (Section 2.1 of the Real Estate Services Regulation)

An individual is exempt from the requirement to be licensed in respect of real estate services, including strata management, if all the following apply:

    (a) the real estate services are provided to or on behalf of a principal in relation to those services;

    (b) the individual is the employee of the principal referred to in paragraph (a);

    (c) the individual is not providing real estate services to or on behalf of any person other than the principal referred to in paragraph (a).

In the case of strata management services, ‘‘principal’’ is defined as ‘‘the strata corporation to whom or on behalf of whom the services are provided’’. (Section 1 of RESA)

As a result, a caretaker or other employee of the strata corporation to whom or on behalf of whom the services are provided, resident on the premises or other wise, may provide strata management services if he or she is an employee in accordance with the criteria of the Canada Revenue Agency. The strata corporation, as employer, is free to decide the extent to which its employee may act on its behalf and may, for example, give him or her complete control of the strata corporation’s money, authority to enter into contracts on behalf of the strata corporation, and so on.

Note that this exemption applies only to an individual, not to a limited company, sole proprietorship, or partnership, and that it applies exclusively to employees of only one strata corporation.

b) An employee of more than one strata corporation (Section 2.18 of the Real Estate Services Regulation)

An individual employed as a caretaker or manager by more than one strata corporation ‘‘is exempt from the requirement to be licensed under Part 2 of the Act in respect of collecting strata fees, contributions, levies or other amounts levied by, or due to, the strata corporation under the Strata Property Act’’. He or she may receive, but not hold, strata money. Any money collected under this exemption must be promptly delivered for deposit to the strata corporation on whose behalf it was collected. As opposed to a caretaker employed by only one strata corporation, he or she may not provide the following strata management services according to Section 1 of RESA:

    (a) … holding strata fees, contributions, levies or other amounts levied by, or due to, the strata corporation under the Strata Property Act;

    (b) exercising delegated powers and duties of a strata corporation or strata council, including

      (i) making payments to third parties on behalf of the strata corporation,

      (ii) negotiating or entering into contracts on behalf of the strata corporation, or

      (iii) supervising employees or contractors hired or engaged by the strata corporation but does not include an activity excluded by regulation; (Section 1 of RESA)

c) An employee of a brokerage (Section 2.18 of the Real Estate Services Regulation)

Since a caretaker or unlicensed manager employed by a brokerage is not employed by a strata corporation, the exemption in Section 2.1 of the Real Estate Services Regulation does not apply. Accordingly, the only strata management service such an individual may provide is collecting money on behalf of the strata.

    (1) Subject to subsection (2), an individual who is employed as a caretaker or manager by a strata corporation, or by a brokerage that provides strata management services to or on behalf of a strata corporation, is exempt from the requirement to be licensed under Part 2 of the Act in respect of collecting strata fees, contributions, levies or other amounts levied by, or due to, the strata corporation under the Strata Property Act.

    (2) On receipt of money referred to in subsection (1), the exempt caretaker or manager must promptly deliver the money to the strata corporation or brokerage, as applicable.

As in the case of a caretaker employed by several strata corporations, a caretaker or unlicensed manager employed by a brokerage cannot provide the other strata management services listed in Section 1 of RESA.

The Council has developed further information on this issue that is available here.

(iv) Exemption for owner-developers (Section 2.19 of the Real Estate Services Regulation)

    2.19. In relation to a strata corporation, the owner-developer, as defined in the Strata Property Act, is exempt from the requirement to be licensed under Part 2 of the Act in respect of strata management services provided to or on behalf of the strata corporation, but only until control of the strata corporation’s money is required to be transferred under section 22 of the Strata Property Act.

Note: Within one week after the first annual general meeting, the owner-developer must (a) transfer control of the strata corporation’s money to the newly elected council, and (b) deliver to the newly elected council any keys, garage door openers or other means of access that the owner-developer possesses for the purposes of exercising the powers and performing the duties of the council. (Section 22 of the Strata Property Act.)

(v) Exemption for collection agents (Section 2.2 of the Real Estate Services Regulation)

A person who is a collection agent licensed under the Business Practices and Consumer Protection Act is exempt from the requirement to be licensed under Part 2 of the Act in relation to real estate services provided in the course of the person’s business as a collection agent within the meaning of the Business Practices and Consumer Protection Act.

(vi) Various other exemptions (Section 3 of RESA)

In addition to any exemption provided by Regulation, the following are exempt from the requirement to be licensed under this Part:

    (a) a person acting under the authority of a court;

    (b) a trustee in bankruptcy, custodian, receiver, receiver manager or liquidator who is appointed under a provincial or federal enactment, in respect of real estate services undertaken by the person in that capacity;

    (c) an executor or administrator of an estate, in respect of real estate services provided in relation to real estate owned or held by the estate;

    (d) a trustee, in respect of real estate services provided under the terms of a will, marriage settlement or deed of trust;

    (e) a financial institution that has a trust business authorization under the Financial Institutions Act, in respect of real estate services provided in relation to real estate that it owns, holds or administers;

    (f) a practising lawyer as defined in section 1 of the Legal Profession Act, in respect of real estate services provided in the course of the person’s practice.

(b) Common Licensing Scenarios - Strata

Scenario #1

Joan Pennywise, wanting a bit of extra income in her retirement, has offered to provide accounting services for several small strata corporations.

Does Joan have to be licensed?

Joan can provide accounting services to strata corporations without licensing provided she neither ‘‘collects nor holds’’ money on their behalf.

As ‘‘collecting money’’ includes the receipt of cheques, albeit cheques made out to that strata corporation and deposited by Joan directly into its accounts, the strata council must take responsibility for receiving and depositing all cash and cheques. Joan may help the strata corporation set up pre-authorized, direct deposit payments for owners, but may not handle (i.e., receive, deposit or expend) money in any form.

There is nothing to prevent Joan from recommending payment of invoices and preparing cheques for signing by the strata council, as long they are issued from accounts over which she has no signing authority.

Scenario #2

NW9999, a self managed strata, is facing a building envelope remediation project and wants either a project manager acting as agent for the strata corporation, or an accountant to receive and hold in trust the funds levied for the project, negotiate and enter into contracts on behalf of the strata corporation, and supervise and make payment to employees and contractors hired or engaged by the strata corporation to do the work.

Is a licence required?

All of the above services require licensing under RESA. Unless the project manager or accountant hired by the strata corporation is a real estate licensee, they will not be able to provide the services required by NW9999.

Scenario #3

VR9999 is about to begin an expensive building envelope remediation project which its current management company feels unqualified to manage. The strata council of VR9999 is obtaining quotes from other strata management licensees for management of the remediation project, but intends to keep its current management company, from whom it feels it is getting good service.

Can two licensees be engaged by the same strata corporation?

There is nothing in RESA that would prevent VR9999 from engaging two strata management licensees, one to do the regular management of the complex, and one to manage the envelope remediation under separate service agreements. VR9999 should, however, review its current strata management service agreement to ensure it is not an exclusive service agreement in this respect.

Scenario #4

Strata management services are provided to LMS0000 by its resident caretaker. While he is on holiday, the strata council of LMS0000 hires a temporary replacement for him.

Is licensing required?

Since the caretaker is managing the strata corporation under the exemption for employees, his or her replacement must be put on the payroll and satisfy the criteria for employees set by the Canada Revenue Agency.

Scenario #5

BCS0000 wants to become self managed.

Are there any regulatory requirements for this?

There are no regulatory requirements to meet before BCS0000 begins management of its own affairs. The conduct of its council will be governed by the Strata Property Act, a self-administered statute with no enforcement provisions for the Real Estate Council or any other regulatory body.

The Strata Property Act, Regulation and helpful pamphlets designed for strata councils can be found on the website of the Superintendent of Real Estate at www.fic.gov.bc.ca.

Further useful information about self-management is available on the following websites: www.choa.bc.ca and www.visoa.bc.ca

Scenario #6

VIS9999 pays strata agent, John J. John (JJJ), who is an owner in the complex, to provide strata management services. JJJ is a real estate licensee licensed only to provide trading services and rental property management.

Does JJJ require further licensing?

If he were not a licensee, JJJ could be paid for providing strata management services to VIS9999 under the exemption found in Section 2.17 of the Real Estate Services Regulation (see Exemption #1(a) above). Licensees, however, cannot rely on this exemption.

    (2) … subject to the Rules, this Act [RESA] applies to every licensee who provides real estate services, even if the licensee

    * * *

    (c) would other wise be exempted by this Act or the regulations from the requirement to be licensed in relation to the provision of those real estate services. (Section 2(2) of RESA)

With regard to strata management services, the only exemption from the licensing and other requirements of RESA made available to a licensee in the Rules is found in Section 9-3 (Exemption #1(b) above). Under that exemption, JJJ may not provide strata management services ‘‘for or in expectation of remuneration’’.

If he wishes to be paid, JJJ must acquire the appropriate licensing. Then he may provide remunerated strata management services in the name of and on behalf of his related brokerage (presuming the brokerage is licensed to provide strata management services).

Furthermore, until he is licensed properly, JJJ runs the risk of disciplinary action by the Real Estate Council and, in the event of a dispute with VIS9999, of losing his management fees since he is prohibited by RESA from bringing or continuing an action for remuneration in relation to his unlicensed real estate services.

Scenario #7

The strata council of LMS9999 deals mostly with Percy, the unlicensed assistant of their strata agent Penelope.

Must Percy be licensed?

Percy may not act, or appear to act, as an agent of the strata corporation. This means he may not provide any services which require licensing by exercising

    … delegated powers and duties of a strata corporation or strata council, including

      (i) making payments to third parties on behalf of the strata corporation,

      (ii) negotiating or entering into contracts on behalf of the strata corporation, or

      (iii) supervising employees or contractors hired or engaged by the strata corporation, or

      (iv) enforcing bylaws or rules of the strata corporation, 

    but does not include an activity excluded by regulation;

Operating within these restrictions still leaves Percy several ways to assist Penelope in managing LMS9999. He can, for example,

  • answer calls from residents of the complex;
  • take dictation;
  • attend council meetings with Penelope;
  • assist at general meetings of the strata corporation;
  • prepare and edit or proofread minutes on Penelope’s behalf;
  • draft letters and prepare information certificates for her to review and sign;
  • perform bookkeeping services under her direction;
  • ask tradespersons to send her quotes; and
  • provide any other service that does not fall within the definition of ‘‘strata management services’’.

Scenario #8

C. George, a licensee, is elected to sit on the strata council of a strata corporation where he is an owner. The strata has a management company and C. George is not a member of any other strata corporation’s council.

What is required of Mr. George?

The licensing and other requirements of RESA must be met by ‘‘every licensee who provides real estate services’’ (Section 2(2) of RESA). Since what strata council members do falls within the definition of real estate services (strata management services) any licensee who is a member of a strata council must meet the requirements of the licensee exemption above (Exemption #1(b) above).

Mr. George must therefore

  • disclose in writing to the strata corporation, before sitting on the strata council that:
    • even though licensed under the Real Estate Services Act, he is not acting as a licensee in this case,
    • he is not regulated under the Real Estate Services Act in relation to his activities on the strata council, and
    • the strata corporation is not entitled to the same protections applicable under the Real Estate Services Act to persons who deal with licensees who are not acting under this section of the Rules;
  • provide a copy of the written disclosure to the managing broker of his related brokerage;
  • not have sole signing authority for withdrawals of any funds of the strata corporation and not other wise have sole authority for expenditures of any funds of the strata corporation; and
  • accept no remuneration for being on the strata council.

Scenario #9

Grosspar Holdings owns six units in BCS9999 and offers to provide strata management services.

Can Grosspar Holdings manage BCS9999?

The exemption in Section 2.17 of the Real Estate Services Regulation that enables a strata lot owner to provide strata management services is limited to individuals who are owners. It does not apply to a sole proprietorship, a partnership or a corporation. Grosspar Holdings cannot provide strata management services without licensing and meeting the other requirements of RESA.

 

 

 

(c) Application of the Real Estate Services Act

All provisions of RESA, including the Regulations and Rules, apply to individuals or companies providing strata management services.

Section 2 of RESA stipulates that, once an individual is licensed under RESA, RESA, the Regulations, and Rules apply to all real estate services that the licensee may provide, even if the real estate services are provided on the licensee’s own behalf, are provided for free, or would otherwise be exempt. In addition to strata management services, ‘‘real estate services’’ includes rental property management services and trading services. This section of RESA means that an individual licensed to provide strata management services may not provide any real estate services, unless the services are provided in compliance with all the provisions of RESA, the Real Estate Services Regulation and the Rules, or are provided under an exemption.

The Rules contain an exemption which permits a licensee to manage rental property that the licensee or the licensee’s spouse, family partner, son, daughter, or parent owns, or that is owned by certain partnerships or corporations without the need to comply with RESA, as long as certain conditions are met.

In the following section, entitled ‘‘Practice Standards’’, the most significant requirements that are imposed by licensing on strata managers are set out. However, licensees engaged in strata management must be aware that, unless a specific exemption exists for strata managers, all licensing requirements will apply.

For example, a licensee engaged in strata management must comply with all business practice requirements as set out in the Rules, such as the need to display licences, the limitations that are placed on home offices, the requirements relating to the name that a licensee may use, and the provisions relating to advertising.

The Special Compensation Fund (Fund) applies to trust funds held by a licensee engaged in strata management. As a result, all licensees engaged in strata management must contribute to the Fund. Additionally, licensees engaged in strata management participate in the errors and omissions insurance program administered by the Real Estate Errors and Omissions Insurance Corporation.

All licensees, including th