I. 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 the statute (RESA), Regulations, Bylaws, and Council Rules were also enacted. The statute is enacted by the legislature and 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. The Regulations are approved by Order in Council and contain exemptions from licensing and other technical provisions relating to the operation of RESA.

Bylaws and Council Rules are drafted by the Council. The Bylaws relate to the operation of the Council and address matters such as how Council members are elected and what forms must be used to apply for or renew a licence or to file an accountant’s report. The Council Rules establish standards in relation to requirements placed on licensees. The Regulations contain the procedure that the Council must follow in order to amend the Bylaws and Council Rules. Before amending certain Bylaws relating to qualifications and voting for Council members, or Council Rules, the Council must notify licensees at least 30 days in advance of the change and allow licensees to comment on the proposed amendments.

Licensee conduct is addressed in RESA, the Real Estate Services Regulation and the Council Rules. Licensees should therefore be familiar with the provisions of not only RESA, but also the Real Estate Services Regulation and Council 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’’, licensing for those conducting strata management must also be obtained.

The Council is the body responsible for the education, licensing, and discipline of licensees. The Council is a self-regulating body which derives its authority directly from the legislation. Under RESA, the role of the Superintendent of Real Estate is limited to taking action in relation to unlicensed activity and addressing matters where the Council has failed to act.

The self-regulating status of the Council permits it to create its own Council Rules and Bylaws. The Council is able to amend and create new Rules in order to respond to changes in the real estate environment.

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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.

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(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.

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(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.

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(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.

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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 Council 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 ofsection 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.

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(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, sections9-1 and 9-2 of the Council Rules create an exemption from the application of RESA in limited circumstances.

Under section 9-1 of the Council 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 Council 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 Council 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 Council 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 Council 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.

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(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 ofsection 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 Council 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 Council 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 Council 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 Council 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.

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(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 theLegal 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.

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(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.

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(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, prostitution, 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.

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(f) Guidelines for Personal Offices

Section 4-3 of the Council 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 Council 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).

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4. Disclosures

Part 5, Division 2, of the Council 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 Council 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 Council Rules sets out an example of an indirect acquisition. As provided in the Council 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 form must be provided to the managing broker promptly after the agreement has been reached. The form must be signed by the managing broker and retained by the brokerage. The form is not required to be submitted to the Council.

Section 5-7 of the Council 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 Council 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 Council 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:

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

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 Council 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 Council 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 Council 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 Council 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 Council 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 Council 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 Council 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.

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(d) Disclosure of Remuneration

The Council Rules require that a licensee disclose all remuneration received or anticipated to be received from anyone other than the licensee’s client; however, with the exception of remuneration received undersection 5-11(1)(a) of the Council Rules, section 5-8 of the Council Rules requires that the disclosure be in writing and be separate from a service agreement or any other agreement under which real estate services are provided and separate from any agreement giving effect to a trade in real estate.

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

(1) This section applies if a licensee receives or anticipates receiving, directly or indirectly,

(a) remuneration as a result of providing real estate services to or on behalf of a client, other than remuneration paid directly by the client,

(b) remuneration as a result of recommending

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

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

(c) remuneration as a result of recommending a client to a person referred to in paragraph (b)(i) or (ii).

(2) The licensee must promptly disclose to the client, and to the licensee’s related brokerage,

(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.

Section 5-11 of the Council Rules requires a licensee to disclose all remuneration that the licensee receives that is not paid directly by the client. In relation to a licensee, a client is defined in the Council 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 where a licensee is engaged by a client. As a result of the principal and agent relationship, fiduciary obligations arise, including an obligation to disclose any remuneration received from someone other than the client. If the person on whose behalf the licensee was acting was not a client, i.e., a customer, the requirement for disclosure of remuneration would not arise. Licensees must always keep in mind that it is the nature of their relationship with their client that creates the obligation to disclose all remuneration paid for other than by the client.

A licensee 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 Council Rules requires disclosure of all funds that a licensee receives other than from the licensee’s client and not just the amounts received from referring the client to home inspectors, mortgage brokers, etc.

In all cases where a licensee is the agent of the buyer, the amount of remuneration that the licensee receives from anyone other than the buyer must be disclosed.

Although section 5-11 of the Council Rules references the licensee’s remuneration, the amount of remuneration that should be disclosed is the remuneration to be received by the brokerage.

For typical transactions involving a property that is listed for sale, and in which a buyer’s agent will be receiving its remuneration as a result of the listing brokerage agreeing to share a portion of the total remuneration provided for in the listing contract, the source of the buyer’s agent’s remuneration is the listing brokerage. In dual agency, whether the transaction involves just one licensee (a ‘‘double-ender’’) or two or more licensees engaged by the same brokerage, the source or remuneration is the seller. The following examples, using the terminology found in Part B of the ‘‘Disclosure of Remuneration’’ (section 5-11 of the Council Rules) form illustrate these two scenarios. Two versions of these disclosure forms for each of trading services, rental property management services, and strata management services are posted on the Council’s website (www.recbc.ca). For these examples, assume the full commission as per the listing contract is $10,000, the listing brokerage’s name is ABC Realty Ltd., and the amount offered to a co- operating brokerage by ABC Realty Ltd. is $5,000:

Brokerage Acts as Agent for Buyer Only

‘‘My related brokerage will receive or anticipates receiving a commission of $5,000 from ABC Realty Ltd.’’

One way that a licensee may disclose the amount that is paid by a seller is by providing the buyer with a copy of the listing information sheet, which shows the proportion of commission payable to the selling brokerage. In this way the buyer is provided with disclosure, in writing, of the percentage of the selling price which is to be paid as commission. The Council recommends that licensees have the buyer initial the copy of such information sheet as evidence of the disclosure. Alternatively, a licensee may use the Disclosure of Remuneration form available on the Council’s website at www.recbc.ca, or any form of the licensee’s choosing so long as it satisfies the disclosure requirements.

The requirement to disclosure remuneration that is not being paid directly by the client applies to trading services, rental property management services, and strata management services. ‘‘Disclosure of Remuneration’’ forms for each of these categories of service are available on the Council’s website.

Brokerage Acts as a Dual Agent (whether in-house dual agency or double-ender)

‘‘My related brokerage will receive or anticipates receiving a commission of $10,000 from the seller.’’

Note that in both examples it is the amount of remuneration that is to be earned (or is anticipated to be earned at the time of disclosure) by the brokerage that is to be disclosed. In dual agency, because there is only one brokerage involved in the transaction, it is the full amount of commission (the listing and selling portions combined) that is to be disclosed.

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

Under section 5-12 of the Council 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.

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(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 Council 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.

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(g) Disclosure of Strata Management Services

As noted above under the heading ‘‘Application of RESA’’, licensees are permitted by section 9-3 of the Council 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 Council 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 Council 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;

(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.

(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.

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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 Council 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 Council Rules requires that every brokerage notify the Council of any business changes that occur regarding the brokerage, including changes in the contact information for the brokerage, the licensees engaged by the brokerage, the partnership or corporate structure of the brokerage, and savings institutions or branch locations for the brokerage. Section 2-20 of the Council 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 the 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, the requirement to maintain proper business records, and in some cases, the requirement to enter into written service agreements.

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(a) Trust Funds and the Payment of Remuneration

RESA and the Council 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 Council 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 Council 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 Council 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 Council 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.

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(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.

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(e) Records and Reports

The Council 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.

It is also essential that every brokerage maintain trust account records, including a cash record showing all transactions affecting the trust account, a journal showing amounts received and disbursed, and separate ledgers for each trade in real estate, for each principal in relation to rental property management services, and to strata management services, and for each licensee showing the amounts received and disbursed. The brokerage must prepare a monthly trust liability and asset reconciliation.

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

Undersection 7-7(2.1) of the Council 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.

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(f) Retention of Disclosures

Section 8-4 of the Council 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 sections9-1, 9-2 and 9-3 of the Council Rules that a licensee must make. Section 8-10 of the Council 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.

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(g) Duty to Clients

Section 3-3 of the Council 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.

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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 Council 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 Council 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 4-6, 4-7, and 4-8 of the Council 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 Council 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 Council 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).

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(b) Accounts and Records

Section 3-1 of the Council 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, Council 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 Council 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 Council 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 Council 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.

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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 Council 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 Council 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 Council 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 9-1, 9-2 or 9-3 of the Council 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 Council 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 Council Rules);
• they act honestly and with reasonable care and skill when providing real estate services (section 3-4 of the Council Rules).

Representatives should also ensure that they:

• carry out the following duties to a client (section 3-3 of the Council 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 4-6, 4-7, and 4-8 of the Council 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 Council 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 Council 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 Council 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 Council 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 Council 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 Council 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 Council Rules);
• familiarize themselves with the brokerage’s procedures manual and conduct their business in accordance with the requirements of RESA, the Regulations, and Council 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 Council 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 Council 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 Council 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.

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(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.

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8. Licensing Information

(a) Applications for Licensing

Licensing is regulated by RESA, the Real Estate Services Regulation, Council 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 Council 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 Council 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 Council 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 Council 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.

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(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.

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(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 Council 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 Council 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.

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(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.

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II. 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.

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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 Council 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.

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(b) Agency

(i) Agency Disclosure

Section 5-10 of the Council Rules outlines the requirements regarding disclosure of the nature of a licensee’s relationships with parties in a trade in real estate. Section 5-10 of the Council 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).

It is important to provide consumers with this information at the first reasonable opportunity. One way to do this 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 the various types of relationships that consumers may have with a brokerage. The brochure also describes:

• the fiduciary duties that an agent owes to a client, be that client a seller/landlord or a buyer/tenant;
• limitations on these duties should an agent be given consent to act for more than one party; and
• the types of services a customer might normally expect to receive when there is no agency relationship.

This information will assist licensees in obtaining the seller’s/landlord’s or buyer’s/tenant’s informed consent to the relationship to be established.

It is important to stress that the seller’s/landlord’s or buyer’s/tenant’s informed consent is required before a brokerage acts on behalf of a seller/landlord or buyer/tenant. Obtaining such informed consent before acting is also necessary if a brokerage wishes to act as a limited dual agent.

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(ii) Nature of the Relationship

In a real estate transaction, the nature of the relationship that is created between the buyer/tenant or seller/landlord and the brokerage is important. The relationship may be either an agency relationship, limited dual agency, or no agency.

Before making the required disclosure regarding the nature of the representation, brokerages should consider what type of relationship they would like to create. In the majority of cases, the representation that is offered and agreed to is an agency representation, however, as discussed below, it is not necessary that in every case a brokerage must be the agent of the buyer/tenant or the seller/landlord. It is possible, with the agreement of the buyer/tenant or seller/landlord, as the case may be, to create a relationship that is not one of principal and agent. This is important for both the brokerage and the buyer/tenant or seller/landlord to consider, since the nature of the relationship that is established determines the duties and obligations of the brokerage and the licensees related to the brokerage.

Where a brokerage acts only for the buyer/tenant or the seller/landlord, an agency relationship is generally created. As indicated previously, the agreement that the brokerage will be the agent of the seller/landlord or buyer/tenant should occur early in the relationship and is often accomplished by using the Working With a REALTOR® brochure. In such cases, the seller/landlord or buyer/tenant is the principal and the brokerage is the agent. The Council Rules uses the term ‘‘client’’ when referring to a principal who has engaged a brokerage to provide real estate services on behalf of the principal.

As an agent, a brokerage and the licensees related to the brokerage have certain duties to their client. As explained in the Working With a REALTOR® brochure, the brokerage and the licensees related to the brokerage have:

• a duty of undivided loyalty to the principal;
• a duty to keep the confidences of the principal;
• a duty to obey all lawful instructions of the principal; and
• a duty to account for all money and property of the principal placed in the brokerage’s hands while acting for the principal.

In cases where a brokerage acts for both the buyer/tenant and the seller/landlord, with their agreement, the nature of the relationship is one of limited dual agency. Limited dual agency can occur when the same licensee licensed in relation to the brokerage represents the buyer/tenant and seller/landlord, or where different licensees licensed under the same brokerage represent the buyer/tenant and the seller/landlord. Before a brokerage may represent both the buyer/tenant and the seller/landlord, the buyer/tenant and seller/landlord must consent to such a relationship. Before providing their consent, the buyer/tenant and 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 seller/landlord.

Where a limited dual agency relationship has been agreed to, it is not possible for the agent (brokerage) to fulfill all of its duties to both parties. As a result, the duties are limited to require the brokerage to deal with the buyer/tenant and seller/landlord impartially. The duty of full disclosure is limited so that the brokerage is not required to disclose what the buyer/tenant is willing to pay for the property or the motivation of the seller/landlord. The brokerage must also not disclose personal information about the parties, unless authorized to do so in writing.

A brokerage may also agree with a buyer/tenant or seller/landlord that it will 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 brokerage, rather than the brokerage’s client. The Working With a REALTOR® brochure explains the services that a brokerage can provide under a relationship that does not involve an agency. As noted above under the heading ‘‘Agency Disclosure’’, when a brokerage is acting as the agent of a buyer/tenant, the need to disclose remuneration received from the seller/landlord arises. When acting for a seller/landlord in an agency relationship, there is an obligation to disclose all referral fees. However, if there is no principal-agent relationship, there is no obligation to disclose to the customer the amount of remuneration that the brokerage will receive from the transaction or the amount of any referral fees that are received. Thus, it is always open to a brokerage, with the buyer’s/tenant’s or seller’s/landlord’s consent, to treat the buyer/tenant or seller/landlord as a ‘‘ customer’’ and not create an agency relationship.

Additionally, rather than acting as a limited dual agent, a brokerage may choose to act as the agent of only one of the parties. The brokerage can treat the other party as a customer. The nature of the relationship does not affect the brokerage’s ability to earn the remuneration to which it is entitled.

Similarly, a brokerage that enters into an agreement with a seller/landlord who is attempting to sell/lease his or her home on his or her own can choose the nature of the relationship the brokerage wishes to establish with the seller/landlord. If the seller/landlord agrees, the brokerage can enter into an agreement which does not create an agency relationship with the seller/landlord.

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

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

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(iii) How an Agency Relationship Is Created

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

Where the client is the seller, typically the listing contract establishes the agency relationship. As indicated above, a brokerage has a duty of undivided loyalty to a client. However, it is not unusual for a brokerage to list more than one property at a time or to act for buyers at the same time that the seller’s property is listed. Therefore, the duty of undivided loyalty must be limited in order to permit the brokerage to act on behalf of other buyers and sellers at the same time. The listing contract should therefore include the limitations on the duties that the brokerage will owe to its client. The BCREA standard form multiple listing contract contains the limitations that permit brokerages to conduct business without breaching their duties to their clients.

When representing buyers, some brokerages 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 brokerage is the party’s agent. Where the agreement is oral, the brokerage should obtain the client’s agreement that the brokerage be permitted to act for other buyers and sellers and that the brokerage 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’’. Brokerages acting on behalf of a person who is not otherwise represented may be found to be acting as the party’s agent if the actions of the brokerage would lead the party to believe that the brokerage was acting as their advocate. An implied agency relationship may be found to exist, even where the brokerage did not intend to act as the party’s agent. In any transaction which involves an unrepresented party, if the brokerage does not intend to act in an agency relationship, it is very important for the brokerage to confirm with that party that the brokerage is not acting as the party’s agent. It is also important that the conduct of the brokerage and the licensees engaged by the brokerage are consistent with such statements.

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(iv) Documenting the Agency Relationship

As indicated above, while an exclusive agency agreement is normally created with a seller/landlord by way of a listing contract, the use of written buyer’s agency agreements, particularly in residential real estate, has not been as common. A brokerage working with a buyer/tenant will often provide that buyer/tenant with a Working With a REALTOR® brochure, and acknowledgement of the agency relationship takes place on the Contract of Purchase and Sale. However, not confirming this relationship in writing prior to the Contract of Purchase and Sale is similar to working on behalf of a seller/landlord without a signed listing agreement. The brokerage may be taking on fiduciary duties without an agency/fee agreement. The buyer/tenant may be working with a number of agents at the same time. Prudent brokerages will want to confirm their relationship in writing with a buyer/tenant at the earliest opportunity by completing a written buyer’s agency agreement.

Licensees are reminded that, in instances where the buyer is represented by an agent, the responsibility of the listing agent to the buyer remains the same; that is, not to mislead or deceive by withholding any material facts about the property. It is not acceptable for a listing brokerage, and the licensees engaged by that brokerage, to assume that the buyer’s agent is solely responsible to discover any and all material facts about the property.

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(v) Obligations Related to Various Licensee Service Relationships

The relationship between a brokerage and a buyer/tenant or seller/landlord can be one of agent and principal, no agency, or limited dual agency. The following chart outlines the various obligations that a brokerage and its related licensees have depending on the service relationship that is established. The reference to customer is a reference to a relationship in which there is no agency representation. The reference to client is a reference to the principal and agent relationship.

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

* Yes if no conflict of interest

** Not known at the present time

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(vi) Agency Issues Related to Commercial Trading Services

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/lessor (‘‘seller’’), or the buyer/tenant/lessee (‘‘buyer’’), or both, to understand the nature of the relation- ship between them because the duties and obligations of the brokerage and the licensee are determined by that relationship.

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(vii) Conflicts of Interest

When a brokerage is engaged by a client to provide real estate services, certain duties are owed to that client. Section 3-3(1)(a) of the Council Rules requires the brokerage and its related licensees to ‘‘act in the best interests of the client’’. Section 3-3(1)(i) requires the brokerage and its related 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(1)(j) requires the brokerage and its related licensees 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 disapplying the obligations which can’t be fulfilled because of the conflict.

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(viii) Limited Dual Agency

Whenever a brokerage attempts to act for more than one party involved in the same trade, a potential conflict can arise. While the law does not prohibit acting for more than one party, brokerages wishing to act for more than one party must obtain the informed consent of both parties before acting on their behalf.

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

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

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

The most common conflict that arises is where the listing brokerage is representing both the seller and the buyer in the same transaction (this may be because two different licensees engaged by the listing brokerage work with the seller and buyer respectively, or because one licensee engaged by the listing brokerage works with the seller/landlord and is the same licensee who brings the buyer to the trade, i.e., a double-ender). These situations are the ones that generally come to mind when the term ‘‘limited dual agent’’ is used. It is important to remember that under current 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 also become agents of the seller. Similarly, 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 also become agents of the buyer.

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.

However, there are many other situations where a brokerage 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 brokerage is acting as an agent for a seller and as a mortgage broker for a buyer in the same trade. That brokerage may become aware of personal, confidential information regarding the buyer that would be of interest to the seller.

Additionally, brokerages 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.

Whenever a brokerage attempts to act for more than one party in a trade as a limited dual agent, the brokerage is in a potential conflict of interest. In every case, the brokerage must disclose the limited dual agency relationship or the conflict to his or her clients and obtain the informed consent of its clients before acting or continuing to act on the client’s behalf.

The disclosure must be timely, and, where possible, made before either client has disclosed confidential information to the agent.

All other agency disclosure requirements, as set out above under the heading ‘‘Agency Disclosure’’ continue to apply. In order to comply with the agency disclosure requirements of section 5-10 of the Council 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 described above.

Both clients have to be fully aware of the existence of a limited dual agency. 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’’. In some recent cases, 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 should not represent both parties in a trade. Where a licensee related to a brokerage is acquiring or disposing of property on his or her own account or when the licensee is providing real estate services to an associate (as defined in section 5-7 of the Council Rules), the licensee and his or her related brokerage 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 Council Rules, which requires disclosure of his or her interest in the trade, the licensee should also resist creating a conflict of interest by agreeing to have his related brokerage also represent the other party.

In such circumstances, the licensee and his or her related brokerage may wish to treat the other party as a customer and in that way can receive the total remuneration payable, as described above in the section entitled ‘‘Nature of the Relationship’’.

It is important for brokerages and their related 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. A brokerage that wishes to change from an agency relationship to one of limited dual agency or no agency, must first obtain the informed consent of its client. Making such a change is not simply a matter of the brokerage advising the client that the relationship has changed.

For more detailed information, please refer to the ‘‘Conflicts of Interest When Providing Trading Services’’ section below.

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(ix) Duty of Disclosure by a Limited Dual Agent

Limitations to an agent’s usual duties and obligations have been developed to permit an agent to represent clients who have competing interests. When acting as a limited dual agent for a buyer and seller, the agent’s duty of full disclosure is modified to allow the agent to keep information confidential from one side against the other in three areas:

• 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 agent is also required to deal impartially with both clients, including disclosing to the buyer any known defects about the physical condition of the property.

Brokerages entering into limited dual agency agreements 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, brokerages should review with each party the limitations placed on an agent’s usual fiduciary duties by this agreement.

In cases where a brokerage is acting as a limited dual agent in a situation other than for a buyer and seller, the limitations with respect to disclosure by the agent will change. For example, where the brokerage is both the strata manager and the listing agent, the limitation may be that the agent 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 brokerage is both the agent for the seller and the mortgage broker, the limitation may be that the agent 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 an agent’s usual fiduciary duties before the brokerage acts as a limited dual agent.

Additionally, brokerages and their related 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 agent in regard to the trade must be consented to by both parties.

As a limited dual agent, a brokerage and its related licensee should remember the key elements to correct conduct:

• impartiality;
• disclosure; and
• consent.

Brokerages and their related licensees have a duty to treat the buyer and the seller impartially, and other than the exceptions set out in the Limited Dual Agency Agreement, licensees must make full disclosure 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 agent 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 his or her 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 his or her principal.

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(x) 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 his or her own property to a client, or buying his or her client’s property, there is a very significant risk that his or her own personal interest will be in conflict with, and therefore will prejudice, his or her 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 its 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 his or her 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 his or her 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 it wants to be independently represented by a licensee engaged by another brokerage. Clients may choose to not allow a licensee or brokerage to continue to represent them when that licensee or brokerage is in a conflict of interest.

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Buying a Property Listed by Your Related Brokerage

If a licensee decides to take a substantial professional risk and make an offer to buy his or her own listing or any property listed with his or her brokerage, he or she is advised as follows:

• Before Negotiations

Prior to the commencement of any negotiations with the seller to purchase his or her property, advise his or her managing broker of his or her intentions. If his or her managing broker approves of proceeding with the proposed purchase, continue to involve the managing broker or his or her 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 his or her 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 his or her 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 His or Her Related Brokerage

If a licensee decides to take a substantial professional risk to sell his or her own property through his or her brokerage, he or she is advised as follows:

• Before Listing the Property

Prior listing their property through their brokerage, advise their managing broker of their intentions and continue to involve the managing broker or his or her designate throughout the selling process.

• Appoint Brokerage Listing Representative

Do not act as their brokerage representative for the listing, rather arrange for another licensee in their brokerage to act as the listing representative for the brokerage. The representative 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 agreement, inputting property information into the multiple listing service, preparing all advertising and promotional material, etc.

• Do Not Act for Buyers

The brokerage should, where possible, not act as agent for a potential buyer of the related licensee’s property. Should a buyer wish a brokerage licensee to act for them, such licensee should promptly and fully disclose the brokerage conflict of interest to the potential buyer as summarized above and confirm such disclosure in writing. It is preferable that the listing representative for the brokerage (along with all other brokerage representatives) act 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 agreement with a buyer who becomes interested in buying the property should offer the buyer the option to cancel such agreement and give the buyer the opportunity to seek independent representation.

• Do Not Communicate Directly with Buyer

Do not at anytime communicate directly with the buyer. All communication with the buyer 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 his or her 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

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.

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(xi) The Conflict of Representing Two Buyers Who Want To Buy the Same Property

A second example of a brokerage acting for two clients with potentially conflicting interests is where licensees engaged by a brokerage are representing two buyers who are interested in buying the same property. Again, bearing in mind that the brokerage and all of its related licensees are agents for the same clients, 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. 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 agreements, or some other form of buyer agency acknowledgment agreement, with each of these competing buyers.

In the ‘‘standard’’ exclusive buyer agency agreement, a buyer agrees that it is not a conflict for the brokerage to act as an agent for other buyers. There is similar wording in ‘‘standard’’ listing contracts vis-a`-vis the brokerage representing other sellers. There is also a clause that states the brokerage is not required to disclose confidential information obtained through any other agency relationship. The newly created Buyer Agency Acknowledgement form available through WebForms also addresses these issues.

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

If that is not a reasonable step, the brokerage must promptly and fully disclose the conflict to both buyer clients. This would be a prudent thing to do, even if the brokerage has the written agreement, through an exclusive buyer agency agreement 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 it in this situation. If both buyers are prepared to allow the brokerage to represent them in their respective negotiations, and there is no written buyer agency agreement or acknowledgment, the brokerage and each buyer client should agree in writing how the duties under section 3-3 of the Council Rules are to be limited or disapplied. For example, the brokerage’s 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 everything it knows about the trade in real estate to each client.

While there is no ‘‘limited dual agency’’ agreement that details these limitations of duties for brokerages acting for two buyers, the need to do so is just as important in this situation as it is when a brokerage is acting for a seller and a buyer in the same trade. If it is not common practice for a brokerage and its related licensees to enter into written buyer agency agreements with their buyer clients, brokerages should obtain independent legal advice to assist in preparing an appropriate agreement respecting limitation of duties for use by its related licensees when they are working with competing buyers.

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(xii) 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 agreement 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.

Paragraph 10 of the ‘‘standard’’ Multiple Listing Contract states in part that: If the Listing Brokerage is also the agent of a prospective buyer who becomes interested in the Property, the Listing Brokerage will seek the written consent of the Seller and the prospective buyer to continue to act as their limited dual agent to facilitate a sale of the Property.

Unless the listing amendment 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 permitted under clause 4 of the ‘‘standard’’ Multiple Listing

Contract — 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.

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(xiii) Continuing Duty of Confidentiality

William Foster, a noted authority on agency 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 relation- ship 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 a party 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, the 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

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

However, pursuant to the common law and section 5-13 of the Council Rules, 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 Council Rules contains a definition for ‘‘material latent defect’’.

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(xiv) Example of the Continuing Duty of Confidentiality

Scenario:

A seller has listed a property for sale with a brokerage and the seller advises a licensee related to 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 his obligation to disclose a material latent defect under section 5-13 of the Council Rules and that pursuant to section 3-3(1)(b) of the Council Rules he 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 his 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 his or her buyer’s agent to do so.

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

Licensees who withdraw services in this manner acknowledge that their professional obligations can override unreasonable client instructions, which is consistent with the requirements of section 5-13(3) of the Council Rules.

The answer to the question is ‘‘No’’. A licensee’s responsibility to maintain his or her 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 he or she would first have to advise the buyer that he or she had previously represented the seller and that he or she 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 he or she 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.

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(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.

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(i) Common Scenarios that Generate Licensing Questions

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 Council 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.

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(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 Council Rules, which prohibits a licensee from paying an unlicensed person who performs real estate services for which a licence is required.

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(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.

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(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.

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(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.

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(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 Council 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.

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 Council 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 Council 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

Section 5-11 of the Council 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.

Again, 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.

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 Council 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.

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 Council 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 Council 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 Council 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 Council 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 Council 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 Council 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.

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(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 Council Rules requires written disclosure.

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(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.

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(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 Council 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.

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(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.hsd.gov.bc.ca/gaming.

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(m) Inducements To Breach a Contract

A licensee is prohibited, by section 5-5 of the Council 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.

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(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 HST 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.

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

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(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.

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.

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(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 Council Rules. Section 5-13(2) of the Council 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 Council Rules requires that the disclosure be made in writing, prior to the acceptance of an offer.

Further, section 5-13(3) of the Council 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 Council Rules, and if they are instructed by a seller not to disclose, they must withdraw and cease acting for that seller.

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(q) Fictitious Sales

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

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(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.

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(s) Remuneration

Provisions covering remuneration are dealt with in RESA and in the Council 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 Council 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 Council Rules).

(See section on ‘‘Referral Fees’’.)

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(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 Council 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.

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(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.

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(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 Council 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.

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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 from BC Online 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.

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

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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:

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.

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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:

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:

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

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

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(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 BC Online. 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.

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.

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(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 than 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.

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(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.

(iv) Measurement of Commercial Properties

[This section updated April 3, 2012]

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.

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(d) Listing Information

The listing brokerage is responsible for the accuracy of the listing information, including lot size, floor area, and zoning. Every effort must be made to ensure the highest level of accuracy.

The following items in particular must be addressed:

Physical Features

Measure and confirm:

• Floor area and room sizes.
• Lot size.
• Any recent construction, renovations or improvements, (e.g., wood stoves and metal chimneys)? If so, necessary building permits obtained?
• Final inspection completed?
• Any builders’ liens made or threatened?

Services for urban and rural properties:

• Water supply confirmed? Quality? Quantity?
• Sewer hooked up to municipal services?
• Sewage disposal system inspected and approved by the proper authority? Is a new system required?
• Is there electrical service?
• Are there site restrictions on the building footprint?
• What was the prior use of the land? Is there access?

Legal and Financial Characteristics

A. General

• Surface search or State of Title Certificate ordered.
• State of Title Certificate read (see your managing broker or the brokerage’s lawyer to explain any entries on title that you do not understand, e.g., restrictive covenants, mortgages or rights-of-way, etc.).
• Location and size of property confirmed from Land Title Office survey or municipal plans.
• If the land is leased, have head lease checked for any rent escalation clause.
• Is the seller a Canadian citizen?

B. Financial Encumbrances

• Are there mortgages, liens, judgments, or other financial charges outstanding on the property?
• If so, find out what is owing under each financial charge on the property.
• If the seller has zero or ‘‘negative equity’’ in the property, what other resources does the seller have: — to clear title?
  • to pay your commission?
• If the property is being sold under a court order (e.g., a foreclosure), read a copy of the order to: — see if any conditions for a sale are set out; or
  • see whether it provides for payment of a real estate commission.

C. Assumable Mortgages

• Check mortgages.
• Confirm with lender the outstanding balance owing under the mortgage and if it can be assumed by the buyer.
• Does the Property Law Act apply?

D. Easements, Rights-of-Way, Restrictive Covenants, Etc.

• Is there anything on title that could restrict a buyer’s use of the property?
• If so, get a copy of the registered charge and read it.
• Upon sale, recommend buyer obtain legal advice as to terms of such liens.

E. Zoning

• Confirm current zoning status and prospects for any zoning changes with municipal or regional district authorities.
• The Agricultural Land Reserve may negate existing municipal or regional district zoning.
• The Islands Trust development and land-use restrictions control those Gulf Islands within its mandate.

F. Taxes

• Obtain copy of most recent property tax assessment.
• Non-resident withholding tax (Find out if the seller is a resident of Canada)
• HST:
  • might it apply?
  • if so, advise seller and prospective buyer to get independent professional advice.

G. Family Relations Act

• If a marriage dissolution is involved, confirm the validity of the listing with both spouses and/or their respective lawyers.

In addition, the following items should be personally checked and specifically noted whenever a property is listed: all leased equipment including some alarm systems, water coolers, etc.

It is good practice for the buyer’s agent to confirm all data shown on a listing, particularly any information a buyer has noted as being important.

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(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.

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(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.

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(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.

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

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.

The Council has recently been discussing with the British Columbia Real Estate Association (BCREA) issues related to acceptable forms which a deposit may take. These discussions have led to two articles, written by lawyer Brian Taylor, being published by BCREA. One article explains a change that has been made to the CPS related to deposits which are made by way of uncertified (personal) cheque. The other article addresses issues related to cash deposits. The Council encourages licensees to review these articles, which may be found under the Guide Tab within WEBForms™ as well as on the BCREA page on the REALTOR Link® website.

Given that it is the CPS that establishes 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. Mr. Taylor’s article, entitled ‘Brokerage Refusal to Accept Cash Deposits’, provides guidance to brokerages and licensees in this regard.

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.

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(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.

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(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.

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(v) Buyer’s Failure To Pay Deposit

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

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.

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(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.

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(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:

(b) the Contract of Purchase and Sale may provide for a small initial deposit which is to be increased to a specified amount upon notification of acceptance of an offer or removal of conditions precedent. In this case, the following clause should be used in the Contract:

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.

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(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 Council 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 Council 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.

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(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.

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.

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(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.

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

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 the money is to be given to a licensee so that that licensee can deliver the deposit 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.

To demonstrate, assume that the seller and buyer have agreed that a deposit of $10,000 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 $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 toand 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 $10,000 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’’. 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 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

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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 Council 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 Council 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 $10,000 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

The need for the separate written agreement in both of the above examples is only because Randy Ready has agreed to receive and deliver the deposit to someone other than his brokerage. If Randy is never to hold or receive the deposit in either of these scenarios, there is no need for the separate agreement. The Deposit clause in the contract would still be written as indicated in each scenario.

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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 Act, section 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.

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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:

OR

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.

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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.

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:

Regardless of who is acting as the stakeholder, the following clause should be used to clarify the obligations of that stakeholder:

(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.

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(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.

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(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.

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(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 32 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.

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(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.

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(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.

(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.

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(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 Yoshi Kuni 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.

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(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 23 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 24 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 23 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 23 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 Council 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 Council 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 Council Rules requires that a Notice under subsection (4) must be given in writing or confirmed in writing.

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(vii) Advice of Acceptance

Section 5-4 of the Council 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.

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(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.

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(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:

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.

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(xii) Further accepted Offers after a first Offer Has Been Accepted (Back-up Contracts)

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.

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(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.

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.

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.

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(xv) Listing and Offer Guidelines

The following chart has been prepared to assist licensees in the preparation, presentation, and negotiation of offers and counter-offers.

Guiding Principles

Communicate early and often	When taking a listing or commencing to work with a buyer, the licensee should explain to the client how offers and counter-offers are handled and the possibility of competing offers.
The 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, or countered. A potential buyer makes decisions about how and when his or her offer will be presented and negotiated and if counter-offers will be accepted, rejected, or countered. All offers and counter-offers must be presented to the seller and the potential buyer, as the case may be.
Offers 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.
Disclosure of terms of offers and counter-offers	The terms of an offer or counter-offer with one potential buyer may not be disclosed by the listing licensee to another potential buyer without the prior consent, preferably in writing, of the seller. This of course assumes that the seller has not agreed with a buyer to maintain the confidentiality of the price and terms of an offer. Some real estate boards may have bylaws that prohibit the disclosure of the price and terms of a competing offer. A seller who is not bound by a confidentiality agreement with a buyer may decide, however, 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.
The seller decides whether the existence of an offer or competing offer is to be disclosed	Disclosing that an offer has been made or that an offer may be received is not confidential information unless the seller asks the licensee to keep such information confidential.
Full-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.
No 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.
Licensee communication	Licensees should make reasonable efforts to keep cooperating salespersons informed, consistent with client’s instructions.
Licensees 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. 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. Alert one or more buyers that they are in a competing offer situation. Alert all 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:

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(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.

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(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 Council Rules during the registration process prior to the start of the bidding.

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(k) Advertising Requirements

The purpose of advertising requirements is 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 Council Rules require:

• That all advertisements include the name of the related brokerage. The name of the brokerage must be displayed prominently and in an easily readable form. This includes, but is not limited to, the following: T V ads and/or channels, all websites and webpages (This includes websites such as Facebook, Twitter, Myspace, ebay, craigslist, usedvancouver, usedvictoria, etc.), e-mail (and any other online identification, representation, promotion or solicitation), bus shelters and bus stop benches, newspaper ads, yellow pages ads, brochures, flyers, sponsorship materials and signs, billboards, stadium/arena signs, automobile signs, bus advertising, 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. It is further recommended that the brokerage’s office telephone number be included.
• 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 Council 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.
• 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 Council Rules); i.e., ‘‘The Bloggs Team’’, where ‘‘The Bloggs Team’’ is neither the licensed brokerage nor a registered trade name. Where the team also consists of unlicensed individuals whose names are included in the advertisement, so as to ensure the public is not misled or confused into thinking those individuals are licensed, the function of those individuals must also be identified, e.g., Joe Bloggs (unlicensed assistant). In order to reduce the potential for members of the public being confused or misled as to the brokerage with which they are dealing, the name of the marketing team must not give the impression of being an incorporated company (e.g., Joe Bloggs & Co.). The name of the related brokerage must always be included in any form of advertising.
• 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.

Signs which designate property as being ‘‘on the market’’ (i.e., ‘‘For Sale’’, ‘‘For Rent’’, ‘‘Will Develop To Suit…’’, etc.) may not be placed on property without the consent of the owner of that property or an authorized agent of the owner (section 4-8 of the Council Rules). Licensees must check strata bylaws, co-operative bylaws or rules, and rules of a manufactured home park before placing any signs or open house arrows anywhere on the property. Advertising restrictions or prohibitions may apply. Size, type, and location of signs may be controlled. These directives should be followed to avoid problems (and, perhaps, fines) for the seller with the strata council, co-operative Board of Directors or the owner of the manufactured home park.

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(i) Guidelines for Team Names

Section 4-6(5) of the Council Rules provides that, ‘‘If the Council approves a team name for a group of related licensees, real estate advertising may also identify the group by this team name.’’ Over the years, the Council has developed and adopted the following general guidelines to be applied in the approval of team names:

• To ensure that the public is not mislead or confused a team name must not give the impression of being an incorporated company or brokerage, i.e., Joe Blogg and Company, Joe Blogg Realty, Blogg Real Estate Services.
• Acceptable team names, for example, may, include the words, ‘‘Team’’, ‘‘Group’’, ‘‘Associates’’, ‘‘Network’’. Approvals of team names are made on a case-by-case basis.
• 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.
• A team must consist of more than one person (licensed or unlicensed).
• Any unlicensed team member must be identified as being unlicensed in any team advertising in which they appear.
• All licensed team members must be licensed with the same brokerage.

In order to have a team name approved licensees are simply required to submit their request to Council, in writing setting out:

• the team name they would like to have approved; and
• the names of the members of the team, both licensed and unlicensed.

Licensees may submit more than one team name for consideration, indicating their order of preference of names for approval. Only one name will be approved.

Typically, once a request for a team name approval is received by the Council, the licensee who submitted the request will be advised within a week to ten days, in writing, whether or not the name has been approved. The managing broker will be copied with the Council’s letter.

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.

It is important that all teams remain mindful of the requirement that in all advertising the name of their brokerage must be prominently displayed and easily readable in relation to the rest of the advertisement. For example, including the name of the brokerage at the bottom of a website, in small print, does not satisfy the requirements of section 4-6(2) of the Council Rules.

Additionally, it is important for all licensed team members to remember that as individual licensees they maintain their obligation to comply with all of the provisions of RESA, the Real Estate Services Regulation, Bylaws and Council Rules. The fact that one licensee member of the team may be promoted as the ‘‘lead’’ licensee of the team in no way diminishes the other team members’ legislated responsibilities and obligations to comply.

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(ii) Licensee Referral Network Advertising Guidelines

Licensees who participate in referral networks are free to promote this affiliation. The Council has seen instances where the focus of advertising is on the referral network with reference to select licensees from across the Lower Mainland, as an example, who are members of that network. The Council has recently developed the following guidelines to assist licensees in advertising this type of information.

Where a referral network is comprised of licensees employed by different brokerages, such advertising must contain prominently and in easily readable form the name of the brokerage of every licensee named in the advertisement (see section 4-6 of the Council Rules).

Advertisements may include referral network names and/or logos. In the event that the referral network is unlicensed, the advertisement must clearly indicate this under the network name and logo. For example, the advertisement would look like the following:

THE SMITH REFERRAL NETWORK
An unlicensed referral network

If the referral network advertisement contains the names of any unlicensed individuals, the function of those individuals must be identified, e.g., Joe Smith, unlicensed assistant.

The name of a referral network need not be registered with the Council.

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(iii) Internet Advertising

As a general principle, licensees should be aware that all regulations and policies respecting advertising apply equally to the Internet. This includes websites, e-mail, and any other potential online identification, representation, promotion or solicitation to the public which is related to licensed real estate activity.

In accordance with section 4-6 of the Council Rules, the name of the brokerage must appear in a prominent and easily readable form on all such advertisements, including each individual page and/or frame of a website, e-mail, e- mail discussion groups, bulletin boards, etc. Due to the global nature of Internet advertising, adequate contact information with respect to the brokerage should also be included, i.e., the brokerage’s telephone number, including area code. Where the brokerage has a company home page and/or e-mail address, links to these should also be included.

The Internet poses additional potential problem areas that require caution on the part of licensees, both individuals and their brokerages:

Domain Names (URLs), E-mail Addresses, and Meta Tags

A domain name is the Internet address of a website. For example, the Council’s domain name is www.recbc.ca. Meta tags are keywords embedded in a website that help Internet search engines find that website. For example, a licensee might include keywords such as ‘‘real estate’’, ‘‘homes’’, ‘‘houses’’, etc. in their website’s Meta tags field. When a person enters the word ‘‘homes’’ in the search function of Internet search engines, such as Google or Alta Vista, etc., websites that contain the word ‘‘homes’’ in their Meta tags field will be found. Domain names, e-mail addresses and Meta tags should not contain any trademark that the licensee has not been authorized to use. Examples would be the unauthorized use of the terms MLS, Multiple Listing Service and REALTOR all trademarks owned by the Canadian Real Estate Association (CREA).

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.

Brokerages must ensure that licensing information posted on their website is kept current and accurate. There should be no reference to any licensee who is not currently licensed with that brokerage. Where information about unlicensed employees of the agent is included, the fact they are not licensed should be clear.

Those who provide general market information on their websites should include a notation such as ‘‘General market information on this website was last updated on’’.

Links, Deep Links, and Frames

A link is either a graphic or word(s) in a website that, when clicked on, takes an Internet user to the first page (also known as the home page) of another website. A deep link is a link that takes a user to a page other than the home page (known as an interior page) of another website. A frame is created when one website captures the content of another website. The second website is said to be framed if it appears to be a part of, or embedded in, the first site. This is often done in an attempt by the first site to not lose the user to the second site.

There are a number of issues relating to linking and framing:

(a) While it is generally agreed that permission is not required to link to certain websites, such as government agencies, public libraries, etc., licensees must remember that a website and its contents are intellectual property. The look and feel of a website, its original content, and the manner in which the information is compiled all give rise to copyright. Licensees should seek permission prior to linking to another website.

(b) Regardless of which website hosts the listings of your local real estate board, there are rights of compilation in that listing database. Licensees should adhere to the guidelines established for linking to that listing information.

(c) Many websites earn advertising revenue based on the number of visits to the home page of the site. By deep linking to an interior page of a website, advertising revenue is potentially lost. Deep linking should not be done without seeking the prior approval of the owner of the website.

(d) Framing can lead to copyright and/or trademark infringement. In effect, when another website is framed, that property is being used. Framing another website should not be done without seeking the prior approval of the owner of the website.

(e) Licensees should make certain that any site to which they link is compatible with the image and views they wish to portray.

(f) Licensees should avoid misrepresenting the relationship between their services and the services offered by a site to which their site is linked. Also, if the link creates the impression that the licensee is participating in or endorsing the services being offered, that licensee may be assuming responsibility for the performance of those services.

(g) Linking is better done with text than with graphics. Graphics are often subject to copyright or trademark and cannot be used without the permission of their owner.

Licence Jurisdiction

Licensees must not give the impression that they are licensed in a province or state where they are not. Licensees may find it appropriate to clearly indicate on their website that they are licensed in the province of British Columbia.

Office Policies Regarding Internet Use

As with other forms of advertising, brokerages need to be aware of the content of their licensees’ websites. A prudent managing broker should approve all websites before they are activated and maintain regular website monitoring to ensure ongoing compliance with the Council’s advertising guidelines and any additional policies the company may have.

While not a matter directly related to RESA, it is suggested that brokerages establish e-mail/Internet workplace policies that include usage guidelines, penalties for violations, and mechanisms for addressing complaints.

Similarly, in compliance with the Personal Information Protection Act, brokerage and licensee websites should also contain a privacy policy statement that informs Internet users of the company’s or licensee’s intended use of any personal information gathered.

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(iv) Web-based Social Networking and Real Estate Advertising

Licensees that use online social networking, micro-blogging services or any other web-based application in the promotion of their real estate services, are reminded that the Council’s advertising rules apply; in particular the name of the licensee’s brokerage must be prominently displayed and easily readable (section 4-6(2) of the Council Rules).

Whether the name of the brokerage is ‘‘prominently displayed and easily readable’’ is judged in relation to the rest of the material contained on a webpage. A brokerage name in tiny, hard-to-read font, at the bottom of a webpage is not acceptable.

In reviewing the use of social networks by licensees to promote their real estate services, it has been concluded that, provided a licensee displays the name of his or her brokerage on his or her profile, using Twitter or Facebook as examples, it is not required that each ‘‘tweet’’ or ‘‘post’’ also contain the name of the brokerage. The rationale is that once a licensee’s profile has been accessed, the name of the brokerage displayed, and it is known that the individual is a licensee; it is the reader, 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 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 announce 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 announced.

One of the primary purposes of the Council’s advertising rules is to ensure that consumers accessing a licensee’s advertising, anywhere in the world, are aware that they are dealing with a real estate licensee and know the name of the brokerage by which that licensee is engaged.

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(v) Photo Enhancing Software

With more widespread use of photo enhancing computer software (such as Adobe Photoshop or Corel Photo Paint), it has become relatively easy and inexpensive 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.

Section 4-7 of the Council Rules provides that:

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.

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.

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(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 Council 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 Council 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 Council 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.

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 Council 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.

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(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 Council 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.

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(n) Disclosure of Illegal Activities

If real estate was used for the production of illegal substances, such as growing marijuana or as a methamphetamine laboratory, a material latent defect may exist since, if the property has not been properly restored, it may contain toxic hazards that cannot be discovered on a reasonable examination of the property.

The Council recommends that the following clause be used to confirm that the property has not been used to grow or manufacture illegal substances:

If, however, the property has been used to grow or manufacture illegal substances, in addition to making the disclosure in writing to the buyer in a manner separate from the Contract of Purchase and Sale, the Council recommends that the following clause be used:

§ 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 presented.

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

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(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.

If a licensee is authorized to sign a contract on behalf of a client, section 5-3 of the Council Rules requires that the licensee must have obtained written authorization from the client or an authorized agent of the client prior to signing the document. It is not acceptable for a licensee to sign a document on a client’s behalf simply on the basis of a verbal authorization from the client. 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.

When signing on behalf of a client, licensees should not sign the name of the client. Instead, the licensee should sign his or her own name and indicate beside or below his or her name that he or she is signing as agent for the client as follows.

Mary Smith (Signature) as agent for Jane Jones (printed)

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(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.

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(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.

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(r) E-signatures, Electronic Agreements and Electronic Tablets

[This information added June 2010]

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 Council Rules may also apply. For example, section 8-9.1 of the Council 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 Council 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.

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(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.

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(t) Included/Excluded Items

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.

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.

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(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:

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(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 Council 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.

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(w) Proceeds of Crime (Money Laundering) and Terrorist Financing Act

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 FINTR AC 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 FINTR AC 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 FINTR AC 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.

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).

SeeGuideline 6B: Record Keeping and Client Identification for Real Estate at www.fintrac-canafe.gc.ca.

(vi) 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.

(vii) 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.

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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.

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(a) Listing Agreements Must be Amended if Commission is to be Increased or Decreased

This section added July 2011

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 Council Rules, which may result in a licensee being subject to professional discipline, should a complaint arise.

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(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 section entitled ‘‘Included/Excluded’’ items for a list of possible items to consider.

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(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.

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(d) Disclosure of Remuneration

A licensee may not accept any form of remuneration in a transaction from a party other than the licensee’s client without disclosing to the client the fact that this compensation has been received by the licensee.

Section 5-11 of the Council Rules requires a buyer’s agent to disclose all remuneration that the buyer’s agent receives that is not paid to the buyer’s agent by the buyer. The disclosure must be in writing and must be separate from any service agreement or agreement giving effect to a trade in real estate.

In relation to a buyer’s agent, disclosure must be made of all remuneration that the brokerage receives from the seller. Additionally, a buyer’s agent must disclose all other remuneration, including referral fees, that the buyer’s agent receives or anticipates receiving in relation to the real estate services.

Section 5-11 requires this disclosure to be made to the client promptly. The common law requires that such disclosures must be timely, occur before any potential conflict of interest has arisen, and when it has some meaning. 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, and therefore the disclosure requirements of section 5-11 apply.

To begin the process of disclosure, licensees should have a general discussion about remuneration with a prospective buyer/client at the same time as the licensee is describing the services to be provided. 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.

There remains the obligation to 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 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 (i.e., 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®.

With respect to timing, in order to satisfy the common-law requirement that disclosure be made when it has meaning, the very latest time would be before an offer is to be written. 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 that it must be made 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).

A form entitled ‘‘Disclosure of Remuneration’’ has been prepared by the Council and is also available 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. The form can be found on the Council’s website under Forms located under ‘‘Licensee Information’’.

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(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 Council 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.

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(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.

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(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.

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(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.

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(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 Council 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 Council Rules and both the buyer and the licensee must receive a copy of that listing contract.

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(i) Assignment of Contracts

Licensees, from time to time, will be involved in situations where buyers wish to assign their rights in a Contract of Purchase and Sale to other parties, especially in a rising real estate market where they can re-sell the property at a higher price before the completion date.

This situation can arise either before or after the execution of the original contract but in either circumstance, licensees should not use clauses such as ‘‘and/or nominee’’ or ‘‘and/or assignee’’ in the description of the buyers. 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.

The general rule, in the absence of wording in the contract to the contrary, is that buyers may assign their rights under the contract as long as they do not prejudice the rights of the sellers. For example, if the sellers are carrying the mortgage, they may not want the contract to be assigned to another party. Also, licensees should be aware whether or not HST applies as a result of the assignment.

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.

If the possibility of an assignment is contemplated at the time of entering into the original Contract of Purchase and Sale, licensees should consider the use of the following clause in the contract:

Where the seller does not wish the buyer to assign the contract, the following clause may be used:

Licensees who are asked to represent an assignor (original buyer) or assignee (ultimate buyer) pursuant to a Contract of Purchase and Sale 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 seller has been given notice in writing of the assignment (unless the clause on 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).

Because the procedure and documentation for assignment can be complex and fraught with difficulties, it is in everyone’s best interest for licensees to advise all parties to seek legal advice in the drafting of effective and enforceable assignments of any Contract of Purchase and Sale. Licensees 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.

(j) Disclosures of Interest in Trade Related to the Assignment of Contracts of Purchase and Sale

This section added January 2011

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 Council 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 Council 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.

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(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.

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(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.

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(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:

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:

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(n) Items Affecting a Property

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(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 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.

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(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.tca.gov.bc.ca/archaeology/) 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:

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.tca.gov.bc.ca/archaeology/

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(6) Fish Protection Act — Riparian Areas Regulation

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.

Instead of establishing mandatory set backs, the Regulation requires local governments to protect riparian areas during residential, commercial and industrial development by ensuring that proposed activities are subject to a science based assessment conducted by a qualified environmental professional. Land developers are required to hire qualified environmental professionals to assess habitat and potential impacts, develop mitigation measures and avoid impacts of development to fish and fish habitat. By following the assessment procedures set out in the Regulation, the qualified environmental professional and the land developer will have avoided a harmful alteration, disruption or destruction. If a harmful alteration, disruption, or destruction cannot be avoided, an authorization including compensation must be submitted to Fisheries and Oceans Canada.

The Riparian Areas Regulation will only apply to local governments located on the east side of Vancouver Island, the Lower Mainland, and the Southern Interior. This includes Capital, Central Okanagan, Columbia Shuswap, Comox-Strathcona, Cowichan Valley, Fraser Valley, Greater Vancouver (except the City of Vancouver), Nanaimo, North Okanagan, Okanagan-Similkameen, Powell River, Squamish-Lillooet, Sunshine Coast, Thompson Nicola, and the trust area under the Islands Trust Act.

Licensees should familiarize themselves with this new Regulation and its potential impact, particularly in areas that may be the subject of development. Further information about the new Regulation is available through the Ministry of Environment website at www.env.gov.bc.ca/habitat/fish_protection_act/riparian/riparian_areas.html and/or the local government authority in the area where the property is situated.

Licensees should remember that, while they have a responsibility to provide their clients with information needed to make informed decisions, they are accountable for any advice they give. In instances where a stream is present, licensees drafting Contracts of Purchase and Sale should incorporate the following clause:

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

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(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.

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(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 on a two-part basis. First, they assess bare land value, which includes factors such as soil quality, accessibility, parcel size and location. Secondly, they apply added value when timber is harvested. In a recent Update Bulletin, B.C. Assessment gave the following example:

For example, timber harvested in the calendar year 2000 will show up as added value on the assessment notice of a forest land property for the 2002 assessment roll. For Property taxes payable in the summer of 2002, part of the value may have come from harvesting of trees up to 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.

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(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.

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(10) 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.

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(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.

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(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.

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(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.

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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.

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(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.

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(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 Council 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’’.)

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(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

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.

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(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 Council 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, telephone or e-mail instructions.

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.

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(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.

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(viii) Due Diligence Required When Dealing with the Elderly

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.

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(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.

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(xi) Buying from an Estate

Buyers of an estate property must be assured that the title can pass to them without legal problems. Licensees acting on behalf of sellers should contact the lawyer acting on behalf of the estate to determine whether the property may be offered for sale and whether a grant of probate or letters of administration have been made which will allow the property to be transferred.

If a grant of probate or letters of administration have been made and the Wills Variation Act has been complied with, no additional clause is required. If these steps have not been concluded, the following clause should be incorporated into the Contract of Purchase and Sale:

An example of the proper way for an executor (or administrator as the case may be) to sign a contract on behalf  of the estate is: ‘‘G. Seller, Executor of the Estate of                        (name of the deceased)                                  ’’.

In some cases, there may be a delay in obtaining a grant of probate or letters of administration which allow the property to be sold. Should that occur, the buyer may agree to an extension to allow the executor or administrator additional time to obtain a grant of probate or letters of administration. It is not recommended that clauses be inserted which do not establish dates by which a grant of probate or letters of administration must be obtained, or to automatically extend the completion dates of the contract until this event occurs.

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(xii) 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 http://www.cra-arc.gc.ca/E/pub/tg/t4061/t4061-e.html .

Licensees should also advise their non-resident clients to obtain professional advice.

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(xiii) Terminology: On or Before

‘‘By’’ and ‘‘on or before’’, legally, mean the same thing.

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(xiv) 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.

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(xv) ‘‘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:

(12) 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.

(13) 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.

(14) 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.

(15) 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.

(16) 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 by                         (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 fulfilled* the following subject clause: ‘‘Subject to the Buyer, at the Buyer’s expense, obtaining and approving an inspection report by                        (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.

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(17) The Practice of Adding New Terms on a Subject Removal Addendum 

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

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(xvi) 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.

(2) New First Mortgage Clause

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 Act include 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

(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.

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 seek written confirmation from their mortgagors of the amount of any outstanding mortgage balances, accrued interest, or penalties. A seller that 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:

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.

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.

(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’’.

(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.

 

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.

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.

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.

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:

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

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.

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(xvii) Miscellaneous Clauses

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.

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

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(xviii) Zoning Approval

This clause may be adapted for other situations where confirmation of specific information is required by the buyer.

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(xix) Harmonized Sales Tax (This section updated August 2010)

The application of the Harmonized Sales Tax (HST) to real estate transactions is complex. Generally speaking, HST 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 HST to real estate transactions. Both the buyer and the seller should be advised that if they have any questions regarding HST liability, exemptions, or their right to apply for a rebate, they should contact a lawyer, accountant or the nearest Canada Revenue Agency Office.

For any contracts entered into prior to July 1, 2010 (the date of introduction of the HST),  and which close after July 1, 2010, there are certain rules for the transition from GST to HST that may impact a buyer or seller’s obligations with respect to the payment of HST.  If a buyer or seller has entered into a Contract of Purchase and Sale prior to July 1, 2010, 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 HST memoranda available at Canada Revenue Agency offices that licensees may find useful regarding current rebate limits and exemptions, including the HST 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 atwww.cra-arc.gc.ca.

Where the buyer has not received independent advice regarding HST liability, exemptions, or rebates, prior to entering into a Contract of Purchase and Sale, the following clause should be inserted into the Contract:

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 HST, 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

Where the buyer acknowledges responsibility for paying the HST, the licensee should insert the following clause into the contract:

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(xx) Buyer’s Responsibility To Pay HST Clause

The Buyer confirms the receipt of independent HST advice concerning the obligation to pay HST and will be responsible to pay any HST and apply for any HST rebate in connection with this transaction.

Where, for some reason, the seller agrees to pay HST on behalf of the buyer, the licensee should insert the following clause into the contract:

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 Harmonized Sales Tax to real estate transactions, it is strongly recommended that licensees not give advice with respect to the application of the Harmonized Sales 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.

(1) HST: New Housing Rebates

Licensees should be aware that HST is payable not only on new homes (including strata units and manufactured homes), but also on substantially renovated homes, as well. Sellers may need to obtain a ruling from the local HST office on what constitutes ‘‘substantial’’ and keep a record of the official who rendered that opinion.

Sellers of new homes use various ways to present the HST and the New Housing Rebate to prospective buyers. There are now at least four different combinations that buyers may face:

• price includes HST; rebate to builder;
• price includes HST; rebate to buyer;
• HST over purchase price; rebate to buyer; and
• HST over purchase price; rebate to builder.

It is the buyer, however, who is ultimately going to pay the HST, whether it is included in the purchase price or added to the price. It is also the buyer who is entitled to the New Housing Rebate, which the buyer can claim directly from Canada Revenue Agency or assign to the seller, who can claim it from Canada Revenue Agency. If the rebate is transferred to the seller, negotiations between the seller and the buyer should result in a saving to the buyer of the equivalent amount in the purchase price; however, it is expressed as either HST included in, or added to, the purchase price.

In the written contract, licensees must clearly indicate whether or not HST is included and who is being paid the rebate (if applicable). Licensees should leave the calculation of the exact amounts to the notary/lawyer acting as conveyancer ( just as the notary/lawyer calculates tax and utility adjustments, not the licensee).

Many developers/builders have their own preprinted HST clauses. A licensee working with an interested buyer should ask for these clauses in advance of the offer and have the buyer discuss them with independent counsel.

If the HST rebate is being credited to the seller, the following clause should be included in the contract:

An additional form of confirmation for both parties of HST Rebate eligibility is the following clause to be added to the Contract of Purchase and Sale. Licensees should confirm current rebate parameters before using this clause:

NOTE: The HST New Housing Rebate falls under the Canadian Excise Act. Some buyers may not qualify for the rebate and there is a ceiling to the value of the rebate.

The HST New Housing Rebate applies to both the provincial (7%) and federal (5%) component of the HST and the eligibility requirements for each component are the same.  However, the availability and amount of the rebate for each component will vary depending on the value of the property. 

The full HST New Housing Rebate for the federal component of the HST applies only to properties with a value of $350,000 or less.  The amount of the rebate for the federal portion of the HST New Housing Rebate is reduced on properties valued between $350,000 and $450,000.   There is no HST New Housing Rebate for the federal portion of the HST for properties that are valued at $450,000 or higher.

The HST New Housing Rebate for the provincial component of the HST applies only to properties with a value of $525,000 or less.   Properties that are valued above $525,000 will still be entitled to the maximum rebate of $26,250 (the rebate applicable to a property valued at $525,000).

As these amounts can change, licensees should check with the Canada Revenue Agency at www.cra-arc.gc.ca/tx/bsnss/tpcs/gst-tps/menu-eng.html.

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(xxi) HST and Lease Land

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 HST on each unit. This differs from the typical practice of charging HST to the purchaser and remitting that amount to the Canada Revenue Agency.

The HST 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 HST 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.

In cases of residential condominium units built on leased land where the builder has assigned its leasehold interest to a purchaser, the Canada Revenue Agency will not enforce the application of the self-assessment rules to transactions completed before December 8, 1998.

If you have any questions or require further information regarding this subject, please contact your local Canada Revenue Agency Office, Business Enquiries line.

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(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:

If required, the following condition may be added to the contract:

(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.

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:

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(xxiii) 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.

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.

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(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.

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 Council 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.

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(xxv) Health and Environmental Concerns

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 and urea formaldehyde foam insulation have already attracted interest as possible health risks. Recently, the presence of radon gas, 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.

With respect to environmental concerns in particular, since April 1, 1997, the contaminated sites legislation in

B.C. has required 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 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) a current one is already filed in the Contaminated Sites Registry (access by BC Online at www.bconline.gov.bc.ca); (b) if the property is used or zoned for residential purposes; or (c) if the buyer has waived the requirement in writing. The Site Registry is an important source of information for buyers and their agents when conducting their due diligence searches.

The legislation does not state the consequences to the life of the transaction if a profile has not been provided or if the one provided is untrue. 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.

(1) Special Knowledge Areas

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 is only suggestive of the types of issues to be investigated. The Professional Standards Manual deals with some of these topics, but the prudent licensee will investigate further:

• sewage disposal systems
• water supply
• power lines
• gas lines
• underground or overhead telephone and power wires
• underground storage tanks and oil tanks
• underground springs, streams and tunnels
• water table depth (no basements, e.g., reclaimed land in Richmond)
• flood plains
• mineral rights
• stream management (foreshore protection from erosion)
• First Nations land
• leasehold lands
• dedications
• restrictions (building covenants, bylaws, zoning)
• expropriations (pending and actual)
• air rights
• railway lines
• Agricultural Land Reserve (ALR)
• Islands Trust
• Heritage Conservation Act
• Highways Department setbacks
• unregistered road allowances (for future road widening)
• unregistered lane allowances and dedications.

(2) 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. Information with respect to harvesting timber and underground storage tanks also follows.

(3) Sewage Disposal Systems

Any home or other building that is not connected to a municipal or city sewage system needs a method for getting rid of human waste. Some people, usually in rural settings or camps, use an outhouse or privy. However, all buildings in British Columbia with indoor plumbing need to have a sewage disposal system that is properly designed and filed with the local public health authority.

A typical sewage disposal system has two basic parts:

• a septic tank, or a treatment plant; and
• a dispersal area — usually a series of underground pipes that evenly distribute the partially treated liquid into the ground for final treatment.

How does a septic tank or treatment plant work?

Septic tank: A septic tank is a watertight, underground container for receiving, treating, and settling human wastes. The solids settle to the bottom of the tank and become sludge, while oils and other light material float to the surface, forming a scum layer. Within the tank, anaerobic bacteria (bacteria that do not need oxygen) break down the solid wastes. When the septic tank is working properly, these bacteria can reduce the solids by 50 to 60 per cent. The liquid between the sludge on the bottom of the tank and the scum on the top flows out of the tank into the dispersal area, where further treatment occurs within the soil, until the liquid effluent is harmless and inert. The sludge and surface oils remaining in the septic tank need to be pumped out regularly. An authorized person who is a septic system pump-out contractor can do this maintenance.

Treatment Plant: A typical treatment plant uses air (oxygen) to help break down and treat the wastes. In some cases, the wastes are treated in a septic tank before flowing into the treatment plant. A treatment plant treats liquid wastes to a higher quality, so it is cleaner and safer before it enters the dispersal area than the discharge from a regular septic tank. The net result for the homeowner is a smaller dispersal area.

Can a sewage disposal system be installed anywhere?

Every owner who wants to construct a new septic system, or alter or repair an existing one, must do so according to the British Columbia Health Act and the Sewerage System Regulation that came into force on May 31, 2005. For more information see the following website: http://www.health.gov.bc.ca/protect/lup_standards.html.

An owner must now retain the services of an authorized person who may be a professional engineer or a registered onsite wastewater practitioner (ROWP). There are four categories of ROWPs: planner, installer, maintenance provider, and private inspector. A person may be registered in more than one category to provide services in that area. The authorized person assesses both the owner’s needs and the lot’s capability for sewage treatment and dispersal, then plans or designs a septic system that meets those needs. Once the plan is filed with the health authority, an authorized person installs the system according to the plan.

When the installation is complete, the authorized person (planner) certifies that the system was installed according to the design and provides a maintenance plan and as-constructed drawing of the system components to the owner and the health authority.

How is the sewage disposal system maintained and serviced?

Once the septic system is working, it is the homeowner’s responsibility to ensure that the maintenance plan is followed. If the homeowner does not maintain the sewage disposal system properly, premature failure of the system can result, and the homeowner may need to pay for costly repairs or replacement of the disposal system.

It is important to have an accurate drawing that shows the location of all parts of the homeowner’s septic system so they can find them. For septic systems constructed under the Sewerage System Regulation, this as constructed drawing will be provided by the homeowner ’s authorized person (planner).

All septic systems, and especially treatment plants, need ongoing, proper operation and maintenance. An owner of a treatment system typically has service agent who is an authorized person and has experience with the owner’s specific treatment plant and model, to set up an annual service contract.

Septic tanks should be inspected every year, and they usually need servicing every two to three years, depending on the number of people using the system and the volume of daily sewage flow.

Selling Property with a Sewage Disposal Systems

Licensees should verify that:

• for a sewage disposal system installed on the Property prior to May 2005, that the appropriate permit has been issued and that the system was installed with the approval and inspection of the appropriate department of the B.C. government; or
• for any sewage disposal system installed on the Property after May 2005, that it has been installed by an authorized person as defined in the Sewerage System Regulation and that a letter of certification was filed with the local health authority.

Records can be obtained from the local health authority.

Sewage disposal systems may be subject to periodic inspections by the local government or the health authority may have issued a work order for a particular sewage disposal system. Prudent licensees should check with the appropriate local authority for the existence of such work orders.

The Sewerage System Regulation and the Sewerage System Practice Manual (created by the Ministry of Health) stipulate who may design, install or maintain sewage systems and that existing systems that are subject to repairs and replacement must be brought into compliance with the Sewerage System Regulation and the Sewerage System Standard Practice Manual with limited exceptions. In addition to determining that the system was appropriately installed, a buyer should determine that any maintenance on the system is in compliance with the maintenance plan provided on systems installed since May 2005.

The British Columbia Onsite Sewage Association (BCOSSA) administers the educational requirements for those who are permitted to construct and maintain sewage systems has established standards for the inspection of sewage systems. Additional information on the inspection guidelines can be obtained from BCOSSA at

P.O. Box 37035, 2401F, Millstream Road, Victoria, B.C. V9B 0E8 or by visiting the website at www.bcossa.com.

Licensees should recommend that buyers obtain a performance inspection on an existing sewage system by an authorized person using the guidelines established by BCOSSA.

If the sewage system is to be inspected, a clause such as the following should be included in the Contract of Purchase and Sale.

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

If a Seller has confirmed that an existing sewage disposal system has been properly installed, inspected and approved, the following clause should be suggested by buyer’s agents for inclusion in an offer:

In the case of a property without sewage services, the contract should provide a clause allowing the buyer to obtain a site assessment by an authorized person for an onsite sewage disposal system.

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

The following is a collection of issues that affect mainly rural, but sometimes urban, areas as well.

(4) Water Supply

In the case of unproven water supply from either an existing or a new source, the buyer will be concerned not only with quality but also with quantity.

When a property is connected to a municipal or community water supply, water is often taken for granted. The rural experience is often quite different — water conservation practices being the rule rather than the exception. When the water supply expected by the buyer disappears, the consequences can be disastrous.

During examinations for discovery in an Alberta case, the plaintiff buyers testified that the water supply was much less than capable of meeting their family’s needs. As a result, a number of extraordinary measures were required. Two members of the family showered in the morning and the other members showered in the evening. They could not do any watering in the yard and they flushed the toilets only when absolutely necessary. That sort of evidence has the potential to generate considerable sympathy at trial.

What should a licensee do when he or she is asked a question with respect to the well? Many buyers do not know the proper questions to ask of the sellers or the buyer’s agent to make an informed decision to purchase a rural property. The water quality and quantity is crucial to a buyer in deciding to purchase a property and a buyer may not be aware of the importance of water quality and quantity.

Licensees have an obligation to avoid error, misrepresentation or concealment of pertinent facts. Therefore, licensees must take reasonable steps to discover the facts pertaining to every property they may list or sell.

When someone says, ‘‘I want the water tested’’, a licensee should be clear what tests the client wants conducted on the water and a condition should be included in the offer to purchase to meet those standards to the buyer’s satisfaction. The test for mortgage approval may be at a lower standard than is satisfactory to the buyer’s personal needs for water quantity and quality. The buyer needs to determine the quality and quantity of water to meet his or her personal needs and then request water tests that will determine if the water meets those standards.

When sellers state that they had enough water quantity for their needs, what does that mean for the buyer? The water needs for each family may be significantly different as a result of the number and age of people living in the house, laundry washed, cattle or horses to water, etc. Does the buyer need the water to be of the quality that babies or individuals with heart conditions can consume?

To minimize potential liability in rural well cases, a listing agent might consider the following practices as a minimum:

• Secure any representations by the seller concerning the well in writing so as to eliminate any doubt at a later time as to what was said.
• Does the seller have a well report that verifies his or her information? Have you obtained a copy? Is the well report current? Does it test at the levels necessary to satisfy the buyer’s needs?
• If a representation based on a well report is to be set out in the listing information, set out the fact that the information comes from a well report and the date of that report. Has the seller experienced any problems with the water supply, on a seasonal or other basis?
• Are there any restrictions on the use of water by the seller’s household? When acting as agent for a prospective buyer, your duty is to assist the buyer in determining his or her water quality and quantity needs having a regard for all of the inquiries above and also considering the following:
  • If there is no well report or no current well report, recommend as a condition of the sale that the well be tested and approved by the buyer.
  • Determine whether your buyer had any prior experience with wells. If not, ensure that your client understands that the water supply cannot be guaranteed, that a good well can go dry with little or no warning and that even a good well may be subject to seasonal fluctuations.
  • Do not make representations to your client about the sufficiency of the water supply. One family of four people may be able to get by on a two gallon per minute well while another family may need two or three times that amount of water.

Because of the obvious importance of water supply and quality to any rural transaction, prudent licensees will be careful in documenting their files to reflect all of the discussions between them and their client about the water supply and quality.

If necessary, a clause such as the following should be included in the Contract of Purchase and Sale.

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

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

In situations where the existing services were not approved or the site cannot be approved for new services, the prudent licensee should protect the parties to the transaction by noting the same in the contract.

In some circumstances, where the property is not serviced by municipal water and sewer services, mortgage lenders may require appropriate certificates regarding water potability and the septic system. Also, a well driller’s certificate confirming adequate water flow may be required.

To meet the Canada Mortgage and Housing Corporation’s (CMHC) requirements, water potability must meet the provincial standard, or in the absence of such standard, Health Canada’s Guide on Canadian Drinking Water.

CMHC advises that it will not delay approval of any insured mortgage application pending lender receipt of a potability certificate. The approved lender is responsible for obtaining the required certificates prior to advancing funds. Copies of all certificates must be retained in the approved lender’s file. For further information, contact CMHC at 1-888-463-6454 or visit www.cmhc-schl.gc.ca.

(5) Water Licences

Trades in real estate involving land where the water supply is not derived from a well or centralized water supply (e.g., municipal or regional district) may involve the existence of a water licence. Licensees who engage in trades of this type of land should advise their clients to check for the existence of water licences. All water licences must be transferred to the new owner, complete with consideration, prepayments or arrears. It is important to note that water licences are not recorded in the Land Title Office. Under the Water Act, a person conveying or disposing of land with a water licence is required to report, in writing, the transfer of ownership of that land to the Water Stewardship Division of the Ministry of Environment, via the local office of the Integrated Land Management Bureau, also known as FrontCounter BC. The Water Stewardship Division can be reached at 1-800-361-8866. The same number can be used to check for the current balance on a water licence account. Further information can be obtained from the Water Licence website at www.env.gov.bc.ca/wsd/.

(6) Underground or Above Ground Storage Tanks

All underground storage tanks (or above ground storage tanks over 2500 L) that supply oil burning equipment are regulated by the BC Fire Code. Unused or abandoned underground or above ground storage tanks should be properly decommissioned because they are a potential source of contamination of the soil and groundwater, may pose a fire and explosion hazard and may impact human health. The provision in the BC Fire Code for the decommissioning of an underground or above ground storage tank used for supplying oil burning equipment requires that the owner use good engineering practice when removing, abandoning in place, or temporarily taking out of service the underground or above ground storage tank.

Licensees who are involved with the sale of a property that contains, or is thought to contain, an underground or above ground storage tank should be aware that the presence of an underground or above ground storage tank is a significant concern and should also be aware of their duties with respect to disclosure in this regard. Licensees should familiarize themselves with the BC Ministry of the Environment Fact Sheet on Residential Heating Oil Storage Tanks.

Listing agents have a duty to familiarize themselves with the property that they have listed and, where they suspect an unused or abandoned underground or above ground storage tank may be present, to take necessary steps to determine if one exists. If a seller is aware of an unused or abandoned underground or above ground storage tank, that seller has an obligation to disclose this fact. An unused or abandoned underground storage tank is considered to be a material latent defect and, therefore, its presence must be disclosed in writing as required by section 5-13 of the Council Rules.

Similarly, if a buyer’s agent is aware that an unused or abandoned underground or above ground storage tank is present, he or she has a duty to disclose this fact to buyers and further advise that its presence is an environmental concern. A buyer’s agent should also recommend that buyers familiarize themselves with the requirements of the BC Fire Code and any restrictions that the local municipality may have concerning unused or abandoned underground or above ground storage tanks. This is particularly important in municipalities where underground or above ground storage tank removal enforcement is a priority. As each municipality has different requirements and provisions for enforcing the removal or abandonment of underground or above ground storage tanks, a prudent licensee should be aware of the local requirements (usually administered by the fire department).

Lending institutions and insurers may also have corporate policy regarding underground or above ground storage tanks.

When drafting contracts with respect to properties containing underground or above ground storage tanks, licensees should familiarize themselves with the information found in Safety, Health and Environmental Disclosure Clauses below.

Finally, a buyer’s agent should advise buyers to have the property inspected and to seek expert opinion on the matter, especially if the underground or above ground storage tank is thought to be leaking.

(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.

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

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

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5. Strata Sales

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 Properties

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 Financial Institutions Commission (strata property) website www.fic.gov.bc.ca. This site also contains a series of instruction guides that deal with numerous matters relating to the operation of the Strata Property Act. 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.

Strata lots are created in accordance with the Strata Property Act. Bare land strata lots are defined two-dimensionally by the surface dimension of the strata lot. Strata lots that represent parts of buildings are defined in three dimensions by their walls, ceilings, and floors. Strata lots may be owned in fee simple or by leasehold where they are created on leased land.

Although ownership of a strata lot is similar to ownership of any fee simple lot, certain unique issues arise when licensees are dealing with strata properties. While owners of a strata lot may have a fee simple or a leasehold interest in the strata lot, this is combined with an additional interest as tenants-in-common with the other owners in the common property, such as hallways, stairs, and recreational facilities. Additionally, strata lot owners may have exclusive rights to some portion of the common property, as is the case with some parking and storage areas. Strata properties are also subject to bylaws which restrict the conduct of owners and their tenants, while certain financial obligations may apply respecting the common property.

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, restrictions or prohibitions on use, and other matters that may affect value or use. The Strata Property Act assists in this process by providing a mechanism for access to virtually all the 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.

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(b) Listing a Strata

(i) General

Licensees have a general duty to be familiar with property they are intending to market. Strata lots are unique and require extra diligence. The process and cost of obtaining the necessary information does not relieve a licensee from this responsibility.

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(ii) Obtaining Strata Documents

Licensees providing trading services have expressed concerns about the availability of documents such as engineering reports. The following considers the obligations of the various parties involved in a real estate transaction in respect of the provision of these documents.

Who is entitled to documents?

When considering the documents produced by a strata corporation and desired by a prospective buyer, it is necessary to understand what documents a buyer is entitled to receive. Under the Strata Property Act the only documents a buyer is entitled to obtain are Form B and Form F. Form B may be obtained at any time. In addition, however, once a buyer has entered into a Contract of Purchase and Sale, before the sale completes, the buyer is also entitled to request Form F.

Section 115 of the Strata Property Act also 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.

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.

It has long been recognized that the information on Form B is far from sufficient for a buyer. Form B does not contain minutes, financial statements, bylaws and other documents that a buyer wishes to review. 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 permits an owner or person authorized in writing by an owner to obtain copies of documents retained by the strata corporation. Through the listing agreement, the seller authorizes the listing agent to obtain the documents from the strata corporation as may be required by a buyer. A buyer can, therefore, receive only those documents that an owner is entitled to receive. A buyer cannot, however, request these documents directly from the strata corporation as the buyer is not specifically authorized by the owner to obtain them.

The documents available to an owner or a person authorized in writing by an owner are those set out in section 35 of the Strata Property Act. Section 36 of the Strata Property Act requires a strata corporation to make those documents available to the owner or person authorized by the owner. Sections 35 and 36 of the Strata Property Act require the strata corporation to retain and make available to an owner, or authorized person, among other things, all written contracts and any correspondence sent or received by the strata corporation.

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(iii) Engineering Reports

Engineering reports are not specifically itemized in section 35 of the Strata Property Act. However, it is arguable that the report falls within the broad category of correspondence received by the strata corporation. Thus, if a strata corporation has obtained an engineering report it should be available to the owners under the heading of correspondence received. If the strata corporation has proceeded to enter into contracts for repairs or remediation, those contracts would also be available to an owner pursuant to sections 35 and 36 of the Strata Property Act.

As indicated above, any document available to an owner such as an engineering report can be obtained and provided to a buyer if the owner has authorized someone, such as the listing agent, to obtain the document from the strata corporation.

In some cases, a strata council may be unwilling to release 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 are unclear. In practical terms however, if a strata council is not willing to release the report, the only means for an owner to obtain the report is to apply to the Court for an order that the engineering report be released and provided to the owners. If a buyer is requesting an engineering report and the strata council has refused to release it, although the owner could apply to the Court for an order to have the report released so that it can be provided to the buyer such a solution is impractical and unlikely.

Buyer’s agents who are advised that the strata corporation’s engineering 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.

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(iv) Seller’s Liability

Often buyers will request copies of engineering reports not knowing whether an engineering report exists. If no engineering report is then provided the buyer believes that no engineering report was ever commissioned or obtained.

It is important for a seller to recognize that the request for documentation in the Contract of Purchase and Sale obligates the seller to produce the documents requested. A request for all engineering reports is simply that, all engineering reports. If the seller is aware that engineering reports exist, but does not ensure that they are provided to the buyer as part of the buyer’s request for documentation, the seller may be liable to the buyer for failing to provide the requested documents. Notwithstanding that the documents are generally provided by the strata corporation, the seller and seller’s agent should ensure that the documents provided to the buyer fully satisfy the buyer’s request.

It is obvious that a seller cannot be held liable for engineering reports if the strata council has failed to advise owners that a report has been commissioned or received. In those cases, the strata council may have failed in its duties to act honestly, in good faith and in the best interests of the strata corporation, and may be liable to the owners including the buyer.

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(v) Role of the Strata Manager

A strata manager is the agent of the strata corporation. The strata manager’s duties are set out in the contract between the brokerage and the strata corporation and, generally, include carrying out many of the strata corporation’s duties such as maintaining the books and records and managing the day to day activities of the strata corporation.

When documents are requested from the strata corporation they are often requested from the strata manager. It is important for licensees to appreciate that the strata manager is merely stepping into the shoes of the strata corporation and has no separate duties to make disclosure other than ensuring that the obligations of the strata corporation are fulfilled. In other words, when obtaining documents from the strata corporation, the strata corporation must comply with the Strata Property Act and the strata manager has no ability to act in a manner other than as permitted by the Strata Property Act. The strata manager, for example, cannot release documents such as meeting minutes or financial statements to a party other than an owner or person authorized in writing by an owner. Additionally, the strata manager cannot provide his or her opinion on the likelihood of a future special levy or the need for repairs. Such information is only available to owners and prospective buyers through the minutes and other records of the strata corporation.

In addition to the obligation to comply with the Strata Property Act, strata managers are reminded that they should ensure that they are acting on the instructions of their client, the strata corporation. Section 3-3(1)(c) of the Council Rules obligates the brokerage and its related licensees to act only within the scope of the authority given by the client. Before taking any actions, including releasing documents, the strata manager should confirm that they are acting with the authorization and under the instructions of the strata corporation.

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(vi) Search of Title

(1) Matters Noted on Title

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 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) Other Land Title Documents

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 whole 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 overall site plan showing the location of the buildings, etc.;
• the portion of the site plan showing the particular strata lot;
• information respecting parking, storage and other amenities that are for the use of the particular strata lot;
• the unit entitlement;
• the Common Property Record (that shows any charge or any other interest, and any resolutions of the strata corporation that have been registered with the Land Title Office respecting the use of common property);
• the Schedule of Changes to the bylaws; and
• in the case of a strata plan deposited before July 1, 2000, schedules that show the interest upon destruction and the voting rights of owners.

These documents will disclose important information, including the following:

• any registered changes to bylaws;
• site plans showing the location of, or buildings containing, strata lots and common property and their dimensions. (Licensees and buyers may not be interested in all of the site plans of a strata corporation. For example, in a high rise strata development, the site plan for the floor level on which the particular strata lot is located will contain more important information than the site plans for the other floor levels.);
• the common property that has been designated as limited common property for the exclusive use of a strata lot owner;
• charges on the common property;
• whether it is a phased development; and
• unit entitlement, interest on destruction and voting rights of strata lot owners.

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(vii) BC Online

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 BC Online at www.bconline.gov.bc.ca. BC Online permits a licensee to search certain government information, including the Land Title Office and the Corporate Registry, via the Internet. A licensee may use BC Online 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 BC Online search tends to be very cost effective.

When using BC Online to order a copy of a strata plan, a licensee should always also check the General Index and the Common Property Record. For each strata plan, there is a General Index and the Common Property Record. The General Index is where the Registrar of Land Titles records many of the documents that must be filed during the life span of a strata corporation, including amendments to the bylaws, the schedule of unit entitlement, and so on. The Common Property Record serves to record any interest that separately charges the common property.

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(viii) Records and Other Information

The Strata Property Act clarifies the types of records and other information that strata corporations must maintain. It also clarifies owners’ rights to inspect and copy those records and to obtain other relevant information from the strata corporation. The Strata Property Act permits owners to authorize others, such as buyers and licensees (see ‘‘Listing Documentation and Authorizations To Obtain/Deliver Strata Documentation’’), to exercise the owners’ rights to obtain copies of the strata corporation’s records and related information. It further sets out the time periods within which the strata corporation must provide copies of records or other information and establishes a maximum fee that can be charged for providing these copies.

Access to the Strata Corporation’s Records

Upon request, the Strata Property Act entitles owners, or their delegates authorized in writing, to inspect and receive copies of virtually all of the strata corporation’s records. It also permits owners or buyers, or their authorized delegates, to obtain useful information from the strata corporation in an Information Certificate.

Section 36(1) guarantees every owner, 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. Section 35(1) states that the strata corporation must prepare all of the following records:

• minutes of annual and special general meetings and council meetings, including the results of any vote;
• a list of council members;
• a list of owners, with their strata lot addresses, mailing addresses (if different), strata lot numbers as shown on the strata plan, parking stall numbers, if any, and unit entitlements;
• a list of names and addresses of mortgagees who have filed a Mortgagee’s Request for Notification under section 60;
• a list of names of tenants;
• a list of assignments of voting or other rights by landlords to tenants under sections 147 and 144;
• books of account showing money received and spent and the reason for the receipt or expenditure; and
• any other records required by the Regulation.

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Additional Records and Retention Obligations

Section 35(3) of the Strata Property Act and section 4.1 of the Regulation require the strata corporation to keep copies of the following records for the periods set out below:

Current:

• a list of council members and their telephone numbers;
• a list of owners, with their strata lot addresses, mailing addresses (if different), strata lot numbers as shown on the strata plan, parking stall numbers, if any, and unit entitlements;
• a list of names and addresses of mortgagees who have filed a Mortgagee’s Request for Notification under section 60 of the Strata Property Act;
• a list of names of tenants;
• a list of assignments of voting or other rights by landlords to tenants under sections 147 and 144;
• the Strata Property Act and the Regulation; and
• the bylaws and rules.

For at least two years:

• correspondence sent or received by the strata corporation and council.

For at least six years:

• minutes of all annual and special general meetings and council meetings, including the results of any vote;
• books of account showing money received and spent and the reason for the receipt or expenditure;
• waivers and consents under section 41, 44 or 45 (these sections govern the procedure for waiving notice of a general meeting or waiving the necessity of holding a general meeting);
• written contracts, including insurance policies, for at least six years after the termination or expiration of the contract or policy;
• the budget and financial statements for the current year and the previous years;
• income tax returns, if any;
• bank statements, cancelled cheques and certificates of deposit;
• information Certificates issued under section 59;
• all contracts, including insurance policies, entered into by or on behalf of the strata corporation that the developer delivered to the strata corporation under section 20. The strata corporation must keep the contract for at least six years after its termination or expiration; and
• copies of financial records obtained from the developer for at least six years after the transfer of control from the developer to the strata corporation referred to in section 22.

Until the disposal or replacement of certain items:

• Documents obtained from the developer in the nature of warranties, manuals, schematic drawings, operating instructions, service guides, manufacturer’s documentation or other similar information respecting the construction, installation, operation, maintenance, repair and servicing of any common property or common assets, including any warranty information provided to the developer by a contractor, subcontractor or supplier to the project. In the case of a warranty, the strata corporation must keep the document until the disposal or replacement of the relevant item or the expiry of the warranty, whichever comes first. The strata corporation must keep the rest of these documents until the disposal or replacement of the relevant items to which they relate.

Permanently:

• the registered strata plan and any registered amendments;
• any resolutions dealing with changes to the common property, including the designation of limited common property;
• decisions in court or arbitration proceedings;
• any legal opinions; and
• some of the information obtained from the developer under the Strata Property Act, including names and addresses of all contractors and the like who supplied labour or materials to the project, plans required to obtain building permits, any plans showing the actual location of pipes, wires and the like (sometimes called ‘‘as built’’ plans), and the disclosure statement and amendments, if any.

(ix) Distribution of Strata Documents

(The following information amended January 2011)

Upon request by the owner, or his or her delegate authorized in writing, the strata corporation must permit them to inspect and obtain copies of the corporation’s records. Section 36(3) of the Strata Property Act and section 25 of the Interpretation Act, when read together, require the strata corporation to comply with the request within 15 days, unless the request is for access to the bylaws and rules, in which case the corporation has eight days to comply.

The Strata Property Act does not restrict who may receive documents.  Rather, it requires a strata corporation to provide documents in certain circumstances.  A strata corporation is not obligated to provide a prospective buyer with strata corporation documents, other than a Form B and a Form F, unless the owner has authorized the buyer, in writing, to obtain the documents. This happens infrequently.  It is usually the case that the owner authorizes the listing licensee to obtain the required documents from the strata corporation. 

The Council has provided licensees with anauthorization form entitled “Authorization 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.  

Once the licensee has obtained the documents from the strata corporation, how a licensee uses or distributes the documents is determined by the instructions provided to the licensee by the owner of the strata lot. 

The Council has also provided licensees with a form entitled “Authorization to Agent to Deliver Strata Documents” .  The form sets out the owner’s instructions to the licensee regarding the use and distribution of the documents obtained from a strata corporation. The authorization provides the licensee with the permission to deliver the strata documents and records to “a prospective buyer or buyer’s agent”.  

The Council has interpreted the phrase “a prospective buyer or buyer’s agent” to mean purchasers or their agents who are specifically interested in purchasing the seller’s strata lot.  The phrase cannot be interpreted to mean the “world at large” or, put another way, anyone who is surfing the internet and clicks on the licensee’s website. 

The Multiple Listing Contract contains an authorization in clause 9(A) in which the seller agrees that the documents obtained by the listing licensee can be disclosed to, among others, persons interested in the property, including prospective buyers and their agents.  The authorization contained in the Multiple Listing Contract is significantly broader than the authorization contained in the Council’s authorization form.  

The authorization being relied on will determine how the licensee may distribute the strata corporation documents.    

If a licensee wishes to post the documents on a website in order to make the documents available to any person who may wish to view them, the licensee should ensure that they have the appropriate authorization, such as that contained in clause 9(A) of the Multiple Listing Contract, from the owner.   A licensee who makes strata corporation minutes and documents available on a website based only on the authorization form available from the Council could be found to have failed to follow their client’s instructions if their client complains to the Council about too broad a circulation of the documents. 

The further question that arises is whether an owner is entitled to authorize a licensee to make strata documents available to the public at large.  Some licensees have argued that the Strata Property Act does not contain any restrictions on the use of the documents once they have been provided by the strata corporation.  This view is correct.  The Strata Property Act does not contain restrictions on how the documents can be used.  However, the strata corporation may choose to impose such restrictions. 

Licensees have also suggested that the documents obtained from the strata corporation belong to the owner and the owner is entitled to authorize their release.  In fact, the documents, such as minutes, budgets, financial statements, engineering reports and legal opinions, belong to the strata corporation, not an owner.  The strata corporation may wish to restrict how its documents could be used and disseminated.   

For this reason, a licensee who wishes to rely on the authorization to distribute documents as set out in the Multiple Listing Contract should point out clause 9(A) to the owner and advise how the licensee intends to distribute the information. Before agreeing to such distribution, the owner or, if directed to do so by the owner, the licensee should confirm that the strata corporation has not imposed any restrictions on the manner in which strata documents can be distributed.   

Licensees should recognize that simply being provided with strata corporation documents does not entitle the licensee to distribute the documents in a manner other than as directed by their client.  

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(Schedule to Listing Agreement)

(x) Authorization To Agent To Obtain Strata Documentation

(Section 36(1)(c) Strata Property Act)

To Strata Corporation                   (Name of Strata Corporation)                    Date

Re: Strata Lot (Strata Lot # as Shown on Strata Plan) of Strata Plan         (Registration # of the Strata Plan)           

Street Address:

The undersigned owner(s) hereby authorize(s)                   (Name of Listing Licensee)                    to inspect and or obtain copies of all the records and documents you are required to prepare and retain pursuant to the Strata Property Act, and to obtain an Information Certificate pursuant to Section 59 of the Strata Property Act.

Signature of Owner      __________________                                                                                       

Signature of Owner  ____________________

Name of Owner (Print)  _________________                                                                                       

Name of Owner (Print) __________________

 

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(xi) Authorization To Agent To Deliver Strata Documentation

Date

The undersigned owner(s) hereby authorize(s)                   (Name of Listing Licensee)                     to deliver any of the records and documents obtained under the above authorization to persons interested in the property including prospective buyers, agents of prospective buyers, appraisers, financial institutions, governments and governmental departments and agencies.

Signature of Owner   __________________                                                                                         

Signature of Owner _________________________

Name of Owner (Print)       ______________                                                                                          

Name of Owner (Print) _______________________

Section 4.2(2) of the Regulation prohibits any charge to an owner, or his or her authorized delegate, for inspecting the strata corporation’s records. Section 4.2(1) sets 25 cents per page as the maximum permitted charge for providing copies of the strata corporation’s records. Section 36(4) of the Strata Property Act allows the strata corporation to refuse to supply copies to the owner, or his or her authorized delegate, until the copy fee is paid.

NOTE: Licensees wishing to obtain documents quickly should be aware that rush fees may be charged.

Form ‘‘B’’ Information Certificate

Section 59 of the Strata Property Act entitles owners or buyers, or persons authorized by them, to request an Information Certificate from the strata corporation in Form B, being the form prescribed by the Regulation. The Certificate discloses relevant information concerning the strata corporation and the strata lot for which the request is made, as at the date of the Certificate. A Form B can be found on www.fic.gov.bc.ca.

In some cases, the strata corporation or the strata manager will have amended the words of the Form B. Section 28 of the Interpretation Act provides that a deviation from a form that does not affect the substance or that is not calculated to mislead, does not invalidate the form.

The strata corporation must also attach copies of its rules, the current budget, and the developer’s Rental Disclosure Statement, if any, to the Information Certificate.

Allowing time to Obtain Strata Documents (This section amended May 2011)

If documents are requested to be provided in accordance with the timeframe set by the Strata Property Act , the Strata Property Regulation establishes the maximum amount that can be charged.

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 receipt of a request, to deliver a Form B – Information Certificate, the bylaws and rules and up to 15 days following receipt of a request to provide copies of the other records maintained by the strata corporation. 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. 

Section 4.2 of the Strata Property Regulation sets out the maximum fee that a strata corporation may charge for providing a copy of a record or document prescribed under section 36 of the Strata Property Act at no more than 25 cents per page.  Further, section 4.4 of the Strata Property Regulation restricts the maximum fee that the strata corporation may charge for an Information Certificate, including the required attachments, to $35, plus the cost of photocopying at no more than 25 cents per page.  (These rates are subject to change by regulation.)

While the Strata Property Act and the Strata Property Regulation establish both maximum time frames and maximum fees to be charged for providing copies of a strata corporation’s records, the legislation is silent on whether additional fees may be charged for providing these records in a shorter time period than the maximum allowed. 

When strata corporations, or strata managers acting on their behalf, are required to provide documents sooner than stipulated by the legislation, licensees should be aware that some may charge additional fees. 

When drafting offers which include obtaining documents for review by a prospective buyer, licensees should recommend a subject removal date that allows enough time for the strata corporation or strata manager to respond to a request and for buyers to review those documents.

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(xii) 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, 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.

In addition, in some circumstances, strata corporations are receiving funds to offset damages they have incurred in relation to defective construction and/or water penetration. These funds might be the result of the return of Provincial Sales Tax (PST) paid in relation to the repairs or they may 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 that 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 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.

What should licensees do to assist their clients in this regard? 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 enquire whether, if repairs have been undertaken to address water leaks, a PST rebate has been applied for or received. 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 other than described previously, 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:

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

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(xiii) Disclosure Issues

Generally

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.

Listing and selling agents sometimes seek information about a strata lot or a strata development from a strata manager. Licensees should keep in mind that a strata manager is not the agent of the seller but is an agent of the strata corporation and, as a result, is able to release only the information that the strata corporation, is able to release. Under the Strata Property Act, the strata corporation is able to provide specific documents. If, for example, a buyer wishes to determine what the bylaws contain, it is appropriate to obtain and review a copy of the bylaws. Asking the strata manager for information about what is contained in the bylaws is inappropriate and may result in misinformation to a buyer if the strata manager is incorrect. Additionally, asking the strata manager for his or her opinion on the state of repair of the building, the competency of its strata council, or any other such matter is also inappropriate.

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 Council 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 Council 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.

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.

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(xiv) Parking Stalls and Storage Lockers

How should a licensee describe parking stalls and storage lockers when listing a strata lot for sale? Determining the answer to this question is often more difficult than it appears. Simply because the seller has the use of parking stalls or storage lockers does not necessarily mean that they will be available for the purchaser. Unless it is clear that the parking stall/storage locker will be available to be used by the purchaser, the parking stall /storage locker should not be included on the listing.

Whether the parking stall/storage locker can be included on the listing depends on how it is designated on the strata plan.

There are two main designations of property on a strata plan: property can be designated as either a strata lot or common property. Property that is designated as common property may be further designated as limited common property (LCP).

Parking stalls/storage lockers can be designated as:

• a strata lot or part of a strata lot;
• LCP; or
• common property.

It is necessary to examine the strata plan in order to determine the designation of property.

The strata plan will include a legend which indicates whether the strata plan includes LCP and how it will be shown on the plan. Very often, the areas designated as LCP are designated with an oval that includes, within the oval, the number of the strata lot that is entitled to use the LCP.

If a developer designated parking stalls/storage lockers as LCP, they can be identified by looking at the area in question and at the legend on the front page of the strata plan. LCP designated by a developer can only be removed by a unanimous vote of the owners.

Owners within a strata corporation may also designate common property as LCP. In such cases, the strata corporation must file a sketch plan at the Land Title Office which identifies the areas designated as LCP and which also identifies the strata lots that have the use of the LCP. To determine if the strata corporation has designated LCP, it is necessary to obtain a copy of the Common Property Index. The Common Property Index will indicate that a designation of LCP has been filed. The sketch plan can then be ordered from the Land Title Office so that the specific LCP designations can be identified.

When considering the designation of property on a strata plan it must be remembered that common property, including LCP, is owned by all owners within the strata corporation as tenants in common. The only property that an individual owns exclusively is their strata lot.

(1) Strata lot or part of a strata lot

Some strata plans designate parking stalls/storage lockers as part of a strata lot or, in some very rare cases, as a separate strata lot. Although such designations are rare, they can easily be identified by looking at the strata plan.

If the parking stall/storage locker is part of a strata lot, the new purchaser will automatically have the use of the area. The listing for the strata lot can identify the parking stall/storage locker, by reference to its stall or locker number. It is not necessary to list the parking stall/storage locker separately.

In some cases, parking spaces may be designated as a separate strata lot. If the seller is selling both the residential/commercial strata lot and the parking strata lot, both must be listed for sale and separately transferred to the buyer.

(2) LCP

LCP is common property that is designated for the exclusive use of the owner of a particular strata lot. If property is designated as LCP, 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 LCP.

If a parking stall/storage locker is designated as LCP, whether by the developer, or by the owners at a later time, the parking stall/storage locker is automatically available for use by the owner of the strata lot to which the parking stall /storage locker is designated.

When listing a strata lot to which the exclusive use of a LCP parking stall/storage locker is attached, the listing should indicate that the parking stall/storage locker is LCP. The numbers of the parking stall(s)/storage locker(s) can be shown on the listing as being the parking space(s)/storage locker(s) number that the buyer will be entitled to use.

(3) Common Property

If the parking stall/storage locker is designated on the strata plan as common property, it is within the control of the Strata Council, except in cases where there is a developer’s lease, which is discussed below.

Common property is owned by all owners as tenants in common. The Strata Council has the authority under the Strata Property Act to permit an owner or a tenant to use common property. If the parking stalls/storage lockers are common property, owners or tenants are entitled to use a particular area as a result of the Strata Council’s grant of exclusive use to that owner or tenant.

In some cases the permission to use the parking stall /storage locker may have been given many years ago. Some owners may not even realize that they are using their parking stall/storage locker as a result of the permission granted by the Strata Council.

When listing a strata lot where the parking stall/storage locker is common property, it is not possible for the seller to promise a buyer that the buyer will be entitled to use any of the common property. The seller does not own the common property and cannot sell it, or make promises about its use. Only the Strata Council has the power to allocate the use of common property to an owner.

If the parking stall/storage locker is common property the listing licensee has two choices with respect to what should appear on the listing. The listing can indicate that the parking stall/storage locker is common property and that the buyer must make their own arrangements as to which parking stall/storage locker the buyer will be entitled to use. Alternatively, the seller can contact the Strata Council and ask the Strata Council to confirm, in writing, to the seller, what parking stall/storage locker will be allocated to a new owner. Once the seller has this information in writing, the listing information should indicate that the parking stall/storage locker is common property and that the Strata Council has confirmed, in writing, the parking stall/storage locker that a buyer will be entitled to use. The listing information should include the caveat that a particular common property parking stall or storage locker is available for use in these circumstances ‘‘subject to the provisions of the Strata Property Act’’.

When listing a strata lot, if the parking stall/storage locker is common property, the listing SHOULD NOT include the number of the parking stall/storage locker, unless the Strata Council has confirmed in writing what parking stall /storage locker a buyer will be entitled to use. In such cases the seller is unable to guarantee that the Strata Council will allocate the same common property to the buyer.

(4) Developer’s Leases

In a number of developments, the developer has entered into a lease of the common property parking stalls/storage lockers, to itself or to a company related to the developer. After leasing the common property, the developer then enters into agreements with purchasers in which the developer subleases one or more parking stalls/storage lockers to each purchaser. Often, the developer will assign one parking stall to a purchaser. The developer may charge for all subleases, or it may charge for only additional parking stalls/storage lockers.

Although the lease and sublease agreements vary, generally, the sublease provides that the owner must assign the sublease to a new purchaser at the time the strata lot is sold.

Leases of common property parking and storage areas are seldom registered on title. This can make discovering whether there is such an arrangement a challenge for the listing licensee. If the seller does not recall whether there was a sublease agreement, the licensee should ask the seller to look at the contract of purchase and sale when the seller bought the strata lot for reference to a sublease. If the previous contract is not available or does not reference the sublease, the licensee should ask the seller to check with the Strata Council to determine how parking stalls/storage lockers are assigned. If there continues to be confusion, the original Disclosure Statement filed by the developer at the time the strata lots were originally offered for sale may be examined. If the developer created a lease/sublease arrangement, it is likely referred to in the Disclosure Statement. Where there is still confusion, the seller may need to obtain legal advice to determine whether there is a valid lease/sublease arrangement in place.

If the seller has a sublease of a parking stall/storage locker from the developer, the seller can include reference to the parking stall/storage locker when listing the strata lot for sale. The listing should indicate that the area in question is common property and that the seller has a sublease to a specific parking stall/storage locker. The number of the parking stall/storage locker can be shown on the listing.

(5) Parking Stall/Storage Locker Has Been Purchased

In a number of cases sellers of strata lots insist that the listing should include the parking stall/storage locker because the seller bought it from the developer.

If the area in question is designated as common property, unless there is a lease/sublease arrangement as referred to above, or, unless the Strata Council has confirmed what parking stall/storage locker the buyer will be entitled to use, the common property parking stall /storage locker SHOULD NOT be included on the listing even though the seller may insist they paid for the parking stall/storage locker.

Unfortunately, in some developments, developers charged purchasers for an additional parking stall or a storage locker. However, the developer did not designate the area as LCP, nor did the developer enter into a lease/sublease arrangement. The area remained common property. In these circumstances, the buyers believed they were ‘‘buying’’ the parking stall/storage locker. However, it is clear that property designated as common property cannot be ‘‘ bought’’. When allocating a parking stall/storage locker, the developer may be acting as the Strata Council. However, the maximum time that a Strata Council can permit an owner to use common property is one year. Although a purchaser may have paid the developer for the use of an additional parking stall/storage locker, at best, they have been given the use of the common property for only one year.

In such circumstances, it may be very difficult for a listing licensee to convince a seller that the common property parking stall/storage locker cannot be included as part of the listing. If the seller is unwilling to be convinced, the listing licensee may be able to resolve the problem by having the seller obtain written confirmation from the Strata Council that the same parking stall/storage locker will be allocated to the new purchaser. If the Strata Council is willing to assign the same parking stall/storage locker that the seller is using, the listing information can reference the number of the parking stall/storage locker. The information that is conveyed to the prospective buyer should include the caveat that a particular common property parking stall or storage locker is available for use in these circumstances ‘‘subject to the provisions of the Strata Property Act’’. However, if the Strata Council is not willing to confirm that the same parking stall/storage locker will be assigned, the listing should not reference the number of the parking stall/storage locker, no matter how much the seller insists they ‘‘bought’’ the space in question.

For further information regarding the role of a strata corporation and/or strata manager in advising sellers with respect to what parking stalls/and/or storage lockers a buyer will be entitled to use, please refer to page 158.

(6) Parking Stall/Storage Locker Checklist

• Identify the designation of the area on the strata plan
  • if part of a strata lot — parking stall /storage locker numbers can be referenced, on the listing;
  • if a separate strata lot — parking stall /storage locker transferred separately;
  • if LCP – parking stall/storage locker numbers can be referenced on the listing; and
  • if LCP
    • if there is a lease/sublease with the developer, – parking stall/storage locker should be assigned to new purchaser; parking stall/storage locker numbers can be referenced on the listing,
    • if there is no lease/sublease, will the Strata Council confirm which parking stall/storage locker the buyer will use
      • if yes — parking stall/storage locker numbers can be referenced on the listing with the annotation in the listing information ‘‘subject to the provisions of the Strata Property Act’’,
      • if no — parking stall/storage locker numbers CANNOT be referenced on the listing.

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(xv) Restrictions on Use

Generally

Licensees are, in every case, obligated to ascertain the current strata corporation bylaws and rules (referred to as regulations under the former Condominium Act) imposing any restrictions or prohibitions concerning a buyer’s ability to rent or use the subject property. Such restrictions or prohibitions should be disclosed clearly and accurately on the Contract of Purchase and Sale. Restrictions vary from development to development. Licensees, who have compiled all the information suggested in Listing Documentation and Acknowledgement of Receipt of Strata Documentation below, will be able to determine the nature of these restrictions.

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.

When dealing with strata properties, licensees should obtain a copy of the Property Disclosure Statement — Strata Title Properties to attach to the Contract of Purchase and Sale. Having this information available for all parties will facilitate negotiations on issues of concern (assessments, bylaws, maintenance fees, etc.).

Bylaws are not enforceable if they contravene the Strata Property Act, the Regulation, the Human Rights Code (Code), or any other law. The Strata Property Act limits the enforceability of some bylaws and regulations 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.

The Strata Property Act transition provisions make it very difficult for licensees to know whether older bylaws or rules are still in effect. Licensees should refrain from expressing any opinion on the enforceability of older bylaws and rules. 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. 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.

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 states that a bylaw is not enforceable to the extent that it contravenes the Code. In real estate matters, the Code distinguishes between selling dwelling units and leasing (or renting) them. The Code prohibits age discrimination against tenants unless the age restriction is 55 years of age or older. However, the Code effectively permits age discrimination against buyers in the sale of dwelling units. An age restriction bylaw does not mean that a person younger than the age contained in the bylaw cannot buy the strata lot, only that he or she cannot occupy it. 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.

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 the period of time for which they may be rented.

Rental bylaws do not apply to family members, who are defined to include a spouse, a spouse arising from a marriage-like relationship (including a same-sex relationship) which has lasted at least two years, a parent or child of the owner, or a parent or child of the spouse.

With one exception, the Code prohibits age discrimination against tenants when renting or leasing dwelling units. The exception is if the rental unit is in residential premises in which every rental unit is reserved for rental to a person who has reached 55 years of age, or to two or more persons, at least one of whom has reached 55 years of age. In this case, such a rental restriction would also apply to a family member of the owner. This means that in all cases where a rental restriction is other than 55 years of age or older, such a restriction cannot legally be applied to a tenant.

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.

If the developer filed a Rental Disclosure Statement that applies to the residential strata lot under consideration, the rental restriction bylaw may not apply to that strata lot, if the rental disclosure statement continues to be valid, and the strata lot has not been conveyed by the first purchaser. Once the first purchaser sells the strata lot, a rental restriction bylaw will apply to the strata lot, even though the Rental Disclosure Statement has not expired. In other words, as long as the Rental Disclosure Statement has not expired, the Rental Disclosure Statement prevents rental restriction bylaws from affecting strata lots that are owned by the owner developer or the first purchaser from the owner developer.

The Regulations to the Strata Property Act extended the application of Rental Disclosure Statements filed under the Condominium Act to subsequent purchasers until January 1, 2006. As of January 1, 2006, if the Rental Disclosure Statement has not expired, regardless whether the Rental Disclosure Statement was filed under the Condominium Act or the Strata Property Act, a bylaw that restricts rentals does not apply only to the owner developer and the first purchasers from the owner developer.

The term first purchaser describes a person who bought his or her freehold or leasehold interest in the strata lot from the developer. The term subsequent purchaser describes a person who bought from the first or any later purchaser. For example, if a developer sold a strata lot to Person A, who later sold it to Person B, then Person B is a subsequent purchaser.

In addition, an owner may apply to the strata corporation for an exemption from a rental restriction bylaw on the ground that the bylaw causes the owner hardship.

When a buyer, such as an investor, purchases a strata lot for rental purposes, a rental restriction bylaw may affect the buyer’s ability to rent the strata lot. Determining whether and when a rental restriction bylaw applies to a strata lot are complex questions involving legal analysis. A licensee should not advise a client on these questions. Rather, the licensee should advise the client to obtain legal advice about the extent to which a rental restriction bylaw applies to a strata lot.

Even though a strata corporation may not have approved a rental restriction bylaw at the time the investor is purchasing a strata lot, investors should be advised that a rental restriction bylaw could be passed in the future. Investors in strata lots should be aware that, unless they purchase the strata lot from the owner-developer, and there is a valid Rental Disclosure Statement, a rental restriction bylaw passed in the future will apply after the expiry of the grace period.

Further information relating to rental restrictions, including detailed flow charts, is available in The Condominium Manual, published by the British Columbia Real Estate Association and written by Mike Mangan, and in the British Columbia Real Estate Association’s continuing education program Condo 202, Advanced Strata Law for REALTORS. These resources are cited only to assist licensees and not for the purpose of advising a client whether and when a rental restriction applies to a strata lot.

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 modified by the strata corporation. 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.

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.

Miscellaneous Restrictions

Many strata corporations restrict:

• use, as in 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 — outright prohibition, insistence on proof of insurance, or restriction on location within building;
• hot tubs — especially on roof decks (leaks or weight problems); and
• hardwood floors — noise, especially in frame buildings.

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(1) Listing Documentation

The following information applies to all strata properties, old or new. This information does not address the specific, extra requirements that govern a developer in the sale of a new strata property from developers to first buyers. Licensees who participate in sales by developers to the first buyers should refer to the Strata Property Act, Part 3, The Owner Developer for information about developers’ obligations.

Licensees should obtain a copy of the following documents at the time of listing a strata lot. This can be achieved by obtaining written authority from the seller (see ‘‘Authorization to Agent to Obtain/Deliver Strata Documentation’’) and requesting and obtaining these documents from the strata corporation or the strata manager:

(This is an opportunity for licensees to negotiate who will be responsible for the cost of obtaining these documents.)

• minutes — 24 months’ minimum — strata council meetings, annual general meeting(s), extraordinary meeting(s), special general meeting(s), and meetings of the executive or the members of any section to which the strata lot belongs. Request written verification from the strata property manager, the strata council or, if a section exists, the executive of the section, that the information received represents complete copies of minutes requested;
• Form B-Information Certificate to which must be attached copies of the Rules (formerly called regulations), the current budget, and the developer’s Rental Disclosure Statement, if any. (NOTE: the information in the Certificate and its attachments are only current to the date of the Certificate — see discussion about what constitutes a ‘‘current’’ Information Certificate in Documentation);
• current bylaws of the strata corporation and any section to which the strata lot belongs (includes information such as parking entitlements and vehicle restrictions, pet restrictions, age and children restrictions, rental restrictions, barbecue restrictions, etc.);
• current financial statements of the strata corporation and any section to which the strata lot belongs;
• the registered strata plan, any amendments, and any resolutions dealing with changes to common property. (See ‘‘Other Land Title Documents’’ for further information regarding strata plans);
• Property Disclosure Statement — Strata Title Properties;
• information about any additional fees charged by the strata corporation, over and above the monthly strata fee, for parking, storage or other features;
• information regarding any building warranty that may be applicable;
• municipal occupancy permits and/or final inspection permit;
• correspondence to owners from the strata council over the last 12 months;
• building envelope inspection reports, engineering reports or remediation reports, if any; and
• legal opinion, if any.

Licensees should use a checklist coversheet, in duplicate, when providing a copy of the above-noted documents to interested buyers or their agents. The checklist coversheet should include the following information:

• a description of each document included (e.g., minutes of the meetings of the strata council with meeting dates noted);
• the dates the documents were received by the listing agent (to confirm the point in time at which the information is current);
• the source of each document (e.g., the strata corporation, its strata manager, the Land Title Office, etc.);
• a statement that if the person to whom the documents are provided is concerned about the currency of the information provided, or any matters contained within the information provided, they should seek independent verification and/or advice.

A sample checklist coversheet can be found under ‘‘Acknowledgement of Receipt of Strata Documentation’’. With this checklist coversheet in duplicate, licensees should have the person receiving the information acknowledge receipt in writing on the top copy, including the date the information is received. The top copy can then be retained by the licensee as a record of what information was provided to whom on what date. The second copy should be provided, along with the documents, to the person who has requested the information.

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(c) Selling a Strata

(i) Searches and Investigations

The duties of licensees referred to under ‘‘Listing a Strata’’ noted previously apply with equal importance to the duties of licensees working with buyers. In addition to the concerns noted previously, licensees working with buyers should also pay careful attention to the following concerns.

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(ii) 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 Strata Documents’’ 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.

With the enactment of the Strata Property Act, buyers, or their agents who have been authorized in writing, now 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.

Licensees should always advise buyers to make their purchase ‘‘subject to’’ a property inspection. If buyers decline to have an inspection, licensees should have them sign a statement that they have been advised by the licensee to have an inspection and they are declining the licensee’s advice (see ‘‘Acknowledgement of Receipt of Strata Documentation’’).

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. 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 ‘‘Records and Other 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.

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(iii) 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:

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 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.

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(iv) 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. There must exist clear evidence 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:

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:

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.

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(v) Bylaws

The bylaws of a strata corporation may contain provisions which 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 it 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 Council expects that the seller’s agent will review the current bylaws in order to advise the buyer’s agent of any significant restrictions that the bylaws may contain. Additionally, the buyer’s agent should also 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 ‘‘Bylaws and Rules’’.

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(vi) Minutes

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.

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.

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(vii) Documentation

The concerns noted in sections ‘‘Records and Other Information’’ and ‘‘Listing Documentation’’ noted previously apply to the duties of licensees working with buyers as well. Licensees should ensure that not only are buyers provided with an Information Certificate but that the Information Certificate is current.

What constitutes a current Information Certificate may differ from one strata corporation to another. Buyers will be interested in the state of affairs at the time they are making an Offer to Purchase. If a listing agent obtains an Information Certificate when a strata lot is first listed for sale but the unit does not sell for a number of months, that initial Certificate may no longer reflect the current situation of either the strata lot or the strata corporation. For example, there may have been an Annual or Special General Meeting in the intervening period that resulted in an increase in monthly strata fees or in an approval of a special levy. On the other hand, if no change has occurred with respect to those items included in an Information Certificate and the documents to be attached to it, a Certificate several months old would still be current.

The safest approach for licensees acting for buyers is to obtain the buyer’s written authorization and use it to request current information, including an Information Certificate at the time an offer is written. It may also be possible to avoid duplication of costs by providing a copy of that Information Certificate to the buyer’s lawyer or notary public.

Licensees should also refer to section ‘‘Other Land Title Documents’’ noted previously for information regarding strata plans.

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(viii) Buyer Has Reviewed the Documentation

Whether or not licensees have used the ‘‘Acknowledgement of Receipt of Strata Documentation’’, they are encouraged to use the following form of acknowledgement clause. Documents listed should include those documents itemized in ‘‘Acknowledgement of Receipt of Strata Documentation’’.

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(ix) 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-Information Certificate, and up to 15 days to provide copies of the other records referred to in the following clause. Licensees should recommend a subject removal date that allows enough time for the strata corporation or strata manager to 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.

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(x) 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 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:

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(xi) Parking Stalls and Storage Lockers

The comments referred to in ‘‘Strata Parking Stalls, Storage Lockers and Other Features’’ above, apply as well to the selling aspect of a strata transaction.

Licensees should insert a clause such as the following in the Contract of Purchase and Sale when parking stalls or storage lockers are allocated by short-term exclusive use arrangements and buyers wish to continue this arrangement.

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(xii) Storage Lockers

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(xiii) Changes Regarding the Rental of Strata Lots

This section added July, 2011

Determining whether a buyer will be able to rent a strata lot is sometimes confusing. The most significant document in determining whether a buyer can rent a strata lot is the Rental Disclosure Statement.  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.

Until recently, the general rule has been, if the buyer bought a strata lot from the Developer and the Developer had filed a Rental Disclosure Statement that identified that strata lot as being intended for rent, and the Rental Disclosure Statement had not expired, the buyer was entitled to rent that strata lot notwithstanding a rental bylaw.  The rental bylaw would not apply to that strata lot until the Rental Disclosure Statement expired or the strata lot was sold, which ever happened first.

Recent amendments to the Strata Property Act have changed the general rule.  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.

Steps Licensees Representing Buyers Should Take

Resale – Older Buildings

Because a Rental Disclosure Statement is generally filed in the pre-marketing period, any building that was built by January 1, 2010 would most likely have a Rental Disclosure Statement that was filed prior to January 1, 2010.  For those buildings, only the first buyer would have the benefit of the Rental Disclosure Statement until the Rental Disclosure Statement expired.

If the building is clearly a building where the Rental Disclosure Statement was filed before January 1, 2010, (i.e. built in the 80s, 90s or early 2000s) the general rule will apply.  Buyers of resale strata lots should be advised that they have no protection from a rental bylaw and that a rental bylaw (either existing or one passed in the future) will apply to them.

New Developments

If a strata lot is being sold on behalf of a Developer, the licensee should determine whether the Rental Disclosure Statement was filed before or after January 1, 2010.

Before January 1, 2010

A Rental Disclosure Statement filed before January 1, 2010 will protect the Developer and first buyers from the application of any rental bylaw passed by the strata corporation until the Rental Disclosure Statement expires.  A buyer who purchases from a first or subsequent buyer does not have the benefit of a Rental Disclosure Statement.

Therefore, although buyers who purchase from the Developer, will be protected from a rental bylaw if the Rental Disclosure Statement has not expired, future buyers will be subject to any rental bylaw that a strata corporation passes.  The future buyers are not protected even though the Rental Disclosure Statement has not expired.

Buyers from developers who wish to take advantage of their right to rent should confirm that the rental period in the Rental Disclosure Statement is far enough into the future so that the first buyer’s right to rent will not be terminated by the expiry of the Rental Disclosure Statement.  In most cases, the rental period for Rental Disclosure Statements filed before January 1, 2010 is at least 99 years, or is for an indefinite or unlimited period.

After January 1, 2010

A Rental Disclosure Statement filed on or after January 1, 2010 will protect the Developer and all buyers from the application of a rental bylaw until the expiry of the Rental Disclosure Statement.

The amendment to the Strata Property Act has extended the benefit of the Rental Disclosure Statement from just the first buyer to all buyers until the expiry of the Rental Disclosure Statement.  In other words, second, third, fourth, etc. buyers will be able to rent their strata lot as long as the Rental Disclosure Statement has not expired providing that the Rental Disclosure Statement was filed with the Superintendent of Real Estate on or after January 1, 2010.

Essentially, the strata corporation is not able to restrict rentals during the term of the Rental Disclosure Statement.  If the buyer sells the strata lot while the Rental Disclosure Statement is in effect, the subsequent buyer would also be permitted to rent the strata lot.  This effectively broadens the potential market for the strata lot and may be viewed by the buyer as an advantage.  However, for a buyer hoping to see rental restrictions in place in order to create an owner occupied community, the fact that the strata corporation would be unable to restrict rentals may be viewed by a buyer in such a circumstance as a disadvantage.

All buyers, including buyers from developers should confirm the rental period on the Rental Disclosure Statement.  Although, in the past, most Rental Disclosure Statements did not expire for significant periods of time since January 1, 2010, some developers have filed Rental Disclosure Statements for a very short period such as five years.  In such cases, the protection from a Rental Disclosure Statement ends for all owners, including the first buyer, when the Rental Disclosure Statement expires.  Most first buyers believe that they will always be able to rent because they purchased from the developer.  This is not the case.  Developments with very short rental periods would therefore not be attractive to buyers who wish to rent the strata lot for an extended period.

Future Resales

In the past, because the Rental Disclosure Statement did not apply to anyone other than the Developer and first buyer, very few strata corporations bothered to attach the Rental Disclosure Statement to the Form B when a strata lot was re-sold.   However, the amendment to the Strata Property Act has now made it necessary for the Rental Disclosure Statement to be attached so that buyers and licensees acting on their behalf can determine whether the resale has a pre January 2010 Rental Disclosure Statement, in which case the new buyer would not benefit from the Rental Disclosure Statement or, whether the resale has a post January 2010 Rental Disclosure Statement, in which case the new buyer will have the benefit of the Rental Disclosure Statement until it expires.

It will therefore be necessary for buyers and licensees acting on their behalf to determine the expiry date of the Rental Disclosure Statement for the resale of strata lots in the future.  Section 59 of the Strata Property Act requires that the Developer’s Rental Disclosure Statement be attached to the Information Certificate (Form B).  As noted above, unless the building is clearly one for which the Rental Disclosure Statement was filed before January 1, 2010, licensees acting on behalf of buyers should insist that the Rental Disclosure Statement be attached to the Form B.   If the licensee has any doubt or uncertainty about the date the Rental Disclosure Statement was filed, the licensee should insist that the Rental Disclosure Statement be attached to the Form B.

Licensees acting on behalf of buyers should then check the filing date on the Rental Disclosure Statement.

1. If the Rental Disclosure Statement was filed before January 1, 2010, buyers of resale properties should be informed that a rental bylaw would apply to them.
2. If the Rental Disclosure Statement was filed on or after January 1, 2010, the licensee should check the expiry date and if the date has not expired, advise resale buyers that they will be protected from a rental bylaw until the Rental Disclosure Statement expires.

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(xiv) Acknowledgement of Restriction on Use

The issue of restrictions on use from the perspective of a listing agent is discussed previously in ‘‘Restrictions on Use’’ above. If the bylaws contain rental restrictions or there are other prohibitions, licensees should insert a clause along the following lines in the Contract of Purchase and Sale:

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(xv) 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. Where a copy of the zoning bylaw is given to the buyer, the licensee should have the buyer acknowledge it in the Contract of Purchase and Sale, as follows:

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:

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

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(xvi) Bylaws and Rules

General

The Council has disciplined listing and selling licensees for failing to properly check the bylaws for restrictions. If a restriction exists in the bylaws, the listing and 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.

(i) The Nature of Bylaws

Every strata corporation must have bylaws. The bylaws serve as the constitution of the strata corporation. A bylaw may govern activities in a strata lot or on common property.

When a strata plan is deposited at the Land Title Office, the strata corporation acquires by default the Schedule of Standard Bylaws. The developer, when depositing the strata plan, or later, the eligible voters of the strata corporation in a general meeting, may change those bylaws by amending them. An amended bylaw must be filed with the strata plan at the Land Title Office. This means that the bylaws of a strata corporation consist of the Schedule of Standard Bylaws together with any amended bylaws that are filed in the Land Title Office.

(ii) Scope of Bylaws

The Schedule of Standard Bylaws covers the following important topics:

• the duties owed by each owner to the strata corporation and vice versa;
• the powers of the strata corporation;
• the structure and powers of the strata council;
• the procedures to be followed at general meetings and strata council meetings; and
• details on bylaw infractions.

(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.

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 immediately into force, the rule ceases to have effect at the first annual general meeting held after council made the rule unless the eligible voters at the meeting ratify the rule by a majority vote. Once ratified, the rule remains in force until it is later repealed or altered.

(iv) How Bylaws and Rules Differ

Bylaws are different from rules in three important respects:

• Source — Bylaws emanate from the members at a duly convened annual or special general meeting; rules are constituted by the strata council only.
• 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 strata lots. By contrast, a strata council can only make rules and regulations affecting the enjoyment, safety and cleanliness of common property and common assets.
• Formality — Before it can be effective, a bylaw must be filed in the Land Title Office. Rules, however, need not be registered in the Land Title Office in order to be effective. Rules must, however, be posted on signs and must be capable of being photocopied.

Changes in Bylaws

The comments referred to previously in ‘‘Records and Other Information’’ and ‘‘Disclosure Issues’’ should be reviewed with respect to the duties of owners to disclose changes in bylaws and the rights of buyers to be apprised of same.

Prior to the Completion Date

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.

Ώ Where such notification is provided to buyers, licensees should advise buyers to seek legal advice.

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(xvii) Special Levies

Generally

Owners are personally responsible for the contribution due from their strata lot for a special levy (formerly called a special assessment).

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 seller owes the strata corporation the portion of the levy that is payable before the date the strata lot is conveyed, and

(b) the purchaser 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:

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:

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.

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(xviii) Phased Strata Developments

A developer who wants to build in stages 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. As the strata plans for subsequent phases are deposited, the owners in that phase become part of the strata corporation.

Before a developer can build a development in phases, the developer must prepare a Form P, which is then 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.

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 ‘‘Listing Documentation’’ 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.

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(xix) Properties without a Strata Council

Licensees may find that some strata properties, such as duplexes, do not operate in compliance with the Strata Property Act in that there is no strata council, monthly strata fees, etc. It is recommended that the following clause be added to the Contract of Purchase and Sale when selling these properties. In these cases, licensees should recommend that buyers obtain legal advice before becoming committed to buy.

(xx) 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.

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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 604-953-5300 or visit www.fic.gov.bc.ca.

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(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 Act generally, 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.

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(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.

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(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.

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.

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(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.

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(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.

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.

(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.

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(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.

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(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.

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(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. The Real 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 http://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.

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(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.

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(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.

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(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.

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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) New Home 

This section updated December 2010.

(b) Agreement with Seller/Builder to Construct a New home for a Buyer

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 HST 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.

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(c) Building Contracts

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 HST 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.

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(d) Deficiencies

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.

* 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.

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(e) Builders Lien Holdback

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.

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.

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(f) Builders Lien Holdback – Strata Lots

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.

(g) Agreement to Purchase a New Home Already Substantially Completed

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.

(h) Remaining Work to be Completed

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 HST 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.

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(i) 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.

(j) Builders Lien Holdback

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.

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(k) 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

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(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.

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(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.

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(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.

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(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:

(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 new legislation, 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.

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(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.

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

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(vii) Owner-Built Homes – Changes to the Homeowner Protection Act

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 new 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.

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(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:

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(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.

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(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.

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(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.

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(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.

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(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.

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 (see ‘‘Partially Completed, Defects or Repairs Clause’’ in the index) 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.

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(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.

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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.rto.gov.bc.ca to obtain a copy of ‘‘A Guide to Landlords and Tenants in British Columbia’’ 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 http://www.rto.gov.bc.ca/.

Landlords may also collect deposits for keys or 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.

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(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 Council 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:

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.

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(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.

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.

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(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.

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(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.

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(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.

Ώ NOTE: The Seller cannot give notice to the tenant until all the subject clauses have been removed.

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(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.

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

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(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.

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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.

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(c) Sale of New or Used Manufactured Homes

[This section updated April 2012]

Licensees should take the appropriate steps to determine if the property they are listing is a manufactured home, and, if so, that the manufactured home has a valid CSA sticker as required under section 21 of the Electrical Safety Regulation of the BC Safety Standards Act.  Licensees cannot offer for sale a manufactured home that does not have a valid CSA sticker, or in the case of an electrical alteration, a silver label. 

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:

(a) a certification mark;

(b) a label or mark of a certification agency that is acceptable to the appropriate provincial safety manager to certify electrical equipment for a specific installation;

(c) an approval mark issued under section 10 of the Act; (silver label)

(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.  

Licensees should not confuse CSA stickers with Manufactured Home Registration (MHR) stickers. Typically, both stickers can be found on the electrical panel; however, the CSA sticker can also be found near the front door of the manufactured home, whereas the MHR sticker is generally found on the front left corner of the manufactured home. The MHR number is registered by the manufacturer and its purpose is for identification (it is the equivalent to an automobile being issued a VIN number); it is not an indication that the manufactured home is CSA approved. 

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. 

Licensees may wish to avail themselves to the following resources:  

www.safetyauthority.ca
www.bcregistryservices.gov.bc.ca/bcreg/mhrpg/index.page
www.bcassessment.bc.ca/Pages/default.aspx

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 the Province of British Columbia without re-inspection provided that they bear an approval mark (CSA or Silver Sticker from an approved source – see www.safetyauthority.ca) and that 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. www.safetyauthority.ca/sites/default/files/Used%20Mobile%20Home%20Inspection%20Report%20(FRM-1143-01).pdf 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 an FRM-0206-07 Electrical Contractor Authorization and Declaration Form http://safetyauthority.ca/sites/default/files/Form_206_Electrical_Contractor_Inspection_Request_Form_206.pdf

  _of_Compliance_Electrical_Inspection_Request_FRM-0206-07.pdfconfirming 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 at 778-396-2089, toll-free 1-866-566-7233 or on their website at www.safetyauthority.ca.

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(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 a title search be done by the seller’s representative 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. To view the Regulation, go to www.bclaws.ca.

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 at www.rto.gov.bc.ca.

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.

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.

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

Licensees should recognize that under section 27 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.

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(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 http://www.bcregistryservices.gov.bc.ca/bcreg/mhrpg/index.page?

 

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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).

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(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.

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(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.

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(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.

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(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.

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(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.

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(g) Relevant Documents

Although the sale of a business that includes real property is governed by RESA, neither RESA, the Regulations nor the Council 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.

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(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:

If the business is occupying leased space, the following clause should be inserted in the contract:

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.

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(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.

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.

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III. Rental Property Management Services

1. Overview

The Real Estate Services Act (RESA) requires that all individuals or companies who provide rental property management services, unless specifically exempted, obtain licensing.

‘‘rental property management services’’ means any of the following services provided to or on behalf of an owner of rental real estate:

(a) trading services in relation to the rental of the real estate;

(b) collecting rents or security deposits for the use of the real estate;

(c) managing the real estate on behalf of the owner by

(i) making payments to third parties,

(ii) negotiating or entering into contracts,

(iii) supervising employees or contractors hired or engaged by the owner, or

(iv) managing landlord and tenant matters

but does not include an activity excluded by regulation.

(a) Rental Property Management Licence Required

Any person who provides rental management services, subject to the exemptions noted below, is required by section 3 of RESA to be licensed.

Under the former Real Estate Act, licensees held restricted or unrestricted licences. An unrestricted licence permitted the licensee to carry out any activity for which a licence was required. Even if a licence was restricted to sales, the licensee was permitted to carry out a limited amount of rental property management.

Under RESA, it is necessary to be licensed under each specific category in order to carry out the activities related to that category.

Section 2-1 of the Council Rules provides that the categories of licence are: trading services, rental property management services, strata management services, or any combination of these activities.

As a result of these provisions, a licensee must be licensed in each category for which the licensee intends to provide services. Additionally, in order to provide a particular service, the brokerage to which the licensee is engaged must be able to provide such services. A brokerage may only provide services that are permitted by the licence of the managing broker.

Before providing rental property management services, a licensee must, therefore, be licensed to provide such services. All such services must be provided through the brokerage to which the licensee is engaged. Thus, the brokerage must also be licensed and willing to provide rental property management services.

(b) Exemptions from Licensing

(i) Exemption for employees of a property’s owner (Section 2.1 of the Real Estate Services Regulation)

(1) An individual is exempt from the requirement to be licensed under Part 2 of the Act in respect of real estate services 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).

NOTE: ‘‘principal’’, in relation to real estate services, means, as applicable, (a) in the case of trading services, a party to a trade in real estate; (b) in the case of rental property management services, other than trading services in relation to the rental of the real estate, the owner of the rental real estate to or on behalf of whom the services are provided; or (c) in the case of strata management services, the strata corporation to whom or on behalf of whom the services are provided (Section 1 of RESA).

(ii) Exemption for caretakers providing services to different owners (Section 2.13 of the Real Estate Services Regulation)

(1) This section applies to an individual who

(a) is employed as a caretaker or manager by the owners of different residential real estate properties, and

(b) is employed by those owners to provide rental property management services in relation to those properties.

(2) Subject to subsection (3), the individual is exempt from the requirement to be licensed under Part 2 of the Act in respect of the rental property management services referred to in subsection (1) if all the following apply:

(a) the individual is an employee of each of the owners;

(b) the owners have agreed among themselves that the individual may provide the rental property management services;

(c) the individual is not providing rental property management services to or on behalf of any person other than the owners.

(3) On receipt of money collected in relation to any of the rental real estate properties, including all money collected as rent, security deposits or pet damage deposits, the exempt caretaker or manager must promptly deliver the money to the owner of the rental real estate property in relation to which it was paid.

(iii) Exemption for caretakers or managers employed by brokerages (Section 2.14 of the Real Estate Services Regulation)

(1) Subject to subsection (2), an individual who is employed as a caretaker or manager of rental real estate by a brokerage that is licensed to provide rental property management services is exempt from the requirement to be licensed under Part 2 of the Act in respect of any of the following activities in relation to those real estate services:

(a) if the caretaker or manager complies with subsection (2), collecting money in relation to the rental real estate, including money collected as rent, security deposits or pet damage deposits;

(b) showing the rental real estate to prospective tenants;

(c) receiving and presenting applications in respect of the rental of the rental real estate from prospective tenants;

(d) supervising employees or contractors hired or engaged by the brokerage;

(e) communicating between landlords and tenants respecting landlord and tenant matters.

(2) On receipt of money referred to in subsection (1)(a), the exempt caretaker or manager must promptly deliver the money to the brokerage.

(3) Subsection (1) does not apply to a caretaker or manager who negotiates or enters into contracts on behalf of the brokerage or the owner of the rental real estate.

Keep in mind:

The relationship between the brokerage and the unlicensed person must be that of ‘‘employer-employee’’ according to the criteria of the Canada Revenue Agency. If in doubt, brokerages may want to seek accounting or legal advice to ensure that such a relationship exists. The unlicensed caretaker/manager cannot act as an independent contractor providing services on behalf of the brokerage.

Services provided under this exemption must be limited to those identified above. Advising the landlord on what constitutes appropriate or ‘‘market’’ rent, negotiating the terms of a lease and signing rental agreements are not permitted. Brokerages and their managing brokers are responsible for ensuring that the services offered by unlicensed caretakers/managers do not go beyond what is permitted in the Regulation and may be subject to discipline proceedings for failing to do so.

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(iv) Exemption for BCHMC and related non-profit organizations (Section 2.15 of the Real Estate Services Regulation)

1. In this section:

‘‘British Columbia Housing Management Commission’’ means the British Columbia Housing Management Commission continued under the Ministry of Lands, Parks and Housing Act;

‘‘non-profit organization’’ means an organization constituted exclusively for charitable or benevolent purposes with no part of its income being payable to or other wise available for the personal benefit of any of its members or shareholders.

(2) An individual is exempt from the requirement to be licensed under Part 2 of the Act in respect of rental property management services if the individual is providing the services in relation to rental real estate that is

(a) administered by the British Columbia Housing Management Commission, and

(b) rented to tenants based on the tenant’s income.

(3) A non-profit organization is exempt from the requirement to be licensed under Part 2 of the Act in respect of rental property management services if the non-profit organization

(a) has entered into an agreement with the British Columbia Housing Management Commission, and

(b) is providing the rental property management services in relation to rental real estate referred to in subsection (2).

(v) Exemption in relation to assignment of rents (Section 2.16 of the Real Estate Services Regulation)

2.16. A savings institution, or a mortgage broker registered under the Mortgage Brokers Act, is exempt from the requirement to be licensed under Part 2 of the Act in respect of rental property management services if the savings institution or mortgage broker is acting on behalf of a person who has granted an assignment of rents to the savings institution or mortgage broker.

Licensee Exemptions (Section 2(2) of RESA)

(2) … 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(2) of RESA)

Insofar as rental property management is concerned, this section of RESA means licensees can rely only on the two following exemptions which pertain to the licensee’s own or family property. Aside from these exemptions, a person licensed to provide only trading or strata management services must generally become licensed to provide rental property management services.

(vi) Exemption for licensees managing their own property (Section 9-1 of the Council Rules)

(1) This section applies to a managing broker, associate broker or representative who provides rental property management services on their own behalf in relation to their own real estate.

(2) The Act and these rules do not apply to the licensee in relation to the rental property management services so long as the licensee does all of the following:

(a) provides these services in their own name and not in the name of their related brokerage;

(b) does not, in any real estate advertising with respect to the rental real estate, indicate the name, address or telephone number of their related brokerage or of any place where the licensee is engaged in their capacity as licensee;

(c) discloses to each potential tenant of the rental real estate, promptly but in any event before the person enters into a tenancy agreement, that

(i) even though they are licensed under the Real Estate Services Act, they are not acting as a licensee in this case, and

(ii) the licensee is not regulated under the Real Estate Services Act in relation to the rental real estate;

(d) discloses in writing to the managing broker of the related brokerage that the licensee will be providing rental property management services on their own behalf in relation to their own real estate.

(vii) Exemption for licensees managing family property (Section 9-2 of the Council Rules)

(1) This section applies to a managing broker, associate broker or representative who provides rental property management services that

(a) are provided

(i) to or on behalf of their spouse, family partner, son, daughter, or parent, in relation to rental real estate owned by that other person,

(ii) to or on behalf of a partnership in relation to real estate owned by the partnership, if the only partners of the partnership are two or more of any of the following:

(A) the licensee;

(B) a spouse or family partner of the licensee;

(C) a son, daughter or parent of the licensee; or

(iii) to or on behalf of a corporation of which the only shareholders are one or more of the individuals referred to in subparagraph (ii), and

(b) are not provided for or in expectation of remuneration.

(2) The Act and these rules do not apply to the licensee in relation to the rental property management services so long as the licensee does all of the following:

(a) complies with the requirements of section 9-1(2)(a), (b) and (c) [management of rental real estate owned by licensee] of these rules;

(b) before providing the services, discloses in writing the matters referred to in section 9-1(2)(c) of these Rules to

(i) the spouse, family partner, son, daughter or parent to or on behalf of whom the licensee is providing the services, or

(ii) in the case of services provided to or on behalf of a partnership or corporation, each spouse, family partner, son, daughter or parent who is a partner or shareholder;

(c) provides to the managing broker of the related brokerage, as applicable,

(i) in the case of services to which paragraph (b) applies, a copy of the written disclosure under that paragraph, or

(ii) in the case of services provided to or on behalf of a corporation of which the only share- holder is the licensee, written disclosure that the licensee will be providing rental property management services to or on behalf of that corporation.

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(c) Common Licensing Scenarios

(i) Scenario #1

In managing an apartment complex for its owner, Acme Property Management Corporation (Acme) employs a ‘‘resident caretaker’’ or ‘‘on-site manager’’ who shows apartments to prospective tenants, collects security deposits and rents, arranges needed repairs, and schedules regular maintenance on the property. This resident manager also negotiates and executes leases.

What real estate licences are required?

Since Acme is acting on behalf of a third party for remuneration, it must hold a real estate brokerage licence. This licensing of the corporation does not automatically entitle any of the corporation’s officers, directors, shareholders, or employees to engage in leasing activities.

In addition, Acme’s property management services must be supervised by a managing broker who is licensed to provide rental property management services and all other persons employed by Acme as leasing or rental agents must be licensed as representatives (or associate brokers) to provide rental property management services under RESA.

If, in this scenario, the resident manager was instructed to immediately remit any security deposits and rents to the brokerage for deposit into its trust accounts, and if he or she were not involved in negotiating and executing leases, no licence would be required under the exemption for resident caretakers cited above (Section 2.14 of the Real Estate Services Regulation).

However, since the resident manager does negotiate and execute leases, a representative’s (or associate broker’s) licence is necessary. Failure to have him/her licensed could result in disciplinary action being taken against the brokerage and Acme’s managing broker.

(ii) Scenario #2

Joan, who is licensed as a representative to provide trading services, promises to look after a rental unit she recently sold. She hopes that when the owner is ready to sell, he will give her the listing and in gratitude will refer her to his friends.

Is Joan adequately licensed?

Joan is providing rental property management services to another person in the hope of future remuneration, even though her current licence does not allow her to do so. If her conduct were reported to the RECBC, Joan could face disciplinary action. She must stop her unlicensed activity until properly licensed for rental property management with an appropriately licensed brokerage. Once properly licensed, a rental property management service agreement between her brokerage and client would be necessary, and if rent is to be collected by Joan, the trust accounting requirements of the Real Estate Services Act apply.

(iii) Scenario #3

John Smith, an unlicensed individual, owns a number of office buildings in Victoria. John wants to manage these buildings using his employees.

What real estate licences are required?

Neither John nor any of his employees are required to be licensed. A real estate licence is not required of an owner — whether a sole proprietorship, a corporation, or an association — when personally selling, leasing, or managing his or her own property; nor is a licence required by employees of the owner when renting, leasing, or managing property owned by their employer, provided that they do not provide real estate services for any other person (Section 2.1 of the Real Estate Services Regulation).

(iv) Scenario #4

Joe Pipe, a plumber working for a mechanical services company, has a 40% interest in a real estate investment company called Three Brothers Investment Co. Joe’s two brothers each own a 30% interest in the company, which has recently purchased an apartment complex. The brothers have decided that Joe should perform the rental property management services required for this investment.

Is a licence required?

No. By having a substantial interest in the real estate being managed, Joe is acting as a principal (owner) and, as such, is not subject to the requirements of the Real Estate Services Act.

(v) Scenario #5

The ABC Group, a limited partnership, owns several shopping malls. Rather than employ an independent property management firm, ABC purchases a minority interest (10%) in Hill View Management, a separate corporation that will manage its properties, as well as those of other clients.

What real estate licences are required?

Since the affiliated management corporation, Hill View Management, is a separate legal entity acting as a leasing agent for ABC (see the next scenario) and other property owners, it must obtain licensing.

Hill View Management must hold a real estate brokerage licence, its rental property management services must be overseen by a managing broker licensed to provide rental property management services, and anyone providing those services on behalf of its clients must be licensed as representatives (or associate brokers) under the Real Estate Services Act.

(vi) Scenario #6

Canada First Realty Ltd., which owns numerous commercial and residential rental properties, forms a separate, wholly-owned subsidiary called BZ Property Management Inc., for the sole purpose of managing its real estate.

What real estate licences are required?

Assuming BZ Property Management Inc. is a legal entity separate from the owner of the property having no substantial interest in the property, either directly (as part owner) or indirectly (through share ownership in Canada First Realty), it is acting on behalf of another person in providing real estate services. Therefore, BZ Property Management Inc. must meet all the requirements of the Real Estate Services Act. It must be licensed as a brokerage, employ a licensed managing broker, and have only licensed representatives engaged in rental property management.

If Canada First Realty Ltd. wishes to avoid a situation in which licensing is mandatory, it should have its own employees manage its real estate assets (Section 2.1(1) of the Real Estate Services Regulation).

(vii) Scenario #7

Ray, the managing broker at XYZ Property Management Ltd., a brokerage licensed to provide rental property management services, is asked to submit a proposal for the management of Berkshire Mews, a privately held cooperative. Ray is not being asked to manage individual rental units, but to provide management to the complex on behalf of the cooperative itself, in a manner akin to strata management.

Can XYZ manage the Berkshire Mews?

Yes. However, Ray must take care to discover by what title the Berkshire Mews Cooperative corporation holds its underlying corporate interest in the Mews.

If the cooperative has a headlease and grants subleases under that headlease to its shareholders, then XYZ will be providing rental property management services. The property, in this instance, is ‘‘rental real estate’’ because the cooperative interests are considered real estate and are intended to be rented or leased. NOTE: A ‘‘cooperative interest’’ is considered ‘real estate’ and means an interest that includes both: (a) a right (i) of ownership, directly or indirectly, of one or more shares in the cooperative association, or (ii) to be a partner or member, directly or indirectly, in the cooperative association, and (b) as a result of the right described in paragraph (a), a right to use or occupy a part of the land in which a cooperative association has an interest (Section 1 of the Real Estate Development Marketing Act).

Since XYZ is licensed to provide rental property management, Ray can submit a management proposal.

If the cooperative’s interest in the Berkshire Mews is freehold, it may offer direct leases to its members, rather than subleases under a headlease. In this case, once again the property is ‘‘rental real estate’’ because it is real estate that is leased.

Since XYZ is licensed to provide rental property management, Ray can submit a management proposal.

If the cooperative’s corporate interest in the Berkshire Mews is freehold and the occupancy rights granted to its members arise under a shareholder’s agreement that does not involve a lease, then the management services being proposed will not be considered real estate services at all. Although a cooperative interest is considered real estate, where no lease is involved, the services rendered in managing a cooperative do not fall under the definition of ‘‘real estate services’’ contained in RESA, which includes only:

(a) rental property management services,

(b) strata management services, or

(c) trading services (Section 1 of RESA).

In this case, Ray, or anyone else for that matter, can offer to manage Berkshire Mews. If Ray decides to do so, he must make sure that any money held on behalf of the Mews is not placed in accounts set up as a requirement of RESA, but is held apart from all real estate trust funds.

Ray would also be wise to disclose to the cooperative’s board that:

(i) even though licensed under the Real Estate Services Act, XYZ is not acting as a licensee in this case, and consequently;

(ii) XYZ is not regulated under the Real Estate Services Act in relation to the management of Berkshire Mews; and

(iii) any money held on behalf of the Berkshire Mews will not be protected by the Real Estate Compensation Fund Corporation nor will Ray be indemnified by the Real Estate Errors and Omissions Insurance Corporation.

(viii) Scenario #8

Fred provides property management services for several owners of vacation rental properties located in the Okanagan Valley. Fred provides a central booking service for people who wish to stay in self-contained units when they vacation during the summer months. He takes initial deposits and collects the balance of the fees on the first day the property is to be occupied. Fred also arranges for housekeeping services while the units are occupied, takes care of minor repairs, and in the case of the detached homes in his rental portfolio, he also arranges for the yard maintenance. He sends the owners the remaining funds each month, along with accounting statements.

Some of these properties are made available for fixed term occupation during the off-season. Fred finds tenants and negotiates fixed term leases for these properties. He collects and holds the security and pet damage deposits for these properties, collects the rents, pays the expenses on behalf of the owners, and sends the owners the remaining funds each month, along with accounting statements.

In return for these services, Fred receives a percentage of the rental income from which he must pay for all housekeeping services during the vacation season. Regular maintenance is invoiced to the owners separately. During the off-season, Fred receives a percentage of the fixed term lease payments.

Does Fred need to be licensed under RESA?

The management of the short term vacation rentals does not require licensing under RESA; however, activities related to the provision of travel services to the public, when those travel services are supplied by another person, require licensing under the Business Practices and Consumer Protection Act. Because travel services include accommodation that is for the use or benefit of a traveler, tourist, or sightseer, Fred appears to be providing travel services in relation to his vacation rental portfolio. Fred should contact Consumer Protection B.C. (www.consumerprotectionbc.ca), the organization responsible for administration of the Business Practices and Consumer Protection Act, to determine whether he is required to be licensed under that legislation.

Management of the fixed term lease portfolio during the off-season does require licensing under RESA. The services Fred provides to the owners of these properties constitute rental property management services provided on behalf of the owner/landlord. These rental property management services, like all real estate services, must be provided in the name of and on behalf of a licensed brokerage. All monies received in relation to these services must be treated as trust funds under RESA.

Another important component of RESA is that the money Fred receives and holds in relation to the short term vacation rentals must not be commingled with the money he receives in relation to the fixed term leases. This is true even where the money is received in relation to the same real estate, e.g. short term vacation rental during the summer and fixed term lease during the off-season. Separate accounts must be established for funds received in relation to these two different types of service.

As a real estate licensee, Fred should ensure his clients understand which of his services are regulated under RESA, which are subject to the Business Practices and Consumer Protection Act, and that any funds he collects on behalf of the clients will be held by his brokerage in segregated accounts.

(ix) Scenario #9

Mary has leased a home and now intends to sub-lease that home to John. Does Mary have to be licensed under RESAto do so?

No. Section 1 of RESA defines the term “owner” in relation to rental real estate to include “a person entitled to possession of the real estate who exercises a right to sub-rent or sub-lease the real estate to another.” Section 3 of RESA states that:

“A person must not provide real estate services to or on behalf of another, for or in expectation of remuneration, unless the person is

1. licensed … to provide those real estate services, or
2. exempted from the requirement to be licensed … in relation to the provision of those real estate services”

Mary is an “owner” as defined in section 1 and may, therefore, act on her own behalf in all aspects of this sub-lease without having to be licensed.

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(d) Short-Term Rental Licensing Requirement

In July 2004, Consumer Protection BC commenced operations in British Columbia. Consumer Protection BC operates under contract to the provincial government and, amongst other groups, it is responsible for licensing travel agents and property inspectors. The definition of ‘‘travel agent’’ includes someone who sells or otherwise provides travel services, including accommodation, to a traveller, tourist, or sightseer. In that regard, licensees should be aware that what the industry has come to know as ‘‘ short-term vacation rentals’’ falls within the definition of ‘‘travel services’’. Therefore, a person who is providing travel services by way of arranging short-term vacation rentals, or similar accommodation, is likely required to be licensed under the Business Practices and Consumer Protection Act. Any licensee who engages in the management of short-term vacation rentals should contact Consumer Protection BC as they likely need to be licensed under the Business Practices and Consumer Protection Act. The Consumer Protection BC website is located at www.consumerprotectionbc.ca.

(e) Application of the Real Estate Services Act

Section 2 of RESA stipulates that, once an individual is licensed under RESA, RESA, the Real Estate Services Regulation, and the Council 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 other wise be exempt.

Real estate services include strata management services, rental property management services, and trading services. Section 2 of RESA means that an individual licensed to provide rental property management services may not provide any real estate services, except as discussed below, unless the services are provided in compliance with all the provisions of RESA, the Real Estate Services Regulation, and the Council Rules.

The Council 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.

Section 9-1 of the Council Rules permits a licensee to manage rental real estate that the licensee owns. Section 9-2 of the Council 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 Council Rules also permits 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.

To comply with the requirements of sections 9-1 and 9-2 of the Council Rules, the licensee must:

• provide the services in the licensee’s own name and not in the name of their related brokerage; not indicate the name, address, or telephone number of their related brokerage in any advertising in respect of the rental property;
• disclose 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;
• disclose in writing to the managing broker of the related brokerage that the licensee will be providing rental property management services on their own behalf in relation to their own real estate or on behalf of a corporation in which they are the sole shareholder; and
• provide the rental management to the family member, partnership, or corporation for free and provide to the family member, partnership, or corporation, as applicable, in writing, that the licensee is not acting as a licensee and is not regulated under RESA in relation to this transaction. A copy of this written disclosure must be provided to the managing broker of the related brokerage.

In all other situations, a licensee must either satisfy an exemption or comply with RESA, the Regulations, and the Council Rules if the licensee provides real estate services.

In the following section, entitled ‘‘Practice Standards’’, the most significant requirements that are imposed by licensing on rental property managers are set out. However, licensees engaged in rental property management must be aware that, unless a specific exemption exists for rental property managers, all licensing requirements will apply.

For example, a licensee engaged in rental property management must comply with all business practice requirements as set out in the Council 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 applies to trust funds held by a licensee engaged in rental property management. As a result, all licensees engaged in rental property management must contribute to the Fund. Additionally, licensees engaged in rental property management participate in the errors and omissions insurance program administered by the Real Estate Errors and Omissions Insurance Corporation.

All licensees, including those licensed to provide rental property management services, are subject to the disciplinary authority of the Council. The Council is authorized under RESA to issue administrative penalties, in the case of a breach of specified Council Rules, such as the rules relating to the display of licences, the annual reporting requirements, and rules relating to the retention of records. Additionally, a disciplinary committee of the Council, if it finds that a licensee has committed professional misconduct, can make various disciplinary orders including reprimanding or suspending licensees, or imposing a disciplinary penalty of not more than $10,000 in the case of a representative, associate broker, or managing broker and not more than $20,000 in the case of a brokerage or former brokerage.

RESA provides that a licensee commits professional misconduct if the licensee:

• contravenes RESA, the Regulations, or Council Rules;
• breaches a restriction or condition of their licence;
• does anything that constitutes wrongful taking or deceptive dealing;
• demonstrates incompetence in performing any activity for which a licence is required;
• fails or refuses to cooperate with an investigation;
• fails to comply with an order of the Council, a discipline committee, or the Superintendent; and
• 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 RESA.

Licensees engaged in rental property management should be familiar with all of the requirements of RESA, the Real Estate Services Regulation, and the Council Rules in order to ensure that they do not inadvertently fail to comply or contravene what is required of them as a result of licensing.

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2. Practice Standards

Of particular importance to those licensed to provide rental property management services are the following Council Rules.

(a) Written Service Agreements

Section 5-1 of the Council Rules requires that a brokerage must enter into a written service agreement prior to providing rental property management services to a strata corporation.

Section 5-1(4) of the Council Rules requires that the written service agreement contain various information, including:

• the name of the client and the licensee name of the brokerage; the address of the real estate in relation to which services are provided under the agreement;
• the date on which the agreement is effective;
• the duration of the agreement;
• a general description of services to be provided by the brokerage;
• the remuneration to be paid under the agreement and the circumstances in which it will be payable;
• provision respecting the use and disclosure of personal information.

In addition, section 5-1(5) of the Council Rules requires that a service agreement respecting the provision of rental property management services also contain the following information:

• the circumstances in which the agreement may be terminated by either or both the client and the brokerage;
• the scope of the authority of the brokerage or a related licensee when acting on behalf of the owner, including any authority to sign cheques or make disbursements or enter into contracts on behalf of the owner;
• the timing, frequency, and nature of accounting statements and other records to be provided by the brokerage to the owner;
• how security deposits, pet damage deposits, and other deposits are to be dealt with; and
• a description of the records to be kept by the brokerage on behalf of the owner.

Any amendments or changes to the agreement must be made in writing and the amendment must be signed by the client and the brokerage.

(b) Disclosure of Interest in Trade

Section 5-9 of the Council Rules requires all licensees to make disclosure to the opposite party when acquiring or disposing of real estate. Section 5-9 applies to individuals licensed to provide rental property management services in the same way that it applies to other licensees. As a result, an individual licensed as a rental property manager must make disclosure to the opposite party in writing before any agreement for the acquisition or disposition of real estate is entered into. Before purchasing, selling, or renting real estate, an individual who is licensed to provide rental property management services must complete a ‘‘Disclosure of Interest in Trade’’ form. A copy of the form is located on the Council’s website under ‘‘Licensee Information’’. Licensees are not required to complete a Disclosure Form in relation to the rental of real estate if the real estate is to be used for residential use and the lease, including options, is less than one year.

For more information on the requirements of section 5-9 of the Council Rules, including the exception, see the section entitled ‘‘Disclosure’’.

(c) Disclosure of Remuneration

Section 5-11 of the Council Rules requires that a licensee disclose all remuneration received or anticipated to be received from anyone other than the licensee’s client, which is paid as a result of providing the real estate services to the client. Such disclosure must be in writing and be separate from a service agreement or any other agreement under which real estate services are provided.

Licensees engaged in rental property management are required to disclose to the owner of the real estate any remuneration that the licensee receives or anticipates receiving, which is paid by someone other than the owner, and which is paid as a result of providing the rental property management services. Section 5-11 of the Council Rules provides that if a licensee receives or anticipates receiving, directly or indirectly, remuneration as a result of recommending persons to the owner who provide real estate related products or services or recommending the owner to such persons, the licensee must make written disclosure of the remuneration to the strata corporation.

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

Licensees who recommend mortgage brokers, suppliers, and service and tradespeople to an owner, and who receive any form of benefit, must disclose the benefit to the owner. The benefit may take the form of a referral fee or it may be loyalty points, air miles, or it may even be a discount on work done for the licensee personally. In each case, the licensee must promptly disclose the benefit to the owner and the licensee’s related brokerage in writing.

The Council has development disclosure forms for rental property management services that are available on the Council’s website at www.recbc.ca. Licensees may use these disclosure forms or any form of the licensees choosing so long as it satisfies the disclosure requirements outlined above.

(d) Benefits in Relation to Rental or Strata Management Services

Section 5-12 of the Council Rules requires that, if a licensee, who provides rental property management or strata management services, receives or anticipates receiving a benefit as a result of expenditures made by or on behalf of the principal to whom the management services are provided, the benefit must be disclosed to both the principal and the licensee’s brokerage. Disclosure is also required if an associate of the licensee is to receive the benefit.

A rental property manager or strata manager may obtain a benefit by retaining companies in which the licensee or an associate of the licensee has an interest to provide services or carry out work for in relation to the managed property. If, for example, the licensee retained a company owned by their spouse to provide landscaping services, section 5-12 of the Council Rules would apply and require that the benefit be disclosed to the principal, i.e. rental property owner or strata corporation. In such circumstances, an associate of the licensee is obtaining a benefit as a result of an expenditure made on behalf of the principal.

Section 5-7 of the Council Rules defines the meaning of ‘‘associate’’ for both individual licensees and brokerages. Rental property managers and strata managers should pay particular attention to the definition in order to ensure that the required disclosures are made.

Licensees must also ensure that, if they intend to direct business to any service provider on the understanding that the licensee will receive a benefit for doing so, this is first disclosed to and agreed to by the client on whose behalf the services will be provided.

A sample form entitled ‘‘Disclosure of Benefits’’ has been prepared by the Council for use in situations where a representative, brokerage, or associate will receive a benefit.

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(e) Unlicensed Assistants and Rental Property Management (This information added August 2010)

The Council has developed the following list of activities that may and may not be performed by unlicensed rental property management assistants employed by brokerages that are licensed to provide rental property management services (See section 2.14 of the Real Estate Services Regulation).

An unlicensed rental property management assistant employed by a brokerage may:

• show the rental real estate to prospective tenants;

• receive rental applications from prospective tenants for presentation to the licensee;

• regularly inspect a property for signs of a grow-op, as required by many municipalities;

• collect money in relation to the rental real estate, including money collected as rent, security deposits or pet damage deposits, provided that, on receipt, the exempt caretaker or manager promptly delivers the money to the brokerage;

• perform bookkeeping or office functions, including recording and depositing rents and security deposits;

• order items of routine repair;

• call tradespersons for repair quotations as directed by the licensee;

• answer the telephone, take messages and respond, as directed by the licensee, to emergencies by calling a restoration company or other tradesperson;

• place routine telephone calls with respect to late rental payments;

• perform maintenance work and answer questions about such work;

• supervise employees or contractors hired by the brokerage.

An unlicensed rental property management assistant may not:

• negotiate or enter into contracts on behalf of the brokerage or the owner of rental real estate;

• make payments to third parties;

• manage landlord and tenant matters, e.g. sign tenancy agreements, notices of eviction, inspection reports, notices of rent increases, etc.;

• supervise employees or contractors hired or engaged by the owner;

• make telephone calls, do telemarketing, or performing other activities to solicit business on behalf of the licensee;

• provide any other service for which a licence is required under RESA.

(f) Brokerage Trust Accounts

Subject to the exceptions detailed Chapter I, section 27 of RESA provides that a brokerage must promptly pay into a brokerage trust account all money received from or on behalf of a principal in relation to real estate services, including any money received on account of remuneration for real estate services.

As a result of section 27 of RESA, a brokerage providing rental property management services must pay into the brokerage trust account all money received as rent, security deposits, and pet damage deposits.

Section 28 of RESA provides that money received as rents, security deposits, and pet damage deposits are not held by the brokerage as a stakeholder.

Section 30 of RESA provides that when funds are not held by the brokerage as a stakeholder, the funds can be withdrawn from a trust to pay remuneration, when earned, as well as and in accordance with the instructions of the principal to whose credit the money was deposited.

(g) Builders Lien Holdback Accounts

Detailed information about Builders Liens Holdback Accounts can be found at this link.

(h) Financial and Other Records

Section 8-1 of the Council Rules requires all brokerages to maintain the necessary financial records in order to ensure the appropriate and timely accounting of all transactions relating to the real estate services provided by the brokerage. The financial records must readily distinguish between monies received and paid by the brokerage on its own account, and monies received and paid on behalf of others.

For each general account that a brokerage maintains, a brokerage must keep a record showing all receipts and disbursements, all bank documents, and monthly bank reconciliations of the bank statements to the cash record.

In relation to the trust accounts maintained by the brokerage, a brokerage must keep a trust cash record showing all transactions affecting the trust account, including deposits and withdrawals, a trust journal showing all amounts received and disbursed, and separate trust ledgers for each principal showing all amounts received and disbursed in relation to the principal and any unexpended balance. The brokerage must also prepare a monthly trust liability and asset reconciliation no later than five weeks after the monthly accounting cut-off date for the account, and retain all banking documents.

Section 8-4 of the Council Rules sets out the general records that a brokerage must retain which includes copies of all significant correspondence sent or received by the brokerage, a copy of all annual financial reports and a list for each fiscal year of all rental properties that are or were managed by the brokerage during the year.

Section 8-6 of the Council Rules sets out the specific records that a brokerage must keep with respect to its rental property management services.

The brokerage must retain:

• the tenancy agreements or other contracts for the rental of the real estate;
• any financial statements that are provided to clients;
• any accounting statements and invoices for expenditures that are provided to clients;
• any written service agreements; and
• a record of the current tenants at each rental property and the security deposits, pet damage deposits, and other deposits paid by each tenant.

(i) Transfer of Rental Property Management Records

Section 8-6 of the Council Rules sets out the requirements that a brokerage must meet after the brokerage is no longer retained to provide rental property management services. Section 8-6(1) provides that a brokerage must continue to prepare all financial records that relate to the services that were provided by the brokerage to the former client. In other words, the brokerage is required to record all transactions and prepare the monthly bank and trust reconciliations for the periods during which the brokerage provided rental management services.

If a brokerage has retained any of the following original documents, such as tenancy agreements, financial statements, written service agreements, accounting statements, and invoices, or the record of the current tenants and the deposits paid by each tenant, the original documents must be provided to the former client, or the brokerage retained by the former client to provide rental property management services, within 14 days of a request for the documents. In addition, copies of trust account records must be provided to the former client or the brokerage within 14 days of the completion of the reconciliation of the bank statements to the cash record.

Despite the obligation to return documents to the former client, brokerages should ensure that they have retained copies of the necessary documents to satisfy the requirements in the Council Rules regarding the retention of documents. Section 8-10 of the Council Rules requires that a brokerage keep all financial records, all general account and trust records, and numerous other records relating to the provision of rental management services for a minimum of seven years after their creation. This requirement applies to all records, even though the brokerage is no longer providing rental management services to the client.

(j) Privacy Guidelines for Landlords and Tenants (This section added Dec 2010)

The BC Office of the Information and Privacy Commissioner has recently developed privacy guidelines for landlords/tenants. Licensees engaged in providing rental property management services should familiarize themselves with this publication in order that they comply with requirements of the Personal Information Protection Act. Privacy Guidelines for Landlords and Tenants covers a range of frequently asked questions, including what information a landlord can collect from a prospective tenant on the initial application form and ongoing privacy issues that may develop during the course of a tenancy agreement, such as the use of video surveillance in an apartment building. The Privacy Guidelines for Landlords and Tenants can be found at this link:
www.oipc.bc.ca/pdfs/private/PrivacyGuidelinesforLandlordsandTenantsFINAL.pdf

(k) Condition Inspection Reports

May condition inspection reports be completed by unlicensed individuals engaged by a brokerage?

The Council has received complaints that unlicensed individuals employed by brokerages are completing reports of move in or move out inspections of the rental property, commonly referred to as condition inspection reports.

The concern is that the unlicensed employee is either completing the report incorrectly or without proper authorization of the licensed rental property manager, which may result in owners incurring additional costs for repairs that may have otherwise been the responsibility of the tenant.

“Rental property management services” as defined in section 1 of the Real Estate Services Act means any of the following services provided to or on behalf of an owner of rental real estate:

1. trading serves in relation to the rental of the real estate;
2. collecting rents or security deposits for the use of the real estate;
3. managing the real estate on behalf of the owner by
   1. making payments to third parties;
   2. negotiating or entering into contracts;
   3. supervising employees or contractors hired or engaged by the owner, or
   4. managing landlord and tenant matters.

but does not include an activity excluded by regulation.

An individual wishing to provide any of the above services is required to be licensed under the Real Estate Services Act. However, section 2.14 of the Real Estate Services Regulation exempts a caretaker or manager employed by a brokerage that is licensed to provide rental property management services from licensing in respect of any of the following activities in relation to the provision of rental property management, if these services are provided in their capacity as an employee of the brokerage:

1. (a) if the caretaker or manager complies with subsection (2), collecting money in relation to the rental real estate, including money collected as rent, security deposits or pet damage deposits;

   (b) showing the rental real estate to respective tenants;

   (c) receiving and presenting applications in respect of rental real estate from prospective tenants;

   (d) supervising employees or contractors hired or engaged by the brokerage;

   (e) communicating between landlords and tenants respecting landlord and tenant matters.

2. on receipt of money referred to in subsection (1) (a), the exempt caretaker or manager must promptly deliver the money to the brokerage.

Completing condition inspection reports is contemplated in the definition under items subsections (c) (ii) “negotiating or entering into contracts” and (c) (iv) “managing landlord and tenant matters”.

The Council considers a move in or move out inspection report, or the “Condition Inspection Report” as provided by the Office of Housing and Construction Standards, to be a contract between the landlord and tenant. It sets out an agreement between the landlord and tenant as to what repairs must be completed at the start of the tenancy, and what repairs the tenant is responsible for at the end of the tenancy, and the amount of the deduction from the tenant’s security deposit (and pet damage deposit if applicable).

In most cases, the written service agreement between the landlord and brokerage authorizes the licensed rental property manager to enter into contracts on behalf of the landlord, which includes completing and signing condition inspection reports.

The exemption for caretakers or managers employed by a brokerage under section 2.14 does not, however, apply in regard to negotiating or entering into contracts, or managing landlord or tenant matters on behalf of the landlord. As such, the completion and signing of condition inspection reports cannot be completed by an unlicensed individual under the exemption.

Licensees providing rental property management services must ensure that they are completing and signing condition inspection reports on behalf of their landlord clients.

(l) Pesticide User Licence Now Required at Multi-Residences

The application of pesticides on multi-residence properties requires a Pesticide User Licence as of January 1, 2007. By requiring pesticide uses in multi-residence buildings to be performed under licence, the Ministry of Environment is ensuring that pesticides are being used safely, and that people who may be exposed to pesticides are informed of their use so they can take measures to avoid exposure.

The Pesticide User Licence is a requirement of the Integrated Pest Management Act Regulation. Under the regulation, any pesticide use in or around multi-residence properties with four or more units will require a Pesticide User Licence. All property owners and managers who apply pesticides will need to pass an exam on pest management and the safe handling of pesticides, and also register with the Ministry of Environment as pesticide applicators. This regulation pertains to the application of chemicals used for such things as eliminating bedbugs, controlling cockroaches, combating rodents, or even managing weeds. Multi-residence property managers will not need Pesticide User Licences if they hire licensed pest management services to perform all pesticide applications or if they only apply certain low-risk (‘‘Excluded’’ Class) pesticides. For further information about licensing requirements and a list of frequently asked questions, please visit the Ministry of Environment website at www.env.gov.bc.ca/epd/ipmp/. The Integrated Pest Management Act and Regulation require that all pesticide use by licence-holders be part of an Integrated Pest Management program and that licence-holders provide pesticide use notices to all people who could be exposed to the pesticide. For further information, licensees may contact the Ministry of Environment at www.gov.bc.ca/env/.

(m) Placement of Insurance with Insurers Not Authorized in BC

Real estate licensees should be aware that the Financial Institutions Act requires insurance to be placed only with insurers authorized to do business in British Columbia. Strata managers and rental property managers, in particular, need to ensure that they and their clients are aware of this requirement.

Insurance agents have a duty to their client to use due diligence in selecting an insurer that will not place the client unduly at risk. Where an insurer is not authorized to do business in BC, the client loses the benefit of the consumer protection provided through licensing and regulation of insurers under the Financial Institutions Act. As a result, the client can be placed at undue risk.

The Financial Institutions Act includes a very limited exception to permit insurance to be placed with insurers who are not authorized to do business in BC. The position of the Superintendent of Financial Institutions is that this exception will be applicable only in exceptional circumstances. Those circumstances may occur where a client is unable to obtain insurance from an authorized insurer. They would not occur where the client is unhappy with the quote from an authorized insurer.

Even where a client is unable to obtain insurance from an authorized insurer, an insurance agent is not permitted to offer to place insurance with an unauthorized insurer. The insurance agent can be subject to enforcement action if they do so. A client must initiate the idea of looking for insurance through an unauthorized insurer without any prompting by the insurance agent, and must give the insurance agent instructions to obtain quotes from an unauthorized insurer, also without prompting by the insurance agent.

Before giving those instructions, the client would need to be aware of the potential risks of doing business with an insurer not authorized to do business in BC. Those risks include issues such as:

• Is the unauthorized insurer subject to a regulatory framework in its home jurisdiction which ensures consumer protection through standards for minimum capital reserves, solvency requirements, requirements for financial statements prepared in accordance with accepted standards, independent audits, and regular actuarial reviews?
• Is there a regulator empowered to conduct periodic inspections and reviews to identify compliance with regulatory standards and to identify adequate financial strength?
• Do the governance standards for the unauthorized business provide assurance of prudent oversight?
• Is there any regulation in its home jurisdiction of the business conducted by the unauthorized insurer in BC ?
• Are there sufficient assets within the jurisdiction of BC courts to cover any claims against the unauthorized insurer ?
• Would the unauthorized insurer agree to appear before BC courts in an action? Does it have an attorney for service in BC ?
• Does the unauthorized insurer have any adjusters authorized by the Superintendent of Insurance to adjust claims in BC on its behalf?
• Does the unauthorized insurer handle claims and disputes using the same standards of fairness as in BC ?

Before acting on any client instructions to obtain a quote from an unauthorized insurer, licensees are advised to contact the office of the Superintendent of Insurance to further discuss the Financial Institutions Act requirements and risks of proceeding. For more information on this issue, please refer to Financial Institutions Commission Bulletin INS-06-010 at www.fic.gov.bc.ca/pdf/insurance_bulletins/INS_06_010.pdf.

(n) Additional Brokerage Services

Rental property management and strata management service relationships are typically long-term. When special projects arise, brokerages will often agree to provide services that are in addition to those identified in the original written service agreement. For example, a strata corporation client may ask its strata management brokerage to oversee a substantial remediation project. The brokerage may agree to do so on the understanding it will receive remuneration in addition to that established in the original service agreement.

Section 5-1(6) of the Council Rules requires that any amendment of or addition to the terms of a service agreement must be in writing and be signed by the client and an authorized signatory of the brokerage. When either amending or adding to the service agreement, particular attention should be paid to establishing

• what additional services are to be provided by the brokerage, when the brokerage will begin providing the additional services, and for how long they will be provided;
• any additional remuneration to be paid and the circumstances in which it will be payable; and
• any additional scope of authority of the brokerage to act on behalf of the client, particularly related to signing cheques, making disbursements, and entering into contracts.

With respect to the second bullet above, brokerages should be aware that section 5-15(4) of the Council Rules establishes when money held in a brokerage trust account that is intended as remuneration is considered earned for the purpose of authorizing withdrawal from trust. That section states that such remuneration may be withdrawn in accordance with the service agreement or other agreement under which the applicable real estate services are provided, or at a time otherwise agreed to in writing by the client.

Both of these circumstances underscore the necessity of having written authority to withdraw remuneration.

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(o) Rental Property Manager’s Role at Residential Tenancy Branch Dispute Resolution Hearings

The Unauthorized Practice Committee of the Law Society of British Columbia conducted an investigation with respect to the conduct of a licensee providing rental property management services at Residential Tenancy Branch (‘‘RB’’) Dispute Resolution Hearings. The purpose of the investigation was to determine whether the licensee contravened section 15 of the Legal Profession Act which refers to a person’s authority to practise law.

In this case, it came to the Committee’s attention that a licensee had advertised the services of advocating and/or representing tenants, as well as owners, for a fee, at R B Dispute Resolution Hearings, with whom the licensee’s related brokerage may not have had written service agreements. These services were intended to be provided in expectation of remuneration.

Section 15 of the Legal Profession Act provides that no person, other than a practising lawyer, is permitted to engage in the practice of law. Section 1(1) defines the ‘‘practice of law’’ to include:

(a) appearing as counsel or advocate,

(b) drawing, revising or settling

* * *

(ii) a document for use in a proceeding, judicial or extrajudicial,

* * *

(iv) document relating in any way to a proceeding under a statue of Canada or British Columbia,

* * *

but does not include

(h) any of those acts if not performed for or in the expectation of a fee, gain or reward, direct or indirect, from the person for whom the acts are performed,

* * *

It is important for licensees providing rental property management services to understand that their attendance at RB Dispute Resolution Hearings is as a landlord, in relation to the rental property, pursuant to the written service agreement held between their related brokerage and the owner of rental real estate. The Residential Tenancy Act contemplates the term ‘‘landlord’’, in relation to a rental property, to include the owner’s agent.

The Unauthorized Practice Committee has confirmed that they would take no position against licensees providing rental property management services who provided those services to owners of rental real estate, in relation to RB Dispute Resolution Hearings, for the rental properties they are managing. The Committee also confirmed that a situation where a licensee is providing advocacy and related services in R B Dispute Resolution Hearings to tenants or owners of rental real estate not managed by the licensee would constitute the unauthorized practice of law.

Licensees purporting to advocate on behalf of a tenant or owner of rental real estate for properties they are not managing may find themselves in a conflict with the Law Society for potentially contravening section 15 of the Legal Profession Act.

(p) Non-Resident Withholding Tax

A brokerage that collects rent on behalf of a non-resident owner is required by the Canada Revenue Agency (CRA) to withhold and remit non-resident taxes of 25% of the gross income on a monthly basis. A non-resident who receives rental income can ask that a brokerage be allowed to deduct tax on the net amount instead of the gross amount. To do this, non-residents and their agent have to complete a Form NR6, which is an undertaking to file a Canadian tax return within six months of the year end. The non-resident has to file this form on or before January 1st of the tax year for which the request applies, or on or before the date the first rental payment is due.

Licensees dealing with rental property owners should familiarize themselves with the requirements of the Non- Resident Withholding Tax Guide available on the Government of Canada website at www.cra-arc.gc.ca or, for further information, call toll-free 1-800-267-3395. Licensees should also advise their non-resident clients to obtain professional advice.

IMPORTANT NOTE: If a brokerage files an NR6 on behalf of a non-resident client, and the non-resident client fails to file the required tax return within six months of the tax year, the brokerage will become responsible to pay all taxes and interest owing on tax not withheld.

(q) Agency Disclosure for Rental Property Managers

Section 5-10 of the Council 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 nature of the representation that the licensee will provide, whether the licensee or related licensee is or expects to be providing trading services to or on behalf of any person in relation to the same trade, whether the licensee or related licensee is or expects to be receiving remuneration relating to the trading services for any other person and the nature of the licensee’s or related licensee’s relationship with the other person.

Included in the definition of ‘‘rental property management services’’ is the provision of trading services in relation to the rental of real estate. Trading services includes the activity of negotiating the terms of the trade in real estate which includes the leasing of real estate.

As a result of these definitions, licensees providing rental property management services must disclose to all parties the nature of the representation that the licensee will provide. In relation to rental property management, such disclosure must be made to the person on whose behalf the property will be rented (generally the owner), as well as to each prospective tenant.

It is important for licensees providing rental property management services to consider the nature of the relationship that they intend to create with each party in relation to the rental of the property.

Licensees should review the section entitled ‘‘Agency’’ to review the obligations and duties that arise in relation to the different types of representation that can occur.

Although the brochure prepared by the British Columbia Real Estate Association is generally used by licensees who are acting for buyers and sellers in the purchase and sale of property, the brochure also references leasing and refers to buyer/tenant and seller/landlord. The Working With a REALTOR® brochure, or similar document prepared by a brokerage, should be used by all licensees offering rental property management services in order to explain the nature of the representation that the licensee will provide.

(r) Conflicts of Interest When Providing Rental Property Management Services

Generally, a brokerage that provides strata management services to a strata corporation, while at the same time providing rental property management services or trading services to an owner of a strata lot in the strata corporation, is in a conflict of interest situation. The problem arises because the interests of the strata corporation may conflict with the interests of the strata lot owner, thus compromising the brokerage’s ability to act in the best interests of one of its clients. Specifically, the brokerage may find itself unable to fulfill all of the duties it owes to one client under section 3-3 of the Council Rules without at the same time breaching some of the duties owed to the other client under the same section. For example, consider a situation where a strata lot owner in an age 55+ strata titled complex, rents his or her lot to an ‘‘underage’’ tenant. A brokerage providing both strata management and rental property management services in these circumstances would find itself in an untenable position. Acting as strata manager, the brokerage’s duty to disclose material information to its strata corporation client would require the brokerage to inform the strata council of the bylaw infraction for necessary action. However, to do this would require the brokerage to breach its duty owed, as rental property manager, to the owner to maintain the confidentiality of information.

Another example of the conflict could arise where the brokerage, as strata manager, is aware of confidential financial issues which could lead the strata corporation to impose a special levy. This information could be material to the interests of an owner to whom the brokerage is providing trading services (e.g., the brokerage has listed that owner’s strata lot for sale); however, fulfilling the duty to disclose this information to the owner would lead the brokerage to breach its duty of confidentiality to the strata corporation. It is, of course, possible that a brokerage may be able to fully serve both clients without ever having to deal with the type of dilemma presented above. As well, there may be situations where the benefits of representing both clients could be seen to outweigh the risks posed by the conflict of interest. These practical realities are reflected in section 3-3(2) of the Council Rules, which allows the brokerage to obtain the client’s consent to an alteration or abridgement of some or all of the duties ordinarily owed to the client. This provision can be used by a brokerage that wishes to provide strata management services to a strata corporation, while at the same time providing rental property management or trading services to a strata lot owner. Using this provision, there are different approaches that can be taken by a brokerage in these circumstances to avoid a breach of section 3-3. Essentially, all approaches require the informed consent of any client who will not, or who might not, receive the full benefit of all of the duties ordinarily owed by the brokerage to that client. A brokerage may wish to seek legal advice about how to structure its client relations in order to avoid a breach of section 3-3 of the Council Rules. The following options present two different approaches that may be used:

1. Obtain the agreement of all clients to the provision of limited representation to all clients.

Under this approach, the brokerage would obtain each client’s informed consent to the brokerage acting for others and, accordingly, to its providing only limited representation to the client. The agreement with each client should disclose the following: (a) that the brokerage intends to provide rental property management services or trading services, or both, to one or more owners, as well as to provide strata management services to the strata corporation; (b) that the brokerage will not be able to (i) act in the client’s best interests, if those interests conflict with the interests of the other clients, (ii) act in accordance with the client’s instructions, if acting in accordance with those instructions would lead the brokerage to breach any of the brokerage’s obligations to the other clients; or (c) disclose to the client any confidential information about the other client. The agreement with each client should be in writing, and should be obtained before any services are provided to the client. NOTE: A brokerage that provides real estate services under this type of agreement must maintain the confidentiality of each client’s information.

2. Obtain the agreement of some clients to the provision of limited representation to those clients.

Under this approach, the brokerage would designate either its strata corporation client or its owner client as a ‘‘ primary client’’, and provide full representation to that primary client. Since there would be no limitation on the duties owed to the primary client, it would not be necessary to obtain that client’s agreement under section 3-3(2) of the Council Rules. However, the brokerage would have to obtain, before providing any services to a non-primary client, that client’s informed consent to the brokerage acting for a primary client, and accordingly, to providing only ‘‘limited representation’’ to the client. The agreement with each non-primary client should disclose the following: (a) that the brokerage intends to provide real estate services to the strata corporation or an owner, as the case may be, as a ‘‘primary client’’, and can only provide limited representation to the client; (b) that the brokerage will not be able to (i) act in the client’s best interests, if those interests conflict with the interests of a primary client, (ii) act in accordance with the client’s instructions, if acting in accordance with those instructions would lead the brokerage to breach any of the brokerage’s obligations to a primary client, (iii) maintain the confidentiality of information about the client, or (iv) disclose to the client any confidential information about the primary client.

The agreement with each non-primary client should be in writing, and should be obtained before any services are provided to that client. NOTE: A brokerage that provides real estate services under this type of agreement must maintain the confidentiality of information about the primary client, and must disclose to that primary client any known material information about any non-primary client. This should be made clear to any non-primary client.

Obtaining consent from existing clients:

A strata management brokerage that is also providing real estate services to owners of strata lots in the strata corporation may be offside section 3-3 of the Council Rules. If the brokerage cannot fulfill the full range of its duties under section 3-3 to any client, it should immediately disclose the situation to that client. Service agreements should be amended to reflect that disclosure (and the consent of the client to the arrangement) as soon as practicable, but in any event upon their renewal.

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IV. 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 Council 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.

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(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.

(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.

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(b) Common Licensing Scenarios

(i) 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.

(ii) 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.

(iii) 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.

(iv) 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.

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(v) Scenario #5

BCS0000 wants to become self managed.

Are there any regulatory requirements for this?

There are no regulatory requirements to be met 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 RECBC 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.

BCS0000 might want to consider joining an organization such as the Condominium Home Owners’ Association (CHOA), which promotes the understanding of strata property living and the interests of strata property owners by providing advisory services, education, advocacy, resources, and support for its members. Advisory staff is available in New Westminster, Penticton, and on Vancouver Island. Phone 604-584-2462 or 1-877-353-2462 or visit their website: www.choa.bc.ca.

(vi) 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 Council 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 RECBC 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.

(vii) 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 but does not include any activity excluded by regulation; (Section 1 of RESA)

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’’.

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(viii) 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.

(ix) 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 Council 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 Council 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 Council Rules, or are provided under an exemption.

The Council 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 Council 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 those licensed to provide strata management services, are subject to the disciplinary authority of the Council. The Council is authorized under RESA to issue administrative penalties in the case of a breach of specified Council Rules, such as the rules relating to the display of licences, the annual reporting requirements and rules relating to the retention of records. Additionally, a disciplinary committee of the Council, if it finds that a licensee has committed professional misconduct, may make various disciplinary orders, including reprimanding or suspending licensees, or imposing a disciplinary penalty of not more than $10,000 in the case of a representative, associate broker, or managing broker and not more than $20,000 in the case of a brokerage or former brokerage.

RESA provides that a licensee commits professional misconduct if the licensee:

• contravenes RESA, the Regulations or Council Rules;
• breaches a restriction or condition of their licence;
• does anything that constitutes wrongful taking or deceptive dealing;
• demonstrates incompetence in performing any activity for which a licence is required;
• fails or refuses to cooperate with an investigation;
• fails to comply with an order of the Council, a discipline committee or the Superintendent; and
• 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 RESA.

Licensees engaged in strata management should be familiar with all of the requirements of RESA, the Real Estate Services Regulation and the Council Rules in order to ensure that they do not inadvertently fail to comply or contravene what is required of them as a result of licensing.

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2. Practice Standards

Of particular importance to those licensed to provide strata management services are the following Council Rules.

(a) Written Service Agreements

Section 5-1 of the Council Rules requires that a brokerage must enter into a written service agreement prior to providing strata management services to a strata corporation.

Section 5-1(4) of the Council Rules requires that the written service agreement contain various information, including the duration of the agreement, a general description of services to be provided by the brokerage, the remuneration to be paid under the agreement and the circumstances under which the remuneration will be payable. In addition, section 5-1(5.1) of the Council Rules requires that the service agreement also contain the following information:

• an indication whether the brokerage will hold any funds on behalf of the strata corporation;
• any authority that permits the brokerage to transfer funds between trust accounts;
• the scope of authority of the brokerage to spend funds, enter into contracts, or to invest money held by the brokerage on the strata corporation’s behalf;
• the timing, nature and frequency of accounting statements and other records to be provided to the strata corporation;
• a description of the strata corporation’s records to be kept by the brokerage; and
• provisions regarding the use and disclosure of personal and strata corporation information.

Any amendments or changes to the agreement must be made in writing and the amendment must be signed by the client and an authorized signatory of the brokerage.

Licensees who provide strata management services to strata corporations should be aware that a contract for the provision of strata management services entered into before the first Annual General Meeting by or on behalf of the strata corporation, regardless of any provision in the contract to the contrary, ends on:

• the earlier of four weeks after the date of the second Annual General Meeting;
• the termination date contained in the contract or agreed to by the parties; or
• the cancellation date determined in accordance with section 29 of the Strata Property Act.

(b) Unlicensed Assistants and Strata Management Services (This information added June 2010)

Those who provide strata management services for a fee, unless they are exempt, must be licensed under the Real Estate Services Act (RESA). “Strata management services” is defined in section 1 of RESA as follows:

“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;”

Strata management services are not restricted to those being performed within “regular business hours”; the definition also applies to services being provided “after hours”, including on-call and/or emergency services. A brokerage cannot “contract out” or “source out” services for which a licence is required under RESA.

Collecting strata fees, contributions, or levies

Section 2.18 of the Real Estate Services Regulation provides the following exemption from the requirement to be licensed for strata caretakers employed by a strata corporation or brokerage:

“Exemption for strata caretakers employed by strata corporation or brokerage

2.18 (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.”

The exemption requires the relationship between the brokerage and the unlicensed individual to be that of ‘employer-employee’. Therefore, in order for an independent contractor to collect strata fees, contributions, levies or other amounts on behalf of the brokerage, the contractor must be licensed. If in doubt, brokerages may want to seek independent accounting or legal advice to ensure that their relationship with an unlicensed individual providing these services is structured as an employer-employee relationship according to the Canada Revenue Agency guidelines.

Other activities

The Real Estate Council has developed the following lists of additional activities which may and may not be performed by an unlicensed person employed or contracted by a brokerage licensed to provide strata management services. This includes strata caretakers acting under the section 2.18 exemption. The ‘may’ list is divided into three parts.

The first part sets out the duties an unlicensed person may perform, subject to the general direction and supervision of the brokerage or a related licensee, on an ongoing basis. The second part requires the brokerage or a related licensee to provide instructions to the unlicensed person on a specific situation or event before any action is taken. The third part provides that an unlicensed person may, in accordance with the brokerage’s standard processes and procedures, prepare documents but that the documents produced must be approved by the brokerage or a related licensee before they are considered complete.

An unlicensed assistant may:

1. Under the general direction and supervision of the brokerage or a licensee engaged by that brokerage:

• answer the telephone and take messages;

• place advertising;

• schedule appointments for a licensee (this does not include making telephone calls, telemarketing, or performing other activities to solicit business on behalf of the licensee);

• maintain strata and brokerage records;

• supervise the inspection of strata records;

• act as a courier to deliver strata forms and records, pick up keys, and other similar items;

• coordinate and distribute keys and other building security devices;

• assemble strata notices and agenda packages;

• assist a licensee at a strata council or general meeting provided that the unlicensed assistant does not advise the strata council or strata corporation;

• obtain public information from a courthouse, municipality, regional district, etc;

• perform bookkeeping or office functions, including:

• record and deposit trust funds,

• record third party charges and payments, and

• record charges and payments of strata fees, liens and fines;

• contact trades to assess the need for repairs.

2. As authorized on a case by case basis by the brokerage or a licensee engaged by that brokerage:

• arrange for approved repairs, services and purchases;*

• obtain quotes;

• arrange access to common property.

* Brokerages and their related licensees must ensure that an unlicensed assistant obtains direction from a licensee or the strata corporation client before a decision on expenditures is made which would bind the strata corporation client to costs or liabilities that are not covered under a maintenance contract. Making these decisions involves exercising the delegated powers of a strata corporation or strata council and, therefore, these decisions should only be made by a licensee or the strata corporation client.

3. For the approval of the brokerage or a licensee engaged by that brokerage:

• prepare strata notices and agenda packages;

• prepare minutes of annual and special general meetings and strata council meetings;

• draft correspondence for signing by a licensee;

• prepare financial statements and reconciliations;

• prepare cheques for signature by a licensee or strata council member(s);

• prepare Strata Property Act forms.

An unlicensed assistant may not:

• exercise delegated powers of a strata corporation or strata council, including:

  • making payments to third parties on behalf of the strata corporation,

  • negotiating or entering into contracts on behalf of the strata corporation, and

  • supervising employees or contractors hired or engaged by the strata corporation;

• present, negotiate or explain any service agreement;

• negotiate or agree to any management fee on behalf of a licensee.

(c) Advising Sellers with Respect to What Parking Stalls and/or Storage Lockers a Buyer Will Be Entitled To Use

The Role of the Strata Corporation

The strata corporation has a significant role to play in advising sellers with respect to what parking stalls and/or storage lockers the buyer will be entitled to use. However, some strata corporations do not retain parking stall or storage locker information or are unwilling to advise the seller of what parking space or storage locker will be assigned to the buyer.

Strata corporations that do not maintain this information may be unaware of section 35(1)(c) of the Strata Property Act. Section 35(1)(c) requires a strata corporation to prepare and retain a list of owners which contains, among other things, the owners’ parking stall numbers. Thus, a strata corporation must know what stall is currently assigned to each owner and the strata corporation must also update the list after the sale of a strata lot to show what stall is assigned to the buyer.

Maintaining a list of parking stalls assigned to owners does not necessarily mean, however, that the same parking stall or the same number of parking stalls will be assigned to a buyer. As noted above, under section 76 of the Strata Property Act, it is within the discretion of the strata council, which is fulfilling the duties of the strata corporation, to allocate common property. Although buyers will often be assigned the same parking stall or storage locker as the seller, there is no guarantee that this will occur. If a strata council is going to make a change in respect of the allocation of parking or storage, such a change will often occur at the time of a sale. Thus, simply knowing what parking stall or storage locker is assigned to a seller is not sufficient to assure a buyer of the parking stall or storage locker that they will be entitled to use. It is also necessary that the strata council confirm what parking stall or storage locker will be assigned to the buyer.

Because section 35 of the Strata Property Act requires the strata corporation to update the owners’ list with the buyer’s parking stall allocation, a strata corporation should not refuse to advise sellers of what parking stalls would be assigned to the new buyer. Since the strata corporation will have to make the decision with respect to the allocation of common property parking stalls at some point, a strata corporation could be encouraged to make the decision in advance of the sale of any given unit, given the time-sensitive nature of selling a unit and, in some cases, the infrequency of strata meetings.

The Role of the Strata Manager

The strata manager is obligated to carry out the duties of the strata corporation which have been delegated to the strata manager by way of a strata management service agreement.

If the strata manager has taken on the responsibility for maintaining the documents required by section 35 of the Strata Property Act, the strata manager would be responsible for preparing and retaining the parking stall list.

In practice, many strata corporations have not prepared a parking stall list or, if one was initially prepared, it has not been kept up-to-date.

If the strata manager’s service agreement includes maintaining the documents required by section 35 and if a current parking stall list does not exist, not only is the strata corporation not in compliance with the Strata Property Act, but the strata manager may be in breach of contractual obligations to the strata corporation.

To ensure that the strata corporations are in compliance with section 35, strata managers should advise their clients of the obligation to prepare and retain parking stall lists.

If the strata management contract obligates the strata manager to maintain the documents as set out in section 35, the strata manager should ensure that the parking stall list is prepared and maintained. Alternatively, if the brokerage does not wish to assume the responsibility to prepare and maintain the parking stall list required by section 35 of the Strata Property Act, the brokerage should amend its contract with the strata corporation to delete this obligation. The responsibility would then rest with the strata corporation.

Assuming that the strata corporation has maintained an up-to-date list of parking stall numbers and will advise sellers of which parking stalls will be assigned to the buyers, when such advice is being given to the seller, the strata manager should ensure that:

(a) the strata corporation has authorized the exclusive use of the parking stall for the buyer and that the strata manager is not making the decision without the direction of the strata council;

(b) the strata council has authorized the strata manager to release the information; and

(c) the information provided to the seller includes the advice that the parking stall assignment is based on section 76 of the Strata Property Act, and that it can be changed as permitted by that section.

If the strata corporation refuses to maintain, or refuses to advise a seller what parking stalls will be assigned to the buyer, the strata manager has no choice but to advise the seller that such information is not available. As indicated above, if the strata corporation has refused to maintain this information, the strata manager may want to amend the contract to ensure that it is not obligated to maintain these documents. If the strata corporation refuses to provide this information, it would then be up to the buyer to determine whether he or she wishes to proceed with the sale.

Storage Lockers

Section 35 of the Strata Property Act does not require that a strata corporation maintain a list of storage lockers allocated to the exclusive use of owners or tenants. Nonetheless, if the storage lockers are common property, they are subject to the same allocation provisions as noted above under section 76 of the Strata Property Act, namely that the storage lockers are within the control of the strata corporation and can be allocated for the exclusive use of an owner or tenant, pursuant to section 76 of the Strata Property Act.

Although the strata corporation is not obligated to maintain the list, it is in the interest of all owners for a strata corporation to do so and to advise sellers of what storage locker (if any) will be allocated for the exclusive use of a buyer of their strata lot.

If strata corporations are unwilling to maintain the list or provide the information to a seller, as with parking stalls, the strata manager must advise that the information is not available.

(d) Conflicts of Interest When Providing Property Management Services

Please see this same article in the rental property management section above.

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(e) Filing of Liens

The Law Society of British Columbia, upon being made aware of the issue by a member of the public, has advised the Real Estate Council that strata managers cannot charge a separate fee for the preparation of a Form G-Certificate of Lien and a Form H-Acknowledgment of Payment, as it considers that to be providing legal services. Section 116 of the Strata Property Act gives a strata corporation the authority to register a lien against an owner’s strata lot under certain circumstances in a prescribed form — Form G-Certificate of Lien. To remove a lien, the prescribed Form H-Acknowledgement of Payment, is required.

Strata managers, who prepare the above forms, often do so for a fee, which is charged back to the strata corporation or owner’s strata fee account, against whose strata lot the lien is registered. Often times, this fee is described as a lien fee or lien preparation fee. The Unauthorized Practice Committee of the Law Society considered the issue and has taken the view that preparing Forms G and H for a fee, pursuant to the Strata Property Act and Regulation, falls within the ‘‘practice of law’’ as defined in the Legal Profession Act. The Law Society has, however, advised that as the prescribed Forms G and H of the Strata Property Act allow for a strata manager to sign such forms, the Society will not object to managers preparing these forms, with the proviso that the strata manager does not charge a separate fee for preparing them. Accordingly, the Law Society has indicated that as long as the preparation of these forms is part of a strata manager’s general duties, and is not a service that is provided and billed for separately, it will not consider this matter to warrant its intervention. In summary, it is important that strata managers do not charge a fee for the preparation of the lien certificates. Fees may be charged for the administration and enforcement of the debt, including work performed prior to the issuance of a lien certificate, such as letter writing, telephone calls, meetings, etc., and for the recovery of the cost for filing and releasing the lien at the applicable Land Title Office, as these activities would not fall within the definition of the ‘‘practice of law’’. It is important that licensees appropriately define the services covered by the fees that are charged.

Licensees must not engage in the unauthorized practice of law. Licensees should familiarize themselves with the definition in sections 1(1) and 15(1) (Authority to practice law) of the Legal Profession Act. Licensees may find a copy of the Legal Profession Act by accessing www.bclaws.ca.

(f) Form B Information Certificates

The Council frequently receives telephone calls regarding Form B-Information Certificates, a prescribed form under the Strata Property Act. These calls often involve a complaint against a strata manager, indicating that a Form B has been altered and/or that the documents that must be attached to the Form are missing. The Council reminds licensees engaged in providing strata management services that Form B is a very important document that buyers of a strata lot rely upon. Strata management licensees should be aware that the Form B is a prescribed form under the Strata Property Act and is binding on the strata corporation in its dealings with a person who relied on the certificate and acted reasonably in doing so. Section 59 of the Strata Property Act dictates which items must be disclosed in the Certificate and which documents must be attached to it. Licensees are reminded that prescribed forms must not be altered in a way that affects the substance or is calculated to mislead. In addition, licensees must ensure that all required documents are, in fact, attached. The most common missing attachment, based on the calls received by the Council, is the owner-developer’s rental disclosure statement. If the strata manager does not have a copy of the rental disclosure statement on file, the strata manager may wish to contact the Office of the Superintendent of Real Estate at 604-953-5300 to determine whether a rental disclosure statement was filed with that office and obtain a copy of any such rental disclosure statement. Licensees are reminded that incorrect or missing information on an Information Certificate could potentially cause harm to the buyers of a strata lot and, accordingly, may result in disciplinary action by the Council against the licensee who prepared the Certificate.

(g) Management of Rental Property Owned by a Strata Corporation (This information added June 2010)

A strata corporation may own common property, or one or more strata lots which the corporation allows people to use, for a fee, in a variety of ways. These strata lots are typically used in one of the following ways:

1. Short term vacation rentals – strata lots are available to the general public for vacation rental;

2. Guest suites – the strata lot is available for the use of family and/or friends of strata lot owners for short term stays while they visit people who reside in the complex;

3. Rental real estate – the strata lot is rented in the open market by way of a tenancy agreement; and

4. Resident manager suites – the strata lot is rented to an employee of the strata corporation. The value of the rent is often deducted from the employee’s pay.

Whether, and if so how, the Real Estate Services Act (RESA) applies to the management of these rentals is dependent on the nature of the use.

Short term vacation rentals

The short term rental of accommodation (often called vacation accommodation or vacation rentals) is covered under the Business Practices & Consumer Protection Act administered by Consumer Protection BC. Businesses, including people who are licensed under RESA, may be required to be licensed as either a travel agent or travel wholesaler through Consumer Protection BC if they rent accommodation or short term vacation properties they do not own. More information with respect to these requirements may be found on Consumer Protection BC’s website at www.consumerprotectionbc.ca.

Guest suites

The management of the use of a guest suite, as described above, does not require rental licensing under RESA or a licence under the Business Practices & Consumer Protection Act. A brokerage providing strata management services to a strata corporation may assist in managing the use of a guest suite as a part of the services it provides.

Rental real estate

A strata lot that is used for market rental is considered rental real estate under RESA, and the strata corporation is the landlord in relation to its rental. A strata corporation landlord may:

1. manage its own rental unit,

2. have an unlicensed employee of the strata corporation, acting either under the ‘Exemption for employees of principals’ in section 2.1 of the Real Estate Services Regulation (the ‘Regulation’) or under the ‘Exemption for caretakers providing services to different owners’ in section 2.13 of the Regulation, manage the unit, or

3. contract with a brokerage licensed to provide rental property management services to manage the unit on behalf of the strata corporation.

The definition of “rental property management services” under section 1 of RESA includes showing rental real estate to prospective tenants, negotiating the terms of the tenancy, and collecting rent. Therefore, a brokerage engaged to provide strata management services by a strata corporation client that wishes to rent a strata lot as rental real estate requires a licence to provide rental property management services in order to assist the client in this way. A brokerage licensed to provide strata management services and/or trading services only is not licensed to assist with these rental property management activities.

Any individual who provides rental property management services to a strata corporation client on behalf of a brokerage must also either be licensed to provide rental property management services or be an unlicensed employee of a brokerage that is licensed to provide rental property management services, where the employee is acting under the ‘Exemption for caretakers employed by brokerages’ in section 2.14 of the Regulation. Section 2 of RESA does not allow a licensee to also act under one of the exemptions; therefore, a person licensed to provide strata management services and/or trading services only may not also act under this exemption.

A brokerage providing only strata management services to a strata corporation client should not be directly involved in collecting rents, security deposits or pet damage deposits for the use of that client’s rental real estate.

A brokerage that is providing strata management and rental property management services to the same strata corporation must ensure that the requirements of section 5-1 of the Real Estate Council Rules with respect to a written strata management service agreement, as well as a written rental property management service agreement, have been satisfied. Section 5-1 may be satisfied through one service agreement which addresses both the strata management services and the rental management services, or it may be satisfied by way of two separate service agreements – one for the strata management services and one for the rental property management services.

Resident manager suites

Where a strata lot owned by a strata corporation is rented to an employee of the strata corporation, the Real Estate Council would not require a brokerage that provides strata management services to the strata corporation to also be licensed to provide rental property management services with respect to the management of this strata lot so long as the brokerage does not:

1. negotiate or enter into a contract with the employee (tenant) on behalf of the strata corporation (landlord) with respect to the use of the strata lot (e.g. tenancy agreement);

2. collect rent or security/pet damage deposits for the use of the strata lot (i.e. either the rent and/or security/pet damage deposit are collected by the strata corporation or the value of the rent is deducted from the employee’s pay); and

3. manage landlord and tenant matters between the strata corporation (landlord) and the employee (tenant).

* A strata corporation may want to use rent it has collected for the use of a strata lot it owns to offset common expenses. To this end, a strata corporation may forward some or all of this rent to its strata management brokerage with instructions to use the money to offset common expenses. Based on the instructions of the strata corporation client, typically included in the written service agreement, the funds should be deposited into the appropriate trust account maintained in the name of the strata corporation.

(h) Privacy Guidelines for Strata Managers (This section added Dec 2010)

The BC Office of the Information and Privacy Commissioner has recently developed privacy guidelines for strata corporations/strata managers. Licensees engaged in providing strata management services should familiarize themselves with this publication in order that they comply with requirements of the Personal Information Protection Act. Privacy Guidelines for Strata Corporations and Strata Agents covers a range of topics, including guidelines for handling requests for complaint records, privacy issues relating to audio/video surveillance and entry control systems, rules that apply to the personal information of employees or independent contractors of strata corporations and creating a privacy policy for the strata corporation. The Privacy Guidelines for Strata Corporations and Strata Agents can be found at this link: www.oipc.bc.ca/pdfs/private/PrivacyGuidelines_StrataCorp(JAN2011).pdf

(i) Placement of Insurance with Insurers Not Authorized in BC

Real estate licensees should be aware that the Financial Institutions Act requires insurance to be placed only with insurers authorized to do business in BC. Strata managers and rental property managers, in particular, need to ensure that they and their clients are aware of this requirement.

Insurance agents have a duty to their client to use due diligence in selecting an insurer that will not place the client unduly at risk. Where an insurer is not authorized to do business in BC, the client loses the benefit of the consumer protection provided through licensing and regulation of insurers under the Financial Institutions Act. As a result, the client can be placed at undue risk.

The Financial Institutions Act includes a very limited exception to permit insurance to be placed with insurers who are not authorized to do business in BC. The position of the Superintendent of Financial Institutions is that this exception will be applicable only in exceptional circumstances. Those circumstances may occur where a client is unable to obtain insurance from an authorized insurer. They would not occur where the client is unhappy with the quote from an authorized insurer.

Even where a client is unable to obtain insurance from an authorized insurer, an insurance agent is not permitted to offer to place insurance with an unauthorized insurer. The insurance agent can be subject to enforcement action if the agent does so. A client must initiate the idea of looking for insurance through an unauthorized insurer without any prompting by the insurance agent, and must give the insurance agent instructions to obtain quotes from an unauthorized insurer, also without prompting by the insurance agent.

Before giving those instructions, the client would need to be aware of the potential risks of doing business with an insurer not authorized to do business in BC. Those risks include issues such as:

• Is the unauthorized insurer subject to a regulatory framework in its home jurisdiction, which ensures consumer protection through standards for minimum capital reserves, solvency requirements, requirements for financial statements prepared in accordance with accepted standards, independent audits, and regular actuarial reviews?
• Is there a regulator empowered to conduct periodic inspections and reviews to identify compliance with regulatory standards and to identify adequate financial strength?
• Do the governance standards for the unauthorized business provide assurance of prudent oversight?
• Is there any regulation in its home jurisdiction of the business conducted by the unauthorized insurer in BC ?
• Are there sufficient assets within the jurisdiction of BC courts to cover any claims against the unauthorized insurer ?
• Would the unauthorized insurer agree to appear before BC courts in an action? Does it have an attorney for service in BC ?
• Does the unauthorized insurer have any adjusters authorized by the Superintendent of Insurance to adjust claims in BC on its behalf ?
• Does the unauthorized insurer handle claims and disputes using the same standards of fairness as in BC ?

Before acting on any client instructions to obtain a quote from an unauthorized insurer, licensees are advised to contact the office of the Superintendent of Insurance to further discuss the Financial Institutions Act requirements and risks of proceeding. For more information on this issue, please refer to Financial Institutions Commission Bulletin INS-06-010 at www.fic.gov.bc.ca/pdf/insurance_bulletins/INS_06_010.pdf.

(j) Special Levy Refunds and PST Grants

The Homeowner Protection Office annually releases a public document pertaining to Provincial Sales Tax (PST) refunds from building restoration projects. It has been learned that there have been instances where a strata corporation’s PST refund was sent to its strata management brokerage, but that the brokerage did not deposit the PST refund to the credit of the special levy account, and did not report receipt of the refund to the client on a timely basis. This has caused considerable delays resulting in the refund not being issued back to the rightful owner, as strata lots were sold in the meantime.

To the extent that the strata corporation has an obligation to establish the special levy refund time at the completion of a project, the strata manager will rely upon a direction by the strata council and/or its legal counsel to establish the refund date.

The brokerage is obligated to promptly report to its strata corporation client receipt of any rebates, refunds, settlements and/or surpluses relating to the special levy project.

Regarding refunds to owners, licensees are reminded that, in accordance with section 108 of the Strata Property Act, the refund is issued to the registered owner. The owner, in section 1 of the Strata Property Act, is defined as the person registered on title. In the event that the refund is to be issued to a party other than the registered owner, licensees should exercise diligence to ensure that all parties involved in the transaction of a strata lot refund have granted written consent for the release and acceptance of the refunds or settlements to any party other than the registered owner. It would be prudent for the brokerage to advise the strata corporation to seek legal advice on the disbursement of refunds, and documentation, that may be necessary to manage the risk to the strata corporation associated with releasing the funds to alternate parties.

For further information on the PST Relief Grant Program, please visit the Homeowner Protection Office website at www.hpo.bc.ca.

(k) Surplus Special Levy Funds

Whenever a strata corporation raises funds by means of a special levy the strata corporation may only use those funds in the manner set out in the resolution. If there are surplus funds section 108(5) of the Strata Property Act stipulates that the strata corporation must pay to each strata lot owner the portion of the surplus levy which is calculated by unit entitlement unless no owner is entitled to receive more than $100 in which case the excess funds can be deposited to the contingency reserve fund.

Section 108(5) of the Strata Property Act provides as follows:

If the money collected exceeds the amount required, or for any other reason is not fully used for the purpose set out in the resolution, the strata corporation must pay to each owner of a strata lot the portion of the unused amount of the special levy that is proportional to the contribution made to the special levy in respect of that strata lot.

Section 108(5) of the Strata Property Act requires that the surplus special levy must be paid to the current owner which may not be the owner who paid the special levy if the strata lot has sold between the time the special levy was paid and the time the surplus was refunded.

Dealing with surplus special levies raises issues for licensees providing trading services and for licensees providing strata management services.

Licensees Providing Trading Services

Because section 108(5) of the Strata Property Act requires the strata corporation to pay a special levy to the current owner, if the owner who is selling the strata lot wishes to recover the surplus, special arrangements must be made.

The first step a licensee should take when a strata lot is listed for sale is to determine from the seller whether there are any special levies for which there may be a surplus.

If there is a possibility that a previously approved special levy may result in a surplus the seller should be made aware that under the Strata Property Act the strata corporation is required to pay the surplus to the owner shown on title at the time of payment. If the seller wishes to retain the right to recover the surplus special levy after completion of a sale or the right to vote on any future decisions with respect to the disposition of the surplus the seller must negotiate these rights with a prospective buyer. If the seller wishes to negotiate an agreement that would entitle the seller to receive the surplus special levies or vote on decisions relating to the disposition of the surplus, the seller and the buyer should be advised to seek independent legal advice prior to entering into an unconditional Contract of Purchase and Sale. If a seller or a buyer wants to make the contract subject to entering into such an agreement the Contract of Purchase and Sale should include the Recovery of Proceeds Payable to Strata Corporation Clause.

The agreement contemplated by the subject clause is an agreement between the seller and the buyer and does not involve the strata corporation. Because the strata corporation is not a party to the agreement, the strata corporation is not obligated to pay out the funds other than to the current owner as required by the Strata Property Act. It will be up to the seller to enforce the agreement with the buyer and the seller should not expect the strata corporation to assist the seller by paying the funds directly to the seller.

Licensees Providing Strata Management Services

Licensees providing strata management services must advise strata corporations of section 108(5) of the Strata Property Act which requires strata corporations to pay surplus special levies to each owner of a strata lot in proportion to the contribution made to the special levy in respect to the strata lot. An owner is defined as the person shown on the title at the Land Title Office.

Section 108(5) was amended in December 2009 to reference the owner of a strata lot. By requiring that the surplus be paid to each owner of a strata lot, the amendment to section 108(5) has clarified that the surplus must be paid to the current owner. If however the repayment of the surplus would result in no owner receiving more than $100 the surplus may be deposited into the contingency reserve fund.

As with all funds held on behalf of a strata corporation, when considering the payout of a surplus special levy, the brokerage should only disburse funds after receiving instructions from the strata corporation.

Occasionally brokerages and strata corporations will be provided with Contracts of Purchase and Sale or other agreements which indicate that the special levy surplus should be paid to someone other than the current owner. Because the strata corporation is not a party to the agreement, the strata corporation is not obligated to pay out the funds other than to the current owner as required by the Strata Property Act. If the strata corporation is contemplating paying the surplus levy funds to anyone other than the current owner, the brokerage should advise the strata corporation of section 108(5) of the Strata Property Act and recommend that the strata corporation seek legal advice.

The licensee should then disburse the funds in accordance with the instructions of the strata corporation. In the event the brokerage is instructed to release the surplus to a party other than the registered owner, licensees should insure that they have written instructions from the strata corporation to that effect.

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(l) Contingency Reserve Fund (CRF) Loans Require Authorization

Making ‘‘Loans’’ from a CRF or Transferring Funds between Trust Accounts Requires Express Authorization from the Strata Corporation

Questions have been raised by brokerages providing strata management services whether the borrowing of funds or making ‘‘loans’’ from a strata corporation’s CRF (or from any other strata corporation trust account) requires express authorization from the strata corporation, prior to doing so.

Section 3-3(1) of the Council Rules (see below), specifically items (1)(b) and (c), stipulates that a brokerage and its related licensees, when providing strata management services to or on behalf of a strata corporation client, must act in accordance with the lawful instructions of the strata corporation (which are provided through its elected strata council) and only within the scope of the authority given by the strata corporation.

Duties to Clients

3-3. (1) Subject to subsection (2), if a client engages a brokerage to provide real estate services to or on behalf of the client, the brokerage and its related licensees must do all of the following:

(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.

(2) By agreement between the brokerage and the client, one or more of the duties under subsection (1) may be modified or made inapplicable.

Section 30(1)(g) of RESA (see below) allows a brokerage, based on a strata corporation client’s instructions, to withdraw funds from a trust account maintained on behalf of that strata corporation.

Withdrawals from trust account

30. (1) Money in a brokerage trust account, other than money that the brokerage holds as stakeholder, may be withdrawn only if it is one or more of the following:

(a) money paid into the trust account by mistake;

(b) interest paid in accordance with section 29 [interest on trust account];

(c) money authorized to be withdrawn under section 31 [payment of licensee remuneration];

(d) unclaimed money transferred under section 32 [unclaimed money held in trust];

(e) money paid into court under section 33 [payment of trust funds into court];

(f) money paid in accordance with a court order;

(g) money paid to or in accordance with the instructions of the principal to whose credit the money was deposited.

In conjunction with the above, the Council Rules require that:

1. a brokerage providing strata management services must establish in its service agreement, the brokerage’s scope of authority to sign cheques and make disbursements on behalf of its strata corporation clients [section 5-1 (5.1)(c)(i)], and

2. the service agreement must include a brokerage’s authority to transfer amounts between brokerage trust accounts maintained for the strata corporation under section 7-9(2) of the Council Rules [section 5-1(5.1) (b)(i)];

The Real Estate Council, when investigating complaints or conducting an audit regarding a brokerage, will look at service agreements to determine a brokerage’s scope of authority relative to withdrawals from, or transfers between, trust accounts.

There may be many different scenarios for which the borrowing or transferring of funds from one trust account to another may be required. One example is where a strata corporation has cash flow problems in its Operating Fund and requires a ‘‘loan’’ from its CRF. Another example is where a strata corporation has a cash shortfall in a special levy account created by either unanticipated expenditures or unforeseen ‘‘extras’’ which exceed the original levy budget, or due to unpaid special levies on the part of some strata lot owners. The strata manager would be acting outside of his/her scope of authority to unilaterally transfer or ‘‘loan’’ such funds from the CRF trust account to an Operating or Special Levy trust account in the absence of express authorization to make such a transfer or ‘‘loan’’.

It is therefore important for a strata manager and the brokerage to assess each situation carefully before proceeding with making such ‘‘loans’’ from, or transferring trust funds between, trust accounts. For those situations where the scope of authority is not established within the service agreement, the brokerage should obtain the express authority of its strata corporation clients, in the form of a separate written direction that clearly establishes the authority for the specific circumstance. Without the authority to ‘‘loan’’ or transfer funds, a strata manager may incur substantial risk and liability, as well as be subject to discipline under the Council Rules.

If there is uncertainty whether the authority provided for within a service agreement is sufficient, it is good business practice for a strata manager and the brokerage to minimize their risk and liability by obtaining a separate written direction that provides authority from the strata corporation client to make a ‘‘loan’’ from, or transfer funds between, trust accounts.

A brokerage should ensure that any parameters respecting its scope of authority to act on behalf of a strata corporation are either clearly established within its service agreement or provided by the strata corporation client, through its elected strata council.

(m) Increases in Strata Management Fees – When do they take Effect?

The Real Estate Council occasionally receives complaints from strata corporations suggesting that the brokerage providing strata management services has withdrawn an increased management fee from the strata corporation’s operating trust account without proper authority to do so.

Section 3-3(1)(c) of the Council Rules requires licensees to act only within the scope of authority given by their client. Section 3-3(1)(f) of the Council Rules requires licensees to disclose to the client all known material information respecting the real estate services being provided. Further, section 5-1(6) of the Council Rules specifies that any amendment of or addition to the terms of a service agreement must be made in writing and signed by the client and an authorized signatory of the brokerage.

In some complaints, it has been alleged that the strata manager had discussed the management fee increase with the strata council at the time when the strata corporation’s annual operating budget for the next fiscal year was being reviewed and prepared so that consideration could be given to increase the budget for management fees. It has been further alleged in some complaints that the strata council had agreed in principal to the increase, but wished to put the matter forward to their owners for consideration at the Annual General Meeting before approving the increase.

Even when a strata corporation’s proposed annual operating budget is ratified by its strata owners (which includes an increased budget for strata management fees), a brokerage would only have authority to withdraw the increased management fee amount once the increased fees had been effected in writing, and signed by the strata corporation client and an authorized signatory of the brokerage. This may be done through (a) amending the management fee amount in the existing service agreement, (b) an addendum to the existing service agreement reflecting the new management fee, or (c) a new service agreement. In any case, licensees and their related brokerages must ensure that the amendment, addendum or new service agreement is signed by the strata corporation and a person authorized by the brokerage, and that it includes the date on which the fee increase is to take effect.

(n) Assignment of Strata Management Service Agreements

Concerns have been brought to Council’s attention in regard to the manner in which some brokerages licensed for strata management services are assigning existing service agreements to other brokerages also licensed to provide strata management services.

While, depending on the terms of their service agreement, brokerages may have the contractual right to assign their service agreements to another licensed brokerage (and the rights and obligations contained therein), brokerages and their related licensees must ensure that prior to doing so, they have fulfilled their obligations under section 3-3(1)(f) of the Council Rules by informing their strata corporation clients of their intent to do so.

Section 3-3(1)(f) of the Council Rules requires brokerages and their related licensees to disclose to their client all known material information respecting the real estate services. It is strongly recommended that this disclosure be made to the client in writing at the earliest possible date.

It is further recommended that the contract assignment made between the two brokerages be in writing, and that it include the date upon which the assignment is to take effect.

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(o) Additional Brokerage Services

Rental property management and strata management service relationships are typically long term. When special projects arise, brokerages will often agree to provide services that are in addition to those identified in the original written service agreement. For example, a strata corporation client may ask its strata management brokerage to oversee a substantial remediation project. The brokerage may agree to do so on the understanding it will receive remuneration, in addition to that established in the original service agreement.

Section 5-1(6) of the Council Rules requires that any amendment of or addition to the terms of a service agreement must be in writing and be signed by the client and an authorized signatory of the brokerage. When either amending or adding to the service agreement, particular attention should be paid to establishing

• what additional services are to be provided by the brokerage, when the brokerage will begin providing the additional services, and for how long they will be provided;
• any additional remuneration to be paid and the circumstances in which it will be payable; and
• any additional scope of authority of the brokerage to act on behalf of the client, particularly related to signing cheques, making disbursements, and entering into contracts.

With respect to the second bullet above, brokerages should be aware that section 5-15(4) of the Council Rules establishes when money held in a brokerage trust account that is intended as remuneration is considered earned for the purpose of authorizing a withdrawal from trust. That section states that such remuneration may be withdrawn in accordance with the service agreement or other agreement under which the applicable real estate services are provided, or at a time otherwise agreed to in writing by the client.

Both of these circumstances underscore the necessity of having written authority to withdraw remuneration.

(p) Disclosure of Interest in Trade

Section 5-9 of the Council Rules requires all licensees to make disclosure to the opposite party when acquiring or disposing of real estate. Section 5-9 applies to individuals licensed as strata managers in the same way that it applies to other licensees. As a result, an individual licensed as a strata manager must make disclosure to the opposite party in writing before any agreement for the acquisition or disposition of real estate is entered into. Before purchasing, selling, or renting real estate, an individual who is licensed to provide strata management services must complete a ‘‘Disclosure of Interest in Trade’’ form. A copy of the form is located on the Council’s website under ‘‘Licensee Information’’. Licensees are not required to complete a Disclosure Form in relation to the rental of real estate if the real estate is to be used for residential use and the lease, including options, is less than one year.

For more information on the requirements of section 5-9 of the Council Rules, including the exception, see the section entitled ‘‘Disclosure’’.

(q) Disclosure of Remuneration

Section 5-11 of the Council Rules requires that a licensee disclose all remuneration received or anticipated to be received from anyone other than the licensee’s client, which is paid as a result of providing the real estate services to or on behalf of a client. Such disclosure must be in writing and be separate from a service agreement or any other agreement under which real estate services are provided.

Licensees engaged in strata management are required to disclose to the strata corporation any remuneration that the licensee receives or anticipates receiving, which is paid by someone other than the strata corporation and which is paid as a result of providing strata management services to or on behalf of that strata corporation. Section 5-11 of the Council Rules provides that if a licensee receives or anticipates receiving, directly or indirectly, remuneration as a result of recommending persons to the strata corporation who provide real estate-related products or services or recommending the strata corporation to such persons, the licensee must make written disclosure of the remuneration to the strata corporation.

Remuneration is defined in RESA to be any form of remuneration, including any commission, fee, gain, or reward, whether the remuneration is received or is to be received directly or indirectly.

Licensees who recommend particular suppliers, and service and trades people to a strata corporation, and who receive any form of benefit, must disclose the benefit to the strata corporation. The benefit may take the form of a referral fee, or it may be loyalty points, air miles, or it may even be a discount on work done for the licensee personally. In each case, the licensee must promptly disclose the benefit to the strata corporation and the licensee’s related brokerage in writing. All such remuneration must flow through the brokerage.

The Council has developed disclosure forms for strata management services that are available on the Council’s website at www.recbc.ca. Licensees may use these disclosure forms or any form of the licensees choosing so long as it satisfies the disclosure requirements outlined above.

(r) Benefits in Relation to Rental or Strata Management Services

See article in Rental Property Management Section.

(s) Brokerage Trust Accounts

Section 7-9 of the Council Rules requires a brokerage providing strata management services to open separate trust accounts for every strata corporation for which the brokerage holds or receives funds. In all such cases, if the brokerage is to hold both the operating fund and the contingency reserve fund (CRF), the brokerage must maintain separate accounts for each type of fund. Funds raised by special levy may be deposited into either a separate trust account or the CRF account.

Funds received that are either only operating funds or CRF funds are to be paid to the appropriate account. However, in many cases, monthly strata fees paid by owners to the strata manager contain both operating funds and a contribution to the CRF. In such case, sections 7-9(3) and (4) of the Council Rules provide that the funds may be deposited into the operating account. Within seven days of the end of the month in which the CRF funds were received, the brokerage must either pay the funds to the strata corporation or transfer the funds to the CRF fund, if the brokerage is to hold the money.

Section 7-9(5) of the Council Rules permits operating funds to be transferred to a pooled trust account, which can be used as a flow-through account. In some cases, a brokerage may prefer to make one payment to pay invoices on behalf of a number of strata corporations. For example, a brokerage may wish to pay a utility expense for several strata corporations with one cheque or debit. In such case, the brokerage may transfer the necessary funds from each strata corporation’s operating account into the flow-through account and then pay the invoices.

Section 7-9(6) of the Council Rules provides that a trust account that contains either the CRF, special levies or both, requires two signatures in order for funds to be withdrawn. The signatories on such an account must be two of the following:

• a related managing broker;
• a member of the council of the strata corporation;
• another related licensee of the brokerage;
• a director or officer of the brokerage; and
• a person employed or engaged by the brokerage who is authorized to practise as a lawyer, CGA, CA, or CMA.

Section 7-9(7) of the Council Rules provides that for each trust account, the brokerage must arrange to receive monthly statements from the savings institution. No later than six weeks after the end of the month for which a statement was issued, the brokerage must provide a copy of that statement, along with a copy of the monthly reconciliation of that statement to each strata corporation.

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(t) Permitted Investments Under the Strata Property Regulation

(This section added May 16, 2011)

Licensees who are providing strata management services should advise their strata corporation clients as to the type of investments that are permitted under the Strata Property Regulation before obtaining instructions from the client as to what types of investments should be made with the CRF funds or special levy funds.

The Council has disciplined licensees for failing to properly advise strata corporation clients in this regard, and for improperly investing strata corporation funds. For further information, please see: www.canlii.org/en/bc/bcrec/doc/2010/2010canlii74020/2010canlii74020.html

Section 7-9(8) of the Council Rules requires a licensee providing strata management services to be subject to the same restrictions that are set out in the Strata Property Act with respect to investments made on behalf of strata corporation clients. Sections 95(2) and 108(4)(b) of the Strata Property Act require that a strata corporation must invest Contingency Reserve Funds (CRF) or special levy funds in one or both of:

Investments permitted by the regulations

Section 6.11 of the Strata Property Regulation provides an exhaustive list of the type of investments that are permitted. A common thread in many of the permitted investments is that they are guaranteed, for example:

• securities, the payment of the principal and interest of which is guaranteed by Canada, or a province; or
• guaranteed trust or investment certificate of a bank.

A complete list of investments permitted under section 6.11 of the Strata Property Regulation can be found at: www.bclaws.ca/EPLibraries/bclaws_new/document/ID/freeside/12_43_2000#section6.11

Insured accounts with saving institutions in British Columbia

Where a brokerage is maintaining these investment accounts on behalf of a strata corporation, the accounts must be designated as trust accounts in the records of the brokerage and they must also be reflected as trust accounts in the statements issued by the savings institution pertaining to these accounts.

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(u) Builders Lien Holdback Accounts

Builders Lien Act – The Holdback

The Builders Lien Act provides a form of security to contractors, subcontractors, workers and suppliers who work on a building that is under construction – the builders lien. A builders lien is a charge on property by a person who has supplied work or material to a building under construction. A builders lien may be claimed by a contractor, subcontractor or worker.

The Builders Lien Act also creates a pool of money out of which claims may be paid, by requiring an owner to hold back 10% of each payment to the contractor – the builders lien holdback. The builders lien holdback provides two functions:

• It ensures that there is a pool of money out of which builders lien claims can be paid, although it does not guarantee payment of those claims. The requirement for owners to establish a holdback account is clearly intended to give the contractor and the subcontractors comfort that the holdback funds are indeed available. It also aims to assure the contactor and subcontractors that they will not be, for example, at the mercy of a mortgagee or owner who must come up with the holdback funds at the end of the project.
• It limits an owner’s liability for lien claims. If an owner complies with the holdback provisions of the Builders Lien Act, the owner’s maximum liability for lien claims will be limited to the amount of the 10% holdback or the unpaid balance of the contract price, whichever is greater.

The Builders Lien Act helps to ensure that money intended to finance construction is used for that purpose by imposing a trust on money received by contractors and subcontractors in connection with the construction project – the statutory or deemed trust. The holdback account will be treated like a trust account. Contractors and subcontractors are deemed to be trustees of the money received by them. The persons engaged directly by them are the beneficiaries of the particular trust fund.

The Holdback Account

The Builders Lien Act creates a mandatory obligation to retain a 10% holdback on the “person primarily liable on each contract, and the person primarily liable on each subcontract, under which a lien may arise under this Act”. In the case of work being done on behalf of a strata corporation, the persons primarily liable would be the strata corporation in the case of a contract with a contractor and the contractor in the case of each subcontract. It is not sufficient that the owner (the strata corporation in this case) simply hold back 10% of the payment amount from the contractor, the monies must actually be paid into the holdback account. If the owner acts as the general contractor, a separate holdback account will be required for every contract with the owner.

Establishing the Holdback Account

There are no regulations prescribing how the holdback account must be established and managed. The only conditions relating to the operation of the account is that the interest on the account is to be to the credit of the owner to the date it is due and to the contractor after the date the holdback is due. There are no rules setting out for example, whether the account is to have joint signatories, and whether all payments out of the holdback account are to be directly to the contractor or to a subcontractor when the progressive releases or payments are made. The parties are thus left with a wide discretion for what they can agree to concerning the management of the account and these issues are often addressed in the contract executed by the parties.

For every progress payment under the contract, 90% of the price of the work completed in any month is paid by the owner to the contractor or contractors, and 10% is retained as a holdback that must be paid into the holdback account. At the end of the contract, the amount in the account should equal 10% of the contract price.

At the direction of their strata corporation client, a strata manager can establish the account with its usual financial institution, with the account set up in the usual manner, but with a reference to it being a “holdback account for Strata Corporation ____”. If there are to be multiple accounts due to the strata corporation acting as the general contractor, the accounts could be set up as follows: “holdback account for Strata Corporation ____ – Contract A; holdback account for Strata Corporation ____ – Contract B,” and so on.

Exemptions from the requirement to establish Holdback Account

There are two major exceptions to the requirement that the 10% lien holdback be paid into an actual account.

The first is where the owner has a construction mortgage with a “savings institution” and authorizes the savings institution to disburse the mortgage money. In that case the lender may hold back 10% of the mortgage money from each mortgage draw, and the lender will be liable to the owner and any lien holders if it fails to fulfill its obligations in relation to the holdback. Mortgage lenders do not want to supervise holdbacks and will rarely agree to this arrangement. Most lenders will instead advance 100% of each draw, but will contractually require that the owner pay the 10% into the holdback account.

The second is where the total value of work and materials is less than $100,000 (e.g. renovations and smaller projects).

Clearly, if there is a general contractor and the contract price exceeds $100,000, the owner must establish the account. However, consider a situation in which a contract at first is less than $100,000, but as result of changes, eventually exceeds the amount. It would be difficult to allege the owner was then in default of the Act, if the owner did not voluntarily set up an account.

The same is true on a cost-plus contract where there is no specific amount for the value of the improvement or the contract. Presumably, there will be budgets or estimates that will show if the anticipated value of the work exceeds $100,000, and if it does, then the account must be established.

The Builders Lien Act does not indicate if the $100,000 limit includes HST. Although HST is considered to be a lienable part of the contract price, the applicability of taxes is a separate issue that remains unanswered. The conservative approach is to assume that if the HST takes the value of the project over the $100,000 threshold, a strata corporation should establish the account.

Problems arise in the construction management scenario, where there is no “head contractor” as defined in the Builders Lien Act. In construction management structures, all of the trade contractors, who normally act as subcontractors, contract directly with the owner. The construction manager only receives payment of his or her own fees and does not receive funds from the owner to be passed on to the trade or subcontractors. Payment is made directly by the owner to the trade contractor. The problems arise in relation to the exemption as to whether the $100,000 threshold relates to the value of the individual owner/trade contractor contracts or to the aggregate value of the improvements. There is no authority clearly determining whether or not an owner has to establish and maintain the holdback account in such circumstances, but the more conservative position is to establish the holdback if the total value of all contracts exceeds $100,000.

Note that the holdback is mandatory. The person primarily liable must retain the 10% holdback and there is no option to the owner but to retain at least that amount, even if they do not have to establish the holdback account due to falling within one of the exemptions.

Payment of Interest Accruing in the Holdback Account

Interest on monies on deposit in the holdback account accrues to the benefit of the owner until the holdback payment is due to be released, and to the contractor after payment of the holdback is due to be released.

Failure to Establish the Holdback Account

The failure of the owner to pay the holdback into a holdback account is an event of default under the construction contract, irrespective of the wording of the contract. If the owner fails to establish the account or make the payments into the account, the contractor can give a 10-day notice, and if the default is not corrected in that time, the contractor may stop work. Typically during this period the holdback funds are paid into the newly established holdback account.

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(v) Limits on the Level of Trust Fund Protection

A special compensation fund exists under RESA to protect the public against the loss of trust money; however, the Real Estate Services Regulation limits the maximum amount that may be paid to a single claimant to $100,000, and the maximum total amount that may be paid in respect of claims against a single brokerage to $500,000.

In terms of a potential claim against a brokerage with respect to trust funds held related to strata management services, a strata corporation would be considered a single claimant. Therefore, regardless of the amount of money that a brokerage may hold in trust on behalf of a strata corporation, the maximum amount that could be recovered from the special compensation fund, should there be a significant misappropriation, would be $100,000.

Licensees and their related brokerages must not indicate to their strata corporation clients, or potential clients, that there is more protection available unless the brokerage itself has secured additional protection independent of RESA. In the event a brokerage has secured additional protection, the brokerage must be able to provide the Council with proof of such coverage if requested to do so. A copy of the coverage should be retained in the brokerage’s head office.

Information about the trust protection coverage available under RESA is available on the Council’s website at www.recbc.ca under the heading ‘‘Consumer Information’’.

(w) Strata Management Activities and the Legal Profession Act

Licensees are often asked to or are sometimes expected by their strata corporation clients to provide services which may be outside of their professional scope of expertise.  These activities may include representing strata councils in court proceedings such as small claims court actions, drafting of resolutions, strata bylaws or bylaw amendments for consideration at general meetings, and preparing and executing Strata Property Regulation forms.

The Council’s role is to ensure that licensees are compliant with the provisions of the Real Estate Services Act.  There are a number of other Acts which may be relevant to the real estate services provided by a licensee under Real Estate Services Act, such as the Strata Property Act, the Residential Tenancy Act, the Small Claims Act and the Legal Profession Act.  Section 3-4 of the Council Rules provides that a licensee must be competent to provide the services for which he or she is licensed and therefore is expected to be familiar with other legislation.  Section 3-3(1)(d) of the Council Rules provides that a licensee must advise the client to seek independent professional advice on matters outside of the expertise of the licensee.

With respect to the Legal Profession Act, the Council has from time to time dealt with issues arising where the Law Society has investigated the activities of a licensee or where licensees have been found by the Law Society to be in breach of section 15 of this Act. 

Section 15 provides that no person other than a practicing lawyer is permitted to engage in the practice of law and section 1 of the Legal Profession Act proscribes what activities are included in the practice of law including:

(a) appearing as counsel or advocate,

(b) drawing, revising or settling

(i) a petition, memorandum, notice of articles or articles under the Business Corporations Act, or an application, statement, affidavit, minute, resolution, bylaw or other document relating to the incorporation, registration, organization, reorganization, dissolution or winding up of a corporate body,

(ii) a document for the use in a proceeding, judicial; or extrajudicial,

…

(iv) a document relating in any way to a proceeding under a statute of Canada or British Columbia,

(v) an instrument relating to real or personal estate that is intended, permitted or required to be registered, recorded or filed in a registry or other public office.

In the December 2009 Report from Council, the issue of a rental property manager’s role in Residential Tenancy Branch Dispute Resolution Hearings was discussed.  It was concluded by Council and confirmed by the Unauthorized Practice Committee of the Law Society of British Columbia that, so long as licensees were acting as the rental property owner’s agent pursuant to a written service agreement, they could appear at RTB hearings.  This was because of the specific definition of “landlord”, as contemplated in the Residential Tenancy Act, includes the owner’s agent.

However, with respect to the Small Claims Act, there is no such special language in this Act which would permit a licensee to act for a strata corporation client in proceedings under that Act.  Licensees may, of course, act as witnesses for their clients.  Accordingly, licensees who act on behalf of clients in Small Claims Court may find themselves in conflict with the Law Society.  

The issue of preparing and executing Strata Property Regulation forms has also been considered by Council.  It was concluded by Council and confirmed by the Unauthorized Practice Committee that where the signature of the strata manager is contemplated on the form (e.g. Form G – Certificate of Lien and Form H – Acknowledgment of Payment), strata managers can prepare these forms as part of their general duties so long as they do not charge the client a separate fee for this activity.  In this regard, it was suggested that strata managers not charge separately for preparation and execution of these forms as section 1(1) of the Legal Profession Act specifically provides that activities that would normally fall within the definition of “practice of law” are exempted if they are not “performed for or in the expectation of a fee, gain or reward, direct or indirect, from the person for whom the acts are performed”. More information about the filing of liens in relation to the unauthorized practice of law is available at www.recbc.ca/licensee/psm.html#ch4-2_fol.

Licensees may be asked to perform other activities on behalf of clients in relation to requirements under the Strata Property Act such as the drafting of any strata bylaws or bylaw amendments, resolutions particularly with respect to restrictive covenants, creation or cancellation of sections and significant amendments to common or limited common property, which are intended, permitted or required to be registered at the Land Title Office.  With respect to these activities, in accordance with section 3-3(1)(d) of the Council Rules, a licensee must advise their strata corporation client to seek legal advice on the wording of the bylaw, bylaw amendment and/or resolution prior to issuing notice for a general meeting where these matters would be considered.  Brokerages should consider engaging legal services for drafting of resolutions and bylaws that are commonly used by their strata corporation clients.

It is important for licensees to note that the Real Estate Errors and Omissions Insurance Corporation may deny coverage for conduct that is outside the scope of their licence to provide real estate services.

(x) Scope of Authority for Expenditures on Behalf of Strata Corporations

Section 30(1)(g) of RESA (see below) allows a brokerage, based on a strata corporation client’s instructions, to withdraw funds from a trust account maintained on behalf of that strata corporation.

Sec. 30. Withdrawals from trust account

(1) Money in a brokerage trust account, other than money that the brokerage holds as stakeholder, may be withdrawn only if it is one or more of the following:

(a) money paid into the trust account by mistake;

(b) interest paid in accordance with section 29 [interest on trust account];

(c) money authorized to be withdrawn under section 31 [payment of licensee remuneration];

(d) unclaimed money transferred under section 32 [unclaimed money held in trust];

(e) money paid into court under section 33 [payment of trust funds into court];

(f) money paid in accordance with a court order;

(g) money paid to or in accordance with the instructions of the principal to whose credit the money was deposited.

In conjunction with the above, the Council Rules require that: (1) a brokerage providing strata management services must establish in its service agreement the brokerage’s scope of authority to sign cheques and make disbursements on behalf of its strata corporation clients [section 5-1(5.1)(c)(i)]; and (2) the service agreement include a brokerage’s authority to transfer amounts between brokerage trust accounts maintained for the strata corporation under section 7-9(2) of the Council Rules [section 5-1(5.1)(b)(i)]; Therefore, the Real Estate Council, when investigating complaints or conducting an audit regarding a brokerage, will look at service agreements to determine a brokerage’s scope of authority relative to withdrawal of funds from trust accounts. An example is where a strata corporation has cash flow problems in its operating fund and requires a ‘‘loan’’ from the Contingency Reserve Fund (CRF). The strata manager would act outside of his/her scope of authority to unilaterally transfer such funds from CRF to operating in the absence of express authorization to do so.

If authority to make such transfers has not been established in the service agreement, a strata manager may incur substantial risk and liability, as well as be subject to discipline under the Council Rules. A brokerage should ensure that any parameters respecting its scope of authority to act on behalf of a strata corporation are clearly established in its service agreement with that client.

(y) Financial and Other Records

Section 8-1 of the Council Rules requires all brokerages to maintain the necessary financial records in order to ensure the appropriate and timely accounting of all transactions relating to the real estate services provided by the brokerage. The financial records must readily distinguish between monies received and paid by the brokerage on its own account, and monies received and paid on behalf of others.

For each general account that a brokerage maintains, a brokerage must keep a record showing all receipts and disbursements, all bank documents, and monthly bank reconciliations of the bank statements to the cash record.

In relation to the trust accounts maintained by the brokerage, a brokerage must keep a trust cash record showing all transactions affecting the trust account, including deposits and withdrawals, a trust journal showing all amounts received and disbursed, and separate trust ledgers for each strata corporation showing amounts received and disbursed in relation to the strata corporation and any unexpended balance. The brokerage must also prepare a monthly trust liability and asset reconciliation no later than five weeks after the monthly accounting cut-off date for the account and retain all banking documents.

A brokerage must keep a separate list for each year of all strata corporations that are or were managed by the brokerage during that year.

Section 8-7.1 of the Council Rules requires a brokerage to keep separate books, accounts and other records with respect to each strata corporation for which the brokerage provides strata management services. A brokerage is also required to keep, on behalf of each strata corporation, any written service agreements, any financial statements provided to the strata corporation, any accounting statements and invoices for expenditures provided to the strata corporation, and any monthly statements for the strata corporation provided by a savings institution.

(z) Transfer of Strata Management Records

Section 8-3.1 of the Council Rules provides that after termination, a brokerage continues to be obligated to prepare financial records for the strata corporation that relate to the services that were provided by the brokerage to the client. In other words, after termination the brokerage is required to record all transactions and prepare the monthly bank and trust reconciliations for the periods during which the brokerage provided strata management services.

If a brokerage has retained any of the following original documents, such as written service agreements, financial statements, accounting statements and invoices, or statements from savings institutions, such documents must be provided to the strata corporation, or the brokerage retained by the strata corporation, within 14 days of a request for the documents. In addition, copies of trust account records must be provided to the strata corporation or the brokerage within 14 days of the completion of the reconciliation of the bank statements to the cash record.

Section 8-7.1(5) of the Council Rules requires a brokerage to comply with the provisions of the Strata Property Act regarding the return of documents to the strata corporation. Section 37 of the Strata Property Act requires a person who has provided strata management services to return all records referred to in section 35 of the Strata Property Act to the strata corporation within four weeks of the termination of the contract. Section 35 of the Strata Property Act sets out an extensive list of documents that a strata corporation must retain.

Despite the obligation to return documents to the strata corporation, brokerages should ensure that they have retained copies of the necessary documents to satisfy the requirements in the Council Rules regarding the retention of documents. Section 8-10 of the Council Rules requires that a brokerage keep all financial records, all general account and trust records, and numerous other records of the strata corporation for a minimum of seven years after their creation. This requirement applies to all records, even though the brokerage is no longer providing strata management services to the strata corporation.

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