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.

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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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:

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

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

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

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Exemptions for Rental Real Estate Owned by a Licensee

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

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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Exemptions for Strata Management Services

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

Under section 9-3 of the 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:

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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Unauthorized Practice of Law by Licensees

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

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

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

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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:

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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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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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:

Licensees may not:

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:

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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.

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:

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, if a licensee is selling his or her own property, licensees should keep in mind that Errors and Omissions Insurance (E&O) never covers the principals in the transaction. Therefore, when licensees sell their own property (or property owned by a spouse), they lose their E&O coverage for that transaction because they are also the principals. 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.

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

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

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

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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 at www.crea.ca/public/realtor_codes/code_eng_05-2011_final.pdf

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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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 under section 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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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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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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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.

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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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.

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.

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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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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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.

Under section 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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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 sections 9-1, 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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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:

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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.

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:

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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).

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.

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:

Representatives should also ensure that they:

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:

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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

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:

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

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:

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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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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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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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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TRADING SERVICES

1. PRACTICE STANDARDS

GENERAL REQUIREMENTS

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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Agency

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:

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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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:

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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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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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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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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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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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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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 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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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 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:

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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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:

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:

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.

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

Give the seller the option to cancel the service agreement (listing) and the opportunity to seek independent representation.

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 direct communication with the seller. All contact with the seller should be indirectly through the managing broker or his or her designate.

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.

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:

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.

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.

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 at anytime communicate directly with the buyer. All communication with the buyer should be indirectly through the listing representative for the brokerage.

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.

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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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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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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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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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:

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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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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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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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:

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

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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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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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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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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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

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.

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

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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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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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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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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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:

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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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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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.

Seller Taking Buyer’s Property in Trade Clause

Subject to the Seller entering into an unconditional Contract of Purchase and Sale with the Buyer for the

purchase of the Buyer’s property described as           (describe property)           by                    (date)                   .

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

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

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Foreclosures

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

**Alert**

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

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

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

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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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Fictitious Sales

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

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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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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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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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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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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

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.

Title Search Clause

Subject to the Buyer, on or before                             (date)                            searching and approving title to the property against the presence of any charge or other feature, whether registered or not, that reasonably may affect the property’s use or value.

This condition is for the sole benefit of the Buyer.

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

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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:

Legally Speaking, #267, April 1997

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

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

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

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

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

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

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

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

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

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

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

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

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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:

Acknowledgement of Title Clause A

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

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

Acknowledgement of Title Clause B

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

1. Any non-financial charge, and

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

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

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

Subject to the Buyer on or before                                 (date)                           obtaining and approving the attached copy of the title search results [NOTE: use only current title search results] against the presence of any charge or other feature, whether registered or not, that reasonably may adversely affect the property’s use or value. [If the title search results are not yet available, modify wording appropriately.] This condition is for the sole benefit of the Buyer. If this condition is waived or declared fulfilled, the attached copy of the title search result will be incorporated into and form part of this contract and the Buyer acknowledges and accepts, despite any other provision in this contract, that upon completion the Buyer will receive title containing any non- financial charge set out in the copy of the title search results that is attached to and forms part of this contract.

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

Legal Advice Clause

Legal Advice Clause

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

This condition is for the sole benefit of the Buyer.

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

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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.

Approval of Documentation Clause

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

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

Licensees should be aware that there may be restrictions on the property that may affect its use or value that are not registered against the title. For example, restrictions relating to Riparian Areas Regulation under the Fish Protection Act or 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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Property Measurements

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.

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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Measurement of Strata Lots

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

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

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

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

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

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

**Alert**

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

Measurement of Commercial Properties

Uniformity and consistency in carrying out floor measurements becomes increasingly more important with the advent of computerization within the real estate industry. The Standard Method of Floor Measurement for Office Buildings used by members of the Building Owners & Managers Association (BOMA BC) is recommended by the Council. Area measurement in office buildings is based in all cases upon typical floor plans. Licensees involved in establishing floor measurements of Commercial Properties are advised to use the services of a B.C. Land Surveyor and to obtain the most recent version of the booklet entitled Standard Method for Measuring Floor Area in Office Buildings available from BOMA.

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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:

Services for urban and rural properties:

Legal and Financial Characteristics

A. General

B. Financial Encumbrances

C. Assumable Mortgages

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

E. Zoning

F. Taxes

G. Family Relations Act

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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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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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 Chapter I, 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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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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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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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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‘‘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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Buyer’s Failure To Pay Deposit

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

Default on Deposit Clause

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

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

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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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Deposit Payable on Acceptance or Within a Stated Time Period

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

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

Deposit Payable Within a Specified Period Clause

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

(b) the Contract of Purchase and Sale may provide for a small initial deposit 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:

Increase of Deposit Clause

Upon final acceptance, the Buyer will increase the deposit to $                         (amount)                            by                         (event or date)                            .

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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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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Deposit To Bear Interest

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

Deposit To Bear Interest Clause

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

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

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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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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 to                        and held in trust in accordance with the provisions of the Real Estate Services Act.’’

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

‘‘2. DEPOSIT: A deposit of $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, which may be accessed from the Council’s website www.recbc.ca by following the links ‘‘Licensee Information > Real Estate Legislation > Real Estate Development Marketing Act’’. 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:

Legal Advice re: Deposit Clause

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

OR

Lawyer Approval of Deposit Arrangement Clause

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

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

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

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

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

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

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

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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.

Conveyancer as Stakeholder Clause

The brokerage that receives money in connection with this transaction is authorized to pay such money to the Buyer’s conveyancer, provided that such money is to be held in trust by the conveyancer as stakeholder pursuant to the provisions of the Real Estate Services Act, pending the completion of the transaction and not on behalf of any of the principals to the transaction, and should the sale not complete, the money should be returned to the brokerage as stakeholder.

Agreed to by Seller:                         

and Buyer:                         

There are two important issues to note:

Authorization To Pay Trust Money to Lawyer or Notary Clause

Enclosed is $                         (amount)                            being the deposit money in the above-noted transaction. This money is to be held by you until completion on the following trust conditions:

1. you will hold this money as a stakeholder pursuant to the provisions of the Real Estate Services Act and not on behalf of any of the principals to the transaction;

2. upon completion you will disburse the money as provided in the Contract of Purchase and Sale and, should the sale not complete, you will, upon request, repay the money to us in trust as stakeholder; and

3. if you are unable to comply with these trust conditions, you will return the said money to our office.

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

Third Party Holding Deposit Clause

The deposit will be held in trust by                         (name of third party, e.g., conveyancer/notary/builder)                            as a stakeholder pursuant to the provisions of the Real Estate Services Act pending the completion of the transaction.

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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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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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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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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Offers

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.

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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Multiple Offers — Presentation Procedures

If more than one written offer on a specific property is made before the seller has accepted an offer, all written offers must be presented to the seller. The only exception would be if the listing licensee has specific written instructions from the seller on the listing not to present particular types of offers. Unless otherwise instructed by the seller, the listing licensee should ensure that any other representative involved knows there will be competitive offers.

**Alert**

Licensees should be aware that any written offers received prior to the Completion Date of an existing sale must be presented to the seller. If a seller wishes to consider a subsequent offer, the licensee should advise the seller to seek legal advice. This applies whenever the licensee acted as a seller’s agent in the first sale, and includes cases where the listing brokerage becomes aware of the possibility of a resale to a different buyer.

If the licensee acted as a buyer’s agent in the past sale, then he or she would not owe this fiduciary duty of disclosure to the seller but would be required to disclose any third-party interest to the first buyer.

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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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:

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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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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.

Identical Offers

A listing licensee should recommend one of the following three methods of handling seemingly identical offers:

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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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.

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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Offers after an Offer Has Been Accepted (Back-up Offers)

Once an offer has been accepted but before the conditions have been removed, a back-up offer that is accepted by the seller sits in second position waiting for the first offer to collapse or firm up. Back-up offers should always have a clause such as the following written into the contract:

Back-up Contract Clause

Subject to the Seller ceasing to be obligated in any way under the previously accepted Contract of Purchase and Sale on the subject property by                date                .

This condition is for the sole benefit of the Seller.

It happens, at times, that the seller/buyer of the first offer may seek to renegotiate terms and conditions of the first offer. The listing licensee should counsel the seller to seek legal advice because renegotiations may result in activating the back-up contract. The risk is in selling the property to both buyers simultaneously! The licensee should advise the seller to obtain legal advice before changing the first offer when there is a back-up contract. The licensee should also advise the second buyer to obtain legal advice under the same circumstances.

Secondary or back-up offers frequently do not contemplate that the buyer may find another property and may wish to withdraw the back-up offer. Before preparing a back-up offer, the licensee should consult with the buyer as to what will happen if the buyer finds a more suitable property.

Licensees need to be aware that back-up contracts, while useful in some cases, can create serious problems when the contractual limitations and obligations of each party are not properly explained to all parties.

On the face of it, the intent is usually that a back-up contract will become firm and binding if the buyer under the previously accepted contract does not remove the subject to clauses by the date agreed to in the previous contract.

After conditions have been removed, but before completion, additional offers may be accepted as back-ups in sequence by the seller. Licensees should not stop presenting offers until transactions have completed. If a seller instructs the listing agent not to show the property after a transaction is firm, then the agent must obey these instructions, but the agent should advise the seller that firm sales can collapse before completion for a variety of reasons (death of the buyer or one of the buyers, loss of job, financial disaster, unforeseen problems with the property itself, etc.), and the seller is not protected until the transfer of title is complete and the money is in the seller’s hands.

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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.

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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Time Clauses

Time clauses should be inserted for the protection of the seller when an offer is written or received containing a subject to the sale of clause.

It is important to ensure that the time period is precisely defined (e.g., 72 hours).

Terms such as ‘‘banking days’’, ‘‘working days’’, ‘‘business days’’, etc., should be avoided.

Sale of the Buyer’s Property, with Time Clause

Subject to the Buyer entering into an unconditional agreement to sell the Buyer’s property at                         (address)                        by                (date)                  .

This condition is for the sole benefit of the Buyer.

However, the Seller may,                                                      (select either at any time or upon receipt of another acceptable offer)                            deliver a written notice to the Buyer* or to                         (name of his or her representing real estate company)                            requiring the Buyer to remove all conditions from the contract within                        (number) hours**                            of the delivery of the notice, not to include Sundays and Statutory Holidays. Should the Buyer fail to remove all the conditions before the expiry of the notice period, the contract will terminate.

* See sample following.

** The period usually ranges from 24 to 72 hours. depending on market conditions.

NOTE: This time clause may be adapted to fit other similar circumstances where the subject to clause is really an option. Examples include allowing time to obtain zoning approval, feasibility studies, engineering reports, etc. This clause protects both parties because the property is never completely off the market except for the designated number of hours between the invocation of the time clause and its deadline.

A clause such as the following should be used when a seller wishes to have the buyer with the first accepted offer remove all conditions or withdraw in order for an accepted back-up offer to move into first position. The circumstances for invocation will depend on how the time clause was written in the first offer, with either ‘‘at any time’’ or ‘‘upon receipt of another acceptable offer’’ being the reference to allow invocation.

Notice Invoking the Time Clause (for use with preceding time clause)

This document constitutes written notice from the Seller to the Buyer requiring the removal of                    (select either all conditions or the condition)                       from this contract within                                                      (number of hours)                                           hours* not including Sunday or Statutory Holidays, or this contract will terminate at the end of the                         (number of hours)                            -hour period and the deposit will be returned to the Buyer.

This Time Clause will start running on delivery of this Notice to the Buyer or to                         (his or her representing brokerage)                            which will be at                        (time of delivery of notice)                            o’clock                                                     (select either a.m. or p.m.)                           on
                        (date)                           . Therefore, the                        (number of hours)                            hours will expire at                         (time)                            o’clock                        (select either a.m. or p.m.)                            on                        (date)                           .

* Fill in the same number of hours as in preceding clause.

NOTE: When there is a time clause in the first offer and in the second offer, if the offers are not handled carefully, the Seller could lose both offers.

NOTE: The licensee should obtain evidence of the time of delivery as it may be necessary to prove this in the event of a dispute.

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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.

Confidentiality of Offers and Counter-Offers

A buyer and seller may enter into a confidentiality agreement prior to the presentation of an offer whereby each would agree not to disclose the terms and conditions of any offer or counter-offer to another buyer interested in the property.

Such a clause would need to be signed as a part of a separate document from the Contract of Purchase and Sale before the offer is presented.

The Council recommends the following clause where buyers and sellers wish to enter into such an agreement:

Confidentiality of Terms Clause

The Buyer and Seller agree that the terms and conditions of any offer or counter-offer with respect to the property located at                        (address)                        shall not be disclosed to any other potential Buyer of the property without the prior written consent of the Buyer and Seller.

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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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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,

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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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:

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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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:

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

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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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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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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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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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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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.

Disclosure of Material Latent Defect Clause

The buyer acknowledges having received separate written disclosure of a material latent defect relating to                            (general reference to issue)                              .

Licensees must keep in mind that trading services includes offering real estate for rent or lease. As a result, written disclosure of a material latent defect is required regardless of whether the real estate is offered for sale or for rent or lease.

Section 5-13 of the 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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‘‘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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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:

No Growth or Manufacture of Illegal Substances Clause

The Seller represents and warrants that during the time the Seller has owned the property, the use of the property and the buildings and structures thereon has not been for the growth or manufacture of any illegal substances, and that to the best of the Seller’s knowledge and belief, the use of the property and the buildings and structures thereon has never been for the growth or manufacture of illegal substances. This warranty shall survive and not merge on the completion of this transaction.

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:

Growth or Manufacture of Illegal Substances Clause

The Buyer acknowledges that the use of the property and the buildings and structures thereon may have been for the growth or manufacture of illegal substances, and acknowledges that the Seller makes no representations and/or warranties with respect to the state of repair of the premises, and the Buyer accepts the property and the buildings and structures thereon in their present state, and in an ‘‘as is’’ condition.

§ NOTE: The use of this or a similar clause in the Contract of Purchase and Sale does not replace the requirement to have made such a disclosure on a separate document prior to the offer being 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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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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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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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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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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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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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:

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Warranties on Appliances and Other Components

While the warranty provided by the builder or other third-party warranty company typically starts to run only when the home is first occupied, other warranties on appliances and building components provided by the suppliers may start to run when the appliance or component is installed as part of the house or condominium. The licensee should advise the buyer of the date of the final inspection or occupancy permit and provide all warranty documentation to the buyer. The onus is on the buyer to read the documentation.

When it is represented that there is a warranty in existence, a copy of that warranty, with the date and the name of the warranting company, should be given to the buyer for review, as is done with other documents. The warranty, with details as to what it covers, should be referenced on the Contract of Purchase and Sale. Often, the company which has provided the original warranty has gone out of business (e.g., a 50-year roof may no longer be covered). Sometimes, the warranty is not transferable and the next owner does not qualify. Appliances may have a different warranty date than the house does. Frequently, sellers believe they are covered when they are not and they could innocently misrepresent the situation to an unsuspecting buyer. It is imperative that no misrepresentation be made by the licensee.

Licensees who are referencing warranties on appliances or other components should be prepared to provide a copy of the warranty to the buyer and ensure that all relevant details concerning the warranty are listed on the Contract of Purchase and Sale.

If the appliances are not in working order, the licensee should disclose this fact in writing.

The following clause may be used by a buyer’s licensee to protect the buyer’s interests when appliances are included in the purchase:

Appliance Warranty Clause

The Seller warrants that the appliances included in the purchase of this property will be in proper working order as of the Possession Date.

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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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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.

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.

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.

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.

Record Keeping

You must keep the following records:

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

Ascertaining Identity

You must take specific measures to identify the following individuals or entities:

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

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.

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:

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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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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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:

After writing the offer, the licensee should go back and check it. Did he or she remember to:

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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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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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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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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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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Mortgage Broker Registration

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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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.

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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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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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:

Assignment Option Clause

The Buyer reserves the right to assign this contract in whole or in part to any third party without further notice to the Seller; said assignment not to relieve the Buyer from his or her obligation to complete the terms and conditions of this contract should the assignee default.

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

No Assignment Option Clause

The Buyer agrees not to assign this contract in whole or in part to any third party.

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.

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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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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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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Sale of the Buyer’s Property

In some cases, it may be necessary to include in the Contract of Purchase and Sale, a subject clause which permits the buyer to sell their own property.

The following clause may be used:

Sale of the Buyer’s Property Clause

Subject to the Buyer entering into an unconditional agreement to sell the Buyer’s property at                     (address)                      by                    (date)                    .

This condition is for the sole benefit of the Buyer.

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

If the buyer has entered into a Contract of Purchase and Sale, the following subject clause may be used to allow time for the contract to become unconditional:

Confirmation of the Sale of Buyer’s Property Clause

Subject to the sale of the Buyer’s property at                        (address)                       becoming unconditional by                        (date)                        . This condition is for the sole benefit of the buyer.

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ITEMS AFFECTING A PROPERTY

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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.

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.

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.

Agricultural Land Reserve (ALR)

The Agricultural Land Reserve, in addition to limiting development, may also take precedence over municipal zoning.

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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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:

Heritage Conservation Act Clause

Subject to the Buyer satisfying himself/herself on or before                        (date)                        regarding the potential effect of the Heritage Conservation Act on the use and/or development of the property.

This condition is for the sole benefit of the Buyer.

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

The Archaeology Branch may be contacted as follows:

Ministry of Tourism, Culture and the Arts Archaeology Branch
PO Box 9375, Stn. Prov. Govt.
Victoria, B.C. V8W 9M5
Tel: 250-952-5021
Fax: 250-952-4188
Website: www.tca.gov.bc.ca/archaeology/

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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:

Fish Protection Act Clause

Subject to the Buyer receiving and approving independent professional advice concerning any limitations on the use and/or development of the property resulting from the Fish Protection Act, by                        (date)                        .

This condition is for the sole benefit of the Buyer.

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

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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:

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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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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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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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 sh