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Professional Standards Manual

Rental Property Management Services

2. Practice Standards

(r) Conflicts of Interest When Providing Trading, Rental Property or Strata Management Services

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

Another example of the conflict could arise where the brokerage, as strata manager, is aware of confidential financial issues which could lead the strata corporation to impose a special levy. This information could be material to the interests of an owner to whom the brokerage is providing trading services (e.g., the brokerage has listed that owner’s strata lot for sale); however, fulfilling the duty to disclose this information to the owner would lead the brokerage to breach its duty of confidentiality to the strata corporation. It is, of course, possible that a brokerage may be able to fully serve both clients without ever having to deal with the type of dilemma presented above. As well, there may be situations where the benefits of representing both clients could be seen to outweigh the risks posed by the conflict of interest. These practical realities are reflected in section 3-3.1 of the Rules, which allows the brokerage to obtain the client’s consent to an alteration or abridgement of some or all of the duties ordinarily owed to the client. This provision can be used by a brokerage that wishes to provide strata management services to a strata corporation, while at the same time providing rental property management or trading services to a strata lot owner. Using this provision, there are different approaches that can be taken by a brokerage in these circumstances to avoid a breach of section 3-3. Essentially, all approaches require the informed consent of any client who will not, or who might not, receive the full benefit of all of the duties ordinarily owed by the brokerage to that client. A brokerage may wish to seek legal advice about how to structure its client relations in order to avoid a breach of section 3-3 of the Rules. The following options present two different approaches that may be used:

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

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

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

Under this approach, the brokerage would designate either its strata corporation client or its owner client as a ‘‘ primary client’’, and provide full representation to that primary client. Since there would be no limitation on the duties owed to the primary client, it would not be necessary to obtain that client’s agreement under section 3-3.1 of the Rules. However, the brokerage would have to obtain, before providing any services to a non-primary client, that client’s informed consent to the brokerage acting for a primary client, and accordingly, to providing only ‘‘limited representation’’ to the client. The agreement with each non-primary client should disclose the following: (a) that the brokerage intends to provide real estate services to the strata corporation or an owner, as the case may be, as a ‘‘primary client’’, and can only provide limited representation to the client; (b) that the brokerage will not be able to (i) act in the client’s best interests, if those interests conflict with the interests of a primary client, (ii) act in accordance with the client’s instructions, if acting in accordance with those instructions would lead the brokerage to breach any of the brokerage’s obligations to a primary client, (iii) maintain the confidentiality of information about the client, or (iv) disclose to the client any confidential information about the primary client.

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

Obtaining consent from existing clients:

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