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Professional Standards Manual

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4. Disclosures

(a) Disclosure of Interest in Trade

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

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

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

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

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

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

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

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

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

(a) in the case of an individual licensee,

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

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

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

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

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

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

(iii) a trust or estate

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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