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Professional Standards Manual

Trading Services

1. Practice Standards

(p) Duties of Disclosure under Court-Ordered Sales

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

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

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

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