II. General Information
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 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 Rules requires that every brokerage notify the Council of any business changes, including:
- changes in the brokerage contact information,
- the licensees engaged by the brokerage,
- the brokerage's partnership or corporate structure, and
- savings institutions or branch locations for the brokerage.
Section 2-20 of the 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:
- a 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,
- a requirement to maintain proper business records, and
- in some cases, the requirement to enter into written service agreements.
(a) Trust Funds and the Payment of Remuneration
RESA and the 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 Rules permits a brokerage to maintain one or more commission trust accounts for the payment of licensee remuneration.
A commission trust account will be necessary if, of the net amount owed to the licensee, a portion of the funds are payable to a third party such as the Canada Revenue Agency (CRA). In such cases, it is not permissible for the brokerage to retain a portion of the net funds payable to the licensee in the brokerage trust account or the brokerage operating (general) account. As a result, either the entire amount of the net funds must be paid to a commission trust account, and from that account, funds can be paid to the licensee while other funds are held for payment to the CRA, or at least that portion of the net funds that are to be held and paid to a third party on behalf of licensees must be paid to the commission trust account.
RESA requires that a managing broker must be a signing authority on each trust account maintained by the brokerage.
A shortage in a trust account must be reported to the Council immediately if the managing broker considers that the negative balance in the trust account will result in a claim against the compensation fund, or if the shortage cannot be resolved within 10 working days of the shortage occurring.
(b) Audit Requirements
Section 7-7 of the Rules requires that every brokerage submit an Accountant’s Report within 120 days after the brokerage’s fiscal year end. Section 4-9 of the Council Bylaws requires that each trust account maintained by the brokerage be reported on by the accountant in the Accountant’s Report. However, trust accounts maintained for the purpose of holding commissions have been excluded from the audit requirement.
(c) Written Service Agreements
Section 5-1 of the 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 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.
(d) General Description of Services
The requirement to include a general description of the services to be provided in a contract is a new requirement under RESA. Previously, the standard listing contract and many rental property or strata management contracts did not specify what services the agent would provide in relation to the contract. As a result, it was very difficult for the parties to the contract to know what to expect of the brokerage and to establish whether a brokerage had fulfilled its obligations under the contract.
The brokerage should be aware that, because it is a term of the contract, the general description of services is binding on the brokerage and the failure to provide the services that are described may result in the client terminating the contract and in a potential claim by the client for damages for breach of contract.
(e) Records and Reports
The 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.
Every brokerage must maintain trust account records, including:
- a cash record showing all transactions affecting the trust account,
- a journal showing amounts received and disbursed.
It must also keep a separate ledger for:
- each trade in real estate,
- each principal in relation to rental property management services,
- each principal in relation to strata management services, and
- each licensee showing the amounts received and disbursed.
The brokerage must prepare a monthly trust liability and asset reconciliation.
Section 8-4 of the Rules sets out various general records relating to the provision of real estate services that a brokerage must retain; section 8-5 of the Rules sets out what documents must be retained in respect of trades in real estate; section 8-6 of the Rules sets out what documents must be maintained when a brokerage provides rental property management services, and section 8-7.1 of the 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 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.
(f) Retention of Disclosures
Section 8-4 of the 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 Rules that a licensee must make. Section 8-10 of the 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.
(g) Duty to Clients
Section 3-3 of the Rules sets out the duties that a brokerage owes to a client. Unless the client and brokerage have agreed to modify the brokerage’s duties, a brokerage is required to do all of the following:
- act in the best interests of the client;
- act in accordance with the lawful instructions of the client;
- act only within the scope of the authority given by the client;
- advise the client to seek independent professional advice on matters outside of the expertise of the licensee;
- maintain the confidentiality of information respecting the client;
- disclose to the client all known material information respecting the real estate services, and the real estate and the trade in real estate to which the services relate;
- communicate all offers to the client in a timely, objective, and unbiased manner;
- use reasonable efforts to discover relevant facts respecting any real estate that the client is considering acquiring;
- take reasonable steps to avoid any conflict of interest; and
- promptly and fully disclose any conflict that does arise to the client.