December 2013 Report from Council Newsletter

A recent court decision, Tang v. Zhang and Westcoast Realty Group Ltd., [2013] BCCA 52, has resulted in a number of case summaries being written by various lawyers. As well, it resulted in some changes to Paragraph 12 of the ‘standard’ for Contract of Purchase and Sale. A copy of the May 2013 Legally Speaking published by the British Columbia Real Estate Association, which analyzes this decision and identifies the changes to the ‘standard’ contract, can be found online here.

Some licensees mistakenly believe that this decision, which, based on the terms of the contract, referred to deposits being “non-refundable” and “absolutely forfeited” if a buyer does not provide sufficient funds for completion, means that a brokerage no longer requires to have the parties sign a written release before the brokerage may release funds it holds as a stakeholder. This is not true.

Paragraph 2 of the ‘standard’ Contract of Purchase and Sale states that the deposit will be “held in trust in accordance with the provisions of the Real Estate Services Act”. Section 30 of the Real Estate Services Act (RESA) establishes the circumstances in which a brokerage may withdraw funds it holds in a brokerage trust account. While a variety of such circumstances are described in section 30, the one that most applies to the situation described in Tang v. Zhang is section 30(2)(b), which states that money in a brokerage trust account that the brokerage holds as a stakeholder may be withdrawn only in accordance with a written agreement of the parties to the trade in real estate.

While Tang v. Zhang may have decided who was to receive the deposit in the transaction, it did not determine that a brokerage may release that deposit without a written agreement of the parties.

The Council is often asked whether the parties can create the written agreement concerning the release of the deposit within the Contract of Purchase and Sale itself. The Council cautions licensees against trying to draft such a clause, and against interpreting that a clause included in a contract apparently for this purpose may authorize a brokerage to release a deposit without a separate written agreement.

It is the Council’s view that the intent of the written release required by section 30(2)(b) is to ensure that the parties have agreed about the disbursement at the time the deposit is to be released. Much can change between when two parties enter into a Contract of Purchase and Sale and when the contract collapses. From the brokerage’s perspective, if one of the parties will not sign the release, that should serve as a red flag that there may be a difference of opinion as to who is entitled to the deposit. Even if the terms of the contract seem clear, there may be adverse claims that require legal interpretation.

The brokerage holds the money as a stakeholder and not as an agent for one of the parties to the trade in real estate. This requires the brokerage:

• to be impartial,
• to allow the parties sufficient time to come to an agreement as to the disbursement of the deposit, and
• not to be pressured by either party to release the deposit before there is a signed agreement in place.

If the parties are not prepared to come to that agreement, section 33 of RESA allows the brokerage to make application to the Supreme Court for an order for payment of the money into court. Section 30(2)(a) allows a brokerage to pay money into court under section 33. Sometimes advising the parties this is the only option available to the brokerage if the parties are not able to come to an agreement is just the sort of encouragement the parties need to break their stalemate.

In summary, while the Tang v. Zhang decision may have established principles as to which party may be entitled to a deposit in specific circumstances, licensees, particularly brokerages, should not be interpreting who may be entitled to a particular deposit. For certainty, the authority to release a deposit from a brokerage trust account should be established by a separate written agreement signed by both parties.

This edition contains a number of important articles for licensees. The articles are based on updates resulting from changes to legislation, court cases, and areas of practice requiring further clarification as a result of inquiries by licensees and/ or as a result of complaints. I urge you to read each and every article.

You will note from the discipline section of this report that:

a) there are a higher number of rental and strata property management disciplinary cases than usual. A number of the rental property management cases involve licensees performing rental property management activities when not licensed to do so, or employing unlicensed individuals to perform duties which require licensing;

b) there are a number of cases where licensees have failed to act in the best interest of their clients and/or with reasonable care and skill; and

c) there are a number of monetary disciplinary penalties ranging from $1,000 to $5,000 in addition to enforcement expenses.

As other Chairs have done before me, I would urge all licensees to ensure that they are properly licensed and competent to render the requisite real estate services prior to doing so. If you are not licensed to perform the appropriate service, or if it is outside of your particular practice area, you should refer the business to another licensee licensed to perform and experienced in that service. Consumer interest must always come first when providing real estate services.

In closing, on behalf of all Council Members and staff, I wish you and your family a happy holiday season and the very best for 2014.

Marshall Cowe,

Chair

The Council office will be closed:

• Wednesday, December 25, 2013 (Christmas Day)
• Thursday, December 26, 2013 (Boxing Day)
• Friday, December 27, 2013 (Christmas Holiday Office Closure)
• Wednesday, January 1, 2014 (New Year’s Day)

Acting as an agent on behalf of competing buyers, when each wishes to purchase the same property, creates a conflict of interest for licensees. The usual duties of loyalty owed to each client cannot be fulfilled. These duties of loyalty include:

• acting in the best interest of a client- how can the licensee act in the best interest of both clients when these clients have opposing interests?
• acting in accordance with the lawful instructions of a client-what will the licensee do when one client gives lawful instructions that oppose the other client’s lawful instructions?
• maintaining the confidential information of a client/disclosing all known material information to a client-what will the licensee do when the confidential information of one client is material information for the other client?

This conflict is similar to conflicts that exist when a licensee acts as an agent for a seller and a buyer in the same transaction. In either case, a licensee must not act in this conflict unless the licensee has first obtained the consent of the affected clients. This consent must include agreement as to how the licensee’s duties, including their duties of loyalty, are to be modified. Licensees must remember, however, that each client has the right to choose whether they are prepared to allow a licensee to act in these situations of conflict. They have the right to say “no- you may not act as a dual agent”.

During the creation of new forms related to the introduction of designated agency, the British Columbia Real Estate Association (BCREA) created a second Limited Dual Agency Agreement form to assist licensees who seek consent to act on behalf of competing buyers.

Buyers who sign this form consent to the licensee’s duties being modified in a way that allows the licensee to continue to act on their behalf in an impartial way, not favouring the interests of one client over the other’s, and not disclosing any of one client’s confidential information to the other client.

An explanation of the new form, including a comparison between it and the Limited Dual Agency Agreement form used when representing a seller and a buyer in the same transaction, can be found on BCREA’s designated agency website.

Licensees are required to promptly provide their related brokerage with a copy of any Disclosure of Interest in Trade Forms they have completed in the course of:

• directly or indirectly acquiring or disposing of real estate, or
• providing real estate services to an associate who is directly or indirectly disposing of real estate.

At the bottom of the second page of the Disclosure of Interest in Trade Form there is a section entitled ‘Brokerage Use Only’. This section is where the brokerage acknowledges receiving a copy of the form and suggests that only a managing broker could acknowledge receipt of the form.

The Council, at its October 29, 2013 meeting, decided to amend the “Brokerage Usage Only” section of the Disclosure of Interest in Trade Form by permitting the managing broker to delegate to another person in the office the acknowledgement of the receipt of a copy of this form.

The new version of the Disclosure of Interest in Trade Form is available on the Council’s website here and is available on WebForms.®

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.

More information related to the delegation of a managing broker’s duties is contained in the Brokerage Standards Manual at the following link.

Further to the articles published in the February 2012 and October 2013 editions of the Report from Council, strata management licensees and their related brokerages are reminded that the Strata Property Regulations for Form B’s (Information Certificate) were changed and will be brought into force effective January 1, 2014. This new regulation is available online. Further information is available at the Strata Property Act’s website.

Form B Changes

From January 1, 2014, all strata corporations will be required to identify on the Form B (Information Certificate) the allocation of storage lockers and parking stalls to a strata lot. The Form B will be revised to take these changes into account.

In order to ensure that the strata corporation’s records are correct, licensees who are contracted to sign and provide Form B’s on behalf of their strata corporation clients should bring this to their client’s attention.

The Council was recently advised of information being provided to licensees by 3rd parties in relation to the provision of draft depreciation reports and Form B’s. The information was purported to have originated from the Council.

In order to clarify matters, it is the Council’s view that all documents of the strata corporation belong to the strata corporation and thus only a strata council may determine whether a particular document is complete and accurate to its satisfaction, and whether it may be provided to authorized parties. In the specific issue of a strata management licensee receiving a draft depreciation report from, for example, an engineering company, it is the Council’s view that the licensee’s duty would be to provide the draft to the strata council so that it may be reviewed to confirm that it is complete, accurate and approved for distribution. There may be errors in the draft that would provide incorrect or misleading information about the strata corporation to a 3rd party; therefore the Council would recommend that a licensee not release such a document until authorised to do so by their client.

Once the depreciation report has been approved by the strata council, the licensee may be in a position to rely on their service agreement (assuming that the service agreement includes the provision of Form B’s and associated documents) to provide a copy of the approved depreciation report with a Form B, unless the strata council specifically instructs the licensee not to provide it.

Section 3-3 of the Council Rules

Subject to sections 3-3.1 and 3-3.2, if a client engages a brokerage to provide real estate services to or on behalf of the client, the brokerage and its related licensees must do all of the following:

a) act in accordance with the lawful instructions of the client;

c) act only within the scope of the authority given by the client;

If a strata council decides to withhold a depreciation report and prevents its distribution, a licensee may believe that the client’s instructions contravene the Strata Property Act and are thus unlawful. Section 3-3(b) of the Council Rules requires a licensee to act in accordance with the lawful instructions of a client in relation to the real estate services being provided. However, the rules are silent, except in the case of instructions to not disclose a known material latent defect, on what a licensee must do in the event they receive what they believe to be unlawful instructions.

The Council is of the view that it is the strata council that is required to ensure their strata corporation’s compliance with the Strata Property Act. If a strata manager believes a strata corporation client may be straying from the requirements of any legislation, the strata manager should advise the strata council of what they believe to be the correct course of action, noting that their advice should not be considered legal advice (it is also recommended that this advice be given in writing). If the client is unwilling to take the strata manager’s advice, the client should be advised that, in order to minimize the risk of liability, it should obtain legal advice.

In the October 2013 edition of the Report from Council, strata management licensees were reminded of the changes to the Form B (Information Certificate) that take effect January 1, 2014.

Further information is provided below as to the different designations that a parking stall and a storage locker may have, that may need to be identified correctly to report this information on a Form B.

Common Property

This designation for parking stalls and storage lockers may require updating far more often than the other designations. There are two variations to consider:

Non-Exclusive Use. This may be evident in a strata corporation parking lot, parkade or storage room, where an owner, resident, tenant or visitor may park anywhere or use a storage locker on a first come basis.

Short-Term Exclusive Use Common Property. Section 76 of the Strata Property Act (the “SPA”) allows a strata council to designate common property for the exclusive use of a tenant or owner. It is important to note that this permission or privilege may only be given for a period of not more than one year*, and may be renewed or cancelled subject to the provisions described in that section. Strata Corporations need to be sure to keep their records up to date and ensure that designations of shortterm exclusive use are renewed at least on an annual basis or cancelled if appropriate, to ensure accuracy of the records.

Leased or Licensed Use. The owner developer, subject to certain terms as may be set out in the Disclosure Statement, may have granted an entity (such as a parking garage operator) a lease for an area of common property (typically a parking stall or number of parking stalls) for a period of time. This entity may be under the control of the owner developer. As each individual purchases their strata lot, they may have negotiated and possibly purchased a sub-lease or licence for the exclusive use of a parking stall (or stalls) or storage locker(s). There is no requirement for these leases or licence agreements to be registered at the Land Titles Office (the “LTO”); and neither is the owner developer obligated to provide the strata corporation copies of these subagreements, as they are agreements between two parties and not a record of the strata corporation. Notwithstanding this, the owner developer is obligated (and may need to be reminded) to provide all records required to be prepared or retained by the strata corporation under section 35 of the SPA, which includes parking stall and storage locker allocations. However, without this information, there may be some difficulty for the strata corporation to identify which areas of the common property are subject to a long term usage agreement with an individual owner.

Limited Common Property (shown on strata plan)

If the parking stall or storage locker has been designated as Limited Common Property, it is likely to be identified as such on the strata plan registered at the LTO. Note that the proposed strata plan provided in the Disclosure Statement or the originally filed strata plan may not necessarily suffice; as under section 258 of the SPA, an owner developer may, at any time prior to the first Annual General Meeting amend the strata plan to designate parking stalls as limited common property. There are two other variations to consider:

Limited Common Property designated to specific strata lots (Non-Exclusive Use). The strata plan may identify an area of the common property (such as a parkade or parking area) as Limited Common Property for a limited number of strata lots. In this situation, only those owners, residents, tenants or visitors of the strata lots as shown on the strata plan may park in this area.

Limited Common Property designated to specific strata lots (Short-Term Exclusive Use). Where Limited Common Property is designated for a limited number of strata lots, the strata corporation (or possibly a section) may allocate short term exclusive use of the Limited Common Property to specific strata lots. The same caveats that apply to Short-Term Exclusive Use Common Property, apply in this situation.

Limited Common Property (not shown on strata plan)

There may be instances where the limited common property has been designated by way of a ¾ Vote (section 74 of the SPA), where the strata plan has not been amended. In this instance, the ¾ Vote resolution(s) along with a sketch plan or diagram will be registered at the LTO.

Part of a Strata Lot. In some instances, the parking stall and/or the storage locker has been designated as part of a strata lot. This can be identified by reviewing the registered strata plan, and obtaining the General Index or the Common Property Folio to identify the ¾ Vote resolution.

Separate Strata Lot. In some strata corporations, parking stalls may have been registered as a separate strata lot, and thus may be purchased or sold separately. These strata lots might be owned privately, or by the strata corporation. The owners of these strata lots may choose to provide a lease or licence to another party.

Section 35(1)(c)(i) of the SPA requires that strata corporations prepare and retain a list of owners. This list must also include the owner’s parking stall number(s). Due to the new requirements of the Form B, it would be wise for a strata corporation to ensure that not only the ownership and parking stall lists are updated, but also that the storage locker lists are recorded correctly and updated whenever there is a change of ownership, or parking stall/ storage locker allocation.

While typically the allocation of parking and storage lockers tends to be associated with apartment/high rise strata corporations, the legislation also relates to townhouse and bare-land strata corporations. Examples where this may be pertinent include;

• a parking pad/parking area that may be in front of, or near a townhouse, or a bare land strata lot, and
• a separate storage locker that the strata corporation may own (either as a free standing building, or maybe within an amenity building).

Where the brokerage has been designated the responsibility for the record keeping of the strata corporation and/or the completion of a Form B, licensees should bring this requirement to their client’s attention. Where the records are not complete and the Form B cannot be completed accurately or with surety, the licensee may wish to recommend that their client seek legal advice.

Buyers of an estate property must be assured that the title can pass to them without legal problems. Licensees acting on behalf of an estate that is selling property should have the executor confirm that a grant of probate or letters of administration has been made which will allow the property to be transferred.

If the Buyer has received confirmation that (1) the grant of probate or letters of administration has occurred, and (2) that no claims have been made or asserted under the Wills Variation Act, then no clause is required. If either or both has not occurred, the following clause should be incorporated into the Contract of Purchase and Sale:

Buying from an Estate Clause

Subject to the Buyer receiving the following by (date):

1. copy of a grant of probate or letters of administration allowing the property to be sold; and
2. assurance that no person has either made a claim against the property, or communicated the intention to make a claim against the property, under the Wills Variation Act.

This condition is for the sole benefit of the Buyer.

If there is a delay in the grant of probate or letters of administration, the buyer may agree to an extension to allow the executor or administrator additional time. However, any extension clause that is inserted should specify a date by which the grant of probate or letters of administration must be obtained. Licensees should not insert a clause which automatically extends the completion date of the contract until this event occurs.

An example of the proper way for an executor (or administrator, as the case may be) to sign a contract on behalf of the estate is: ”G. Seller, Executor [or: Administrator] of the Estate of (name of the deceased)”.

Finally, licensees should be aware that the Wills Variation Act and related statutes are presently scheduled to be replaced by the provisions of the Wills, Estates and Succession Act on March 31, 2014. The Council will monitor this and will provide further guidance to licensees as necessary.

Questions related to this or other information contained in this Report from Council may be directed to [email protected].

Since the October 2013 Report from Council newsletter, the following actions have been taken as a result of disciplinary hearings and Consent Orders conducted by the Council.

Trading Services

• Patricia (Patti) Ann Goss
• Scott Wade Sauer (aka Scott W. Warren)
• Paul Chiu Yin Pang and New Asia Realty Inc.
• Glenn Gerald Renney
• Kuldip (Kevin) Singh Grewal
• Ftre Ventures Inc. dba Fast Forward Real Estate and Deborah Lind Simmonds
• Shawn Robert Brown dba Altas Group Property Solutions
• Swissreal Real Estate Services Ltd. and Franz Ulrich Gehriger
• Dockside Realty Ltd. Sherrie Lynn Boyte and Sandra (Sandy) Karen Mundy

Rental Property Management Services

• Jimmy Yam Sun
• Dominiongrand Realty Corp. and Alan John Nixon
• Linda Louise Gabara
• Hee Young (Christine) Kim

Strata Management Services

• Richard Yan-Yun Liu
• S.D. Woodman Management Ltd. and Sharel Dianne Woodman
• Cornerstone Properties Ltd. and Jason Russel Middleton
• Russell John King
• Martin Antonius Sprenkels

• Eileen Elizabeth Murray