Since the March 2017 Report from Council newsletter, the following actions have been taken as a result of disciplinary hearings and Consent Orders conducted by the Council.
- James Thomas Shaw, Representative, Andrew Robert Orchard, Representative, and Jimy Hon Chung Law, Managing Broker, Cypress Land Services Inc., Vancouver
- Menelaos Arthur Petropoulos-Varelis (Mike Hallmark), Representative, Keller Williams Elite Realty (Victoria Branch Office), Victoria, and Mike Hallmark Personal Real Estate Corporation
- Ken Cheng Min Phuah, Ken Phuah Personal Real Estate Corporation, Representative, Sutton Group West Coast Realty (Cambie Branch Office), Vancouver
- Pei Huang, Representative, RE/MAX Metro Realty, Vancouver
- Ying Yi (Carol) Tan, Representative, Royal Pacific Realty (Kingsway) Ltd., Vancouver
- Perry Keith Freeman, Perry Freeman Personal Real Estate Corporation, Associate Broker, Colliers International Kelowna, Kelowna
- Michael Thomas O’Grady, Representative, Prudential Power Play Realty, Langley
- Marshall Francis McAnerney, Representative, Marshall McAnerney Personal Real Estate Corporation, Macdonald Realty Kelowna, Kelowna
- Barbara Ann Monical, Representative, RE/MAX 100, 100 Mile House
- FINANCIAL SERVICES TRIBUNAL APPEAL DECISION: Ahmet (Matt) Murat Kadioglu
Rental Property Management Services
Earlier this spring, a newspaper headline got some licensees worried about possible tax liabilities when helping clients buy property from non-resident sellers. “House Buyer Beware: Landmark Court Ruling will Shake Real Estate Industry — will open in a new tab” ran the headline, causing many licensees to call the Council’s Professional Standards Advisors with questions about what this meant, and whether any of their responsibilities had changed.
Here’s the short answer to the question on everyone’s mind: the court decision does not create additional obligations for real estate licensees. Read on for more details and a special advisory to managing brokers.
Q: I read in the paper recently that because of a Supreme Court decision, real estate licensees will now be responsible for determining the residency status of property sellers. If they don’t, they may end up being liable for any non-resident withholding tax that a buyer has to pay. Is this true?
A: Here’s what a lawyer at the Errors and Omissions Corporation had to say about this, in an article for the British Columbia Real Estate Association newsletter, Legally Speaking:
”the court’s decision does not establish any new duties for licensees” with respect to ascertaining the residency status of sellers.
When property sellers are non-residents of Canada, they must pay a non-resident withholding tax on the sale of their property — and if they don’t, the Canada Revenue Agency may recover the tax from the buyers. In the case reported in the newspaper, the buyers had been assessed $695,000 in taxes by the CRA that the non-resident sellers should have paid. They sued, and the court found that the notary acting for the buyers had not made reasonable inquiries about the residency status of the sellers and had failed to advise them about any potential tax liability. The case is currently under appeal.
So what are a licensee’s duties with regard to the residency status of sellers?
Section 116 of the Income Tax Act requires a buyer to make “reasonable inquiries” to ascertain the residency status of a property seller. Ensure that you have done due diligence regarding the residency status of the seller before the completion date. Make sure that the sellers check either the residency or non-residency box on the Contract of Purchase and Sale when they sign the contract.
As a best practice, licensees should recommend that their clients seek legal or accounting advice about any tax issues and their purchase or sale of property.
When a Contract of Purchase and Sale has been assigned to a non-resident buyer, and the profit is to be paid from a brokerage trust account to the assignor before completion of the original deal, brokerages should seek legal or accounting advice on any tax issues before releasing funds. Licensees involved in such transactions should also advise assignees and assignors to seek legal advice. The assignment of a contract is a disposition of real estate under the Income Tax Act and is subject to the Income Tax Act withholding requirements.
Brokerages must also ensure that the assignment complies with all the regulatory requirements under section 8.2, Assignment of contracts for the purchase and sale of real estate, of the Real Estate Services Regulation. For more information on these requirements, see the Council’s Contract Assignment FAQ for Licensees.
All licensees can now apply to renew their licence using the Council’s online Licensee Portal — will open in a new tab. Applying for your licence renewal online takes just 5 easy steps. You can find full instructions on the Council’s licensee portal.
Before you begin, make sure that you have a VISA or MasterCard available to make your payment, and electronic copies of all the supporting documentation you will need, including the evidence that you have completed the Relicensing Education Program (REP) requirement.
Visit the Council’s homepage, select “Licensee Login” in the top right corner of the page, and select “Click here to activate your account” in the orange bar at the top of the page. You must enter your last name, email address and birth date. Make sure the email address you provide matches the email address the Council has on file for you.
You will receive a confirmation email with a personal activation link. Click the link to activate your account. Now you’re ready to start the renewal process.
Visit the Council’s homepage, select “Licensee Login” in the top right corner of the page and enter your email address and password.
Click on “Application for Licence Renewal” and follow the prompts. Remember, you’ll need to upload supporting documentation to prove that you’ve completed your REP requirement. You can’t complete the application process without that documentation.
When you have completed the application and uploaded all required information, select “I consent to the above.” You will be prompted to make your payment.
After you have completed the application, uploaded all required information and made your payment, the application must be reviewed by your managing broker. Your managing broker will receive an automatic email notification that your renewal application is ready for review.
Your managing broker will login to review the application and certify that the information is complete and correct, or contact you with any questions regarding the application.
Once the application has received the managing broker’s certification, the Council’s licensing staff will review the application. Licensing staff will contact you and/or your managing broker if the Council requires more information or to correct any deficiencies with the licence renewal application.
When the application is complete and satisfactory, the Council will renew your licence. The new licence and receipt will be sent to your brokerage.
In its June 2016 report, the Independent Advisory Group identified a need in BC for consumer-focused information to:
- help the public understand the services to expect from licensees,
- equip consumers to understand complex real estate issues, and
- empower them to make informed decisions in their best interests.
Now, the Real Estate Foundation of BC — will open in a new tab has approved a multi-year funding grant of $250,000 to the Council that will support us to do exactly that. Over the coming months and years we’ll be working with partner organizations in real estate and related fields to bring together a comprehensive online public resource of real estate information.
We’re excited about the challenges and opportunities ahead to bring information to consumers in new ways, and we look forward to keeping licensees informed along the way, so that you can share these resources with your clients.
The Council will be holding a strategic planning session in the fall of 2017, to begin development of a three-year plan that will guide the organization as it continues to evolve in order to protect the public interest and regulate the conduct of real estate licensees.
Earlier this spring, Council staff prepared an operational overview that was presented to the Council at its May meeting. The overview highlighted some of the key organizational issues that Council will be addressing as it plans for the future. These include:
- Further expanding the Council’s investigatory capacity. In 2016 the Council conducted a record 862 investigations, and may exceed that number in 2017. We’ll be recruiting more qualified, experienced investigators to ensure that complaints are handled in a timely and efficient way.
- Launching new initiatives. The Independent Advisory Group has called for the Council to:
- develop a confidential reporting channel,
- strengthen the assessment requirements for mandatory continuing education (the Legal Update courses), and
- review the educational requirements for licensing.
These projects, along with the Council’s consumer information campaign, will require a significant investment of resources.
- Continued investments in technology and business process improvements. Systems improvements and streamlining business processes will be key to increasing the Council’s efficiency and effectiveness over the coming years.
On June 1, 2017, changes to the BC Provincial Small Claims Court and the Civil Resolution Tribunal (CRT) came into effect. Now, disputes for up to $5,000 will be resolved through the CRT’s online tribunal instead of going to Small Claims Court. The changes will make resolving disputes faster, easier and cheaper for everyone involved.
According to the CRT’s website, in the five months since the tribunal began accepting strata property disputes in late 2016, their online Solution Explorer was accessed more than 3,500 times, and 185 applications for strata dispute resolution were filed.
To help licensed strata managers understand their role during a dispute before the Civil Resolution Tribunal, the Council hosted a series of free seminars across the province in the fall of 2016. For more information, review past articles from Report from Council newsletters, or contact one of the Council’s Professional Standards Advisors.
Recent media reports about a BC house advertised online for bitcoins have got licensees and some consumers asking questions about the electronic currency. While bitcoins can be used legitimately for many purposes, there are also significant risks associated with them, including the risk that the currency may be used to disguise the source of money derived from criminal activities — commonly known as money laundering.
Here are three questions and answers about bitcoins that every licensee should be aware of.
Bitcoin is an unregulated electronic currency, also called a “cryptocurrency”. Each bitcoin is created using a complicated mathematical equation and is “policed” by other computers called “miners”. An owner of bitcoins stores them in a virtual “wallet” and can trade them online with other wallets.
When you buy or sell something using bitcoins, no personal information is transmitted. However, the transaction is not completely anonymous: the address you use to receive the bitcoin will be stored in a public online ledger that holds every bitcoin transaction connected to the network.
Buyers can legally use bitcoins to purchase real estate, but brokerages cannot accept deposits in bitcoin. In BC, deposits must be held in trust by a stakeholder unless otherwise stated in the Contract of Purchase and Sale. Because bitcoins exists outside of the purview of banks and governments, they cannot be held in trust. This means that brokerages and lawyers cannot receive a bitcoin deposit and hold it in a trust account.
Because the source of a bitcoin payment may not be discoverable, as in a cash transaction, licensees should carefully consider their FINTRAC reporting requirements under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA). In its guide for real estate industry members, Operational Brief: Indicators of Money Laundering in Financial Transactions Related to Real Estate — will open in a new tab , FINTRAC reminds licensees that “Under section 7 of PCMLTFA, all reporting entities subject to the Act must report suspicious transactions, and attempted suspicious transactions, to FINTRAC”. See the guide to review indicators of suspicious transactions.
There are reports that bitcoins have been used in some jurisdictions in real estate scams involving identity theft and title fraud. In some cases, a fraudster steals the identity of a property owner, and advertises their property for sale online for bitcoins. The buyer registers title and immediately takes out loans against the property, fleeing with the funds and leaving the actual homeowner in debt.
In other cases, identity thieves have targeted properties already listed in the MLS and created fraudulent secondary advertisements to sell the same home for bitcoins. Neighbours and family who may come across the advertisement will know the house is being legitimately sold and may assume this is just another advertising point. Often the licensee and the actual owner are unaware of the fraud.
Licensees should strongly advise any members of the public considering accepting bitcoin in a real estate transaction to get expert legal advice to ensure they are fully informed about the risks of using the currency.
Your buyer clients are so eager to see their offer on a property accepted, they’ve asked you to write an offer with no subject clauses before they’ve had an opportunity to perform the normal due diligence.
In a hot market, buyers may be tempted to do ‘whatever it takes’ to get the property — including submitting a no-subject offer. As a licensee, you have a duty to act in your clients’ best interests — and that means making sure in advance that they understand the risks of no-subject offers.
By not including subject clauses, your clients may not have an opportunity to review strata documents, arrange for an inspection, or confirm financing or insurance approvals. Without this due diligence, your clients may not be able to make an informed decision about their purchase. If they get the information after the offer, your clients may not be able to use it to collapse the deal, should they wish to.
- Advise your clients about the risks. Before submitting an offer, advise your clients that if they make an offer with no subject clauses, without having performed their due diligence, they will be taking many risks. Make sure your clients understand that by moving forward without performing the normal due diligence, they are accepting those risks.
- Document your advice. If your clients insist on going ahead with a no-subject offer, you should promptly follow-up with a written summary of your advice. Keep a copy of that summary in your file.
Beginning in December 2017, all owners of residential property in Vancouver will have to make a property status declaration for the 2017 calendar year, to determine if they will be subject to the Empty Homes Tax.
If a residence was empty or under-utilized in 2017, according to the Vancouver Vacancy Tax Bylaw, the owners must pay a tax of 1% of the assessed value of the property, unless they qualify under certain exemptions.
To help property owners determine if the tax will apply to them, the City of Vancouver has developed a simple online questionnaire: Does the Empty Homes Tax Apply to You? — will open in a new tab
Homes that will be subject to the tax include:
- secondary homes or investment properties that are unoccupied for more than 180 days in the year, and
- homes that are empty for more than 180 days in the year while listed for sale or rent.
The tax will not apply to empty secondary suites, laneway homes or leasehold properties as long as at least one dwelling on the property is occupied for at least 6 months of the year.
There are a number of exemptions, including for:
- homes that were bought or sold during the year
- homes whose owners are deceased and a grant of probate is pending, and
- homes that were unoccupied because of renovations or redevelopment.
The City of Vancouver will audit the property status declarations, and can require owners to provide evidence to support their declarations. Anyone who makes a false property status declaration may be fined up to $10,000 per day of the continuing offense.
Details on the Empty Homes Tax, including common property scenarios, exemptions and enforcement and penalties, are available on the City of Vancouver website — will open in a new tab.
Whether you’ve been in the business for 5, 15 or 50 years, every managing broker needs a succession plan. A clear plan that identifies a qualified licensee who can manage your brokerage when it’s time for you to step away from the business, or in case of a sudden emergency, makes good business sense. A written succession plan outlining how and when a new leader can take charge will reduce the chances of interruption in the brokerage’s licensing, and ensure that your clients’ best interests are protected.
By developing a succession plan so that there is a qualified managing broker or associate broker ready to step in when needed, you won’t have to worry about whether the licensees in your brokerage will be able to continue working should you need to leave unexpectedly or through a planned retirement. You’ll have assurance that the business of the brokerage can carry on without interruption, overseen by a capable managing broker (or brokers) familiar with the brokerage’s practices and procedures, and licensed in all the necessary categories.
A succession plan is also an important part of protecting the public. The role of the managing broker is crucial to ensuring that the brokerage carries out it duties under the Real Estate Services Act (RESA). A managing broker is expected to be in active charge of the brokerage, to ensure that the business of the brokerage is carried out competently and that licensees and employees at the brokerage are adequately supervised. That includes ensuring that trust accounts and records are properly maintained, and that there is appropriate management and control of documents.
Succession planning is becoming increasingly important for many brokerages across BC. According to the Council’s licensing records, managing brokers over the age of 50 are currently managing 79% of all the province’s licensees. In fact, 46% of licensees are supervised by managing brokers over the age of 60.
When building your succession plan, here are a few points to keep in mind:
- A managing broker is essential. Under section 6 of the RESA, a brokerage must have a managing broker, and can only provide the categories of real estate services for which the managing broker is licensed. That means a managing broker licensed to provide trading services and rental property management services cannot manage a strata brokerage.
- Are there internal candidates? As you train and mentor the licensees at your brokerage, you can assess their potential to fill the role of managing broker. Develop a list of key qualifications that a new managing broker at your brokerage would need. Encourage promising licensees to pursue the qualifications to become an associate or managing broker.
- Do they know the brokerage history? A new managing broker should review the brokerage’s books and records for previous years, to ensure that the brokerage has been in compliance with all the requirements of the RESA, Rules and the Council’s guidelines for record-keeping.
- Document short-term delegation. As a managing broker, you may periodically delegate responsibilities to another experienced licensee, preferably an associate broker — for example, as vacation coverage. When delegating tasks, make sure the agreed-upon responsibilities are clearly outlined in a written document, specifying the individual who has accepted the responsibilities, and the start and end date of the delegation. Let licensees at the brokerage know who has taken on your duties in your absence, and inform the Council as far in advance as possible of your planned absence. And remember — even when tasks are delegated, the control and conduct of the brokerage’s business remains the ultimate responsibility of the managing broker. For more information, see Delegation in the Brokerage Standards Manual.
- When you step down, will there be other changes? As well as a managing broker, are you also a partner, director or officer of the brokerage? Section 2-22 of the Rules requires brokerages to promptly notify the Council in writing of brokerage business changes, such as changes in partners, directors or officers.
- Do you own the business? If you are the sole director of the brokerage, as well as the managing broker, there are additional considerations you should keep in mind when planning for the future. Have you made arrangements to enable the business to continue should you become ill, incapacitated or deceased?
- Keep the plan current. Review your succession plan periodically, to ensure that the strategy you’ve outlined is still appropriate.
Real estate transactions can be a tempting way for individuals to disguise the source of money or assets derived from criminal activity — otherwise known as money laundering. As a real estate licensee, the possibility that clients may be purchasing real estate with the profits of illegal activities is something to be aware of, and on the alert for. By knowing the signs of a suspicious transaction, and by complying with federal reporting requirements, licensees can play an important role in efforts to stop money-laundering and terrorist financing.
The Proceeds of Crime (Money Laundering) and Terrorist Financing Act requires real estate licensees in trading services to gather identification details from buyers and sellers for reporting to FINTRAC, the Financial Transactions and Reports Analysis Centre. Last year, FINTRAC introduced changes to the kinds of client information that trading services licensees need to collect, and by June 30, 2017, all of the changes will have come into force. The new obligations include:
- changes to the way that licensees may ascertain a client’s identity,
- a requirement to keep records of when identification information was referred to, and
- expanded record-keeping requirements on reasonable measure record obligations.
Complete information about the requirements for real estate licensees and brokerages is available on the FINTRAC website — will open in a new tab.
The Canadian Real Estate Association has developed a number of educational materials to help their members understand and comply with the FINTRAC requirements. You can find forms, FAQs, brochures to use with clients, guidelines for developing brokerage record-keeping policies, and more, on Realtorlink — will open in a new tab. Updated forms can also be accessed on WEBForms®.
Managing brokers looking for more information on record-keeping requirements and audits should consult FINTRAC’s guidance document, FINTRAC Examinations: Your Responsibilities and What You Can Expect from FINTRAC — will open in a new tab.
As a real estate licensee, you have an obligation to comply with all legislative requirements. As part of the Council’s brokerage inspection program, our auditors review financial processes and ensure the compliance of books and records.
Failure to comply with FINTRAC reporting requirements may lead to a Council conduct investigation, and to disciplinary action.
Change has become an expected part of doing business, in every industry. New technologies or business models may emerge that radically change the playing field. Or, the game changer can be our society’s evolving expectations for standards of public protection. That’s been the case here in BC, leading to the last year’s unprecedented changes in how real estate is regulated. Have you thought about how the changes we have seen already, and the further changes ahead, will affect you?
We are encouraged by managing brokers and representatives who tell us they agree that change is needed in the real estate industry, and that they are already working in their brokerages and examining their business practices to adapt to the new reality ahead. New rules regarding dual agency; a provincial code of conduct — these are just two of the significant changes that the Superintendent of Real Estate may introduce over the coming year. They will require not just enforcement by the Council, but by every licensee: a commitment to the highest standards of ethical performance in all real estate services, at all times.
This June will mark a year of diligent work as we begin implementing the recommendations made by the Independent Advisory Group. In this issue, you will read about some of the significant projects underway, including the Council’s success at securing funding support from the Real Estate Foundation to launch a multi-media consumer education campaign, and changes to strengthen our investigative capacity and increase efficiency in our operations. There is much more to do, and we are looking forward to keeping you informed along the way.
This issue also includes important information about other legislative and regulatory changes that affect your business and the interests of consumers and members of the public — FINTRAC reporting requirements, Vancouver’s vacant homes tax, and the Additional Property Transfer Tax. While the Council doesn’t enforce these pieces of legislation, we will investigate and discipline licensees who have contravened them, or advised clients on ways to contravene them.
So if you haven’t yet thought about how the changes in the real estate industry will affect you, now is a good time to start. There is a wonderful line from Martin Luther King worth reflecting on that says simply, “The time is always right to do what is right.”
“My clients just told me they might want to add a family member to the contract before completion. What should I do? Do I need to deliver the Notice to Seller Assignment Terms form with the offer?”
Over the past few months, managing brokers, real estate instructors and the professional standards advisors at real estate boards and the Council’s professional standards advisors have heard this question — or variations of it — many times. Now the Council has developed guidance for licensees on how to correctly prepare an offer when there is a chance that another buyer (or buyers) may need to be added later, or changed.
Here are the steps you should follow when you are preparing an offer and the buyer may need to add another specific buyer, such as a spouse or family member, to the contract before closing.
Whether you are representing a buyer or seller, you have a duty to explain all the elements of a Contract of Purchase and Sale to your clients.
To protect sellers, Section 20A of the standard Contract of Purchase and Sale includes two terms about contract assignments:
- one requiring that the seller must consent to any assignment; and
- one that requires any profit from an assignment be returned to the seller.
If these terms are removed or changed, or an additional term is added that alters the effect of either of these Standard Assignment Terms, licensees must complete the Notice to Seller Regarding Assignment Terms form.
Discuss section 20A (Restriction on Assignment of Contract) and the Contract Information Page, when using the BCREA standard form Contract of Purchase and Sale, and follow your client’s lawful instructions about how they would like to proceed.
Occasionally buyers may need to add other parties to the contract before completion — for instance, in order to qualify for financing. When you are representing a buyer, discuss with your clients whether they may need to add anyone to the contract. By talking about it before writing an offer, you’ll be in the best position to give your clients good advice.
This clause is recommended for use ONLY in situations when your buyer may wish to add a specific additional buyer (for example, their spouse) to the contract before completion.
Notwithstanding Section 20A of the Contract, the Parties agree that the Buyer may, without the consent of the Seller, add (insert name of specific party/parties) as an additional buyer to the contract prior to closing. The Seller’s consent does not release the Buyer from liability under this Contract.
If you have included the clause above, or added any other term to the contract that changes the effect of Section 20A, you must provide the Notice to Seller Regarding Assignment form.
Licensees who write new clauses, or change this recommended clause to try to fit more complex scenarios relating to potential changes of buyer(s) will be exposing their clients and themselves to risk.
If you are representing clients in complex situations, you should advise them to seek legal advice about any potential contract changes before they make an offer. Remember, you have a duty to advise your clients to seek expert advice on any issues that are outside of your expertise.
When you advise clients to speak to a lawyer about complex contract matters, you are acting in their best interests. It is also in your own interest, and your brokerage’s.