Conflict of Interest (Rental Property & Strata Management) Guidelines

• Guidelines

  BCFSA’s Guidelines provide a practical application of the information and give suggested best practice guidance to assist real estate professionals. These guidelines provide BCFSA’s interpretation of RESA and all other applicable legislation.

  In addition, BCFSA’s Guidelines may be a useful information source for the general public looking for information about standards of conduct for real estate professionals.

Purpose

These guidelines provide best practices for licensees regarding conflicts of interest for rental property and strata management licensees. In its simplest form, a conflict of interest occurs when there is a substantial risk that your representation of a client would be negatively affected by your professional duties or personal obligations to another current client, former client, or a third party, or by your own interests, impairing your ability to work solely in your clients’ best interests.

As a licensee, you have an overriding duty to avoid conflict of interest, which can be achieved in many cases through proactive planning. However, where a conflict cannot be avoided despite your best efforts to do so, you must promptly and fully disclose the conflict to your client in writing so that they can make an informed decision on how to proceed.

1. Be proactive in anticipating and avoiding conflicts of interest;
2. Communicate early and often with clients about potential conflicts of interest;
3. Promptly provide clear written disclosure of conflicts of interest when they arise;
4. Mitigating conflicts of interest.

Guidelines

Be Proactive in Anticipating and Avoiding Conflicts of Interest

Conflicts of interest can arise at any point during an agency relationship. Many conflicts can be easily identified well in advance. As a prudent real estate professional, you have a duty to take reasonable steps to avoid conflicts of interest. This can be done through proactive planning of your professional and personal activities.

Examples of common conflicts of interest that rental property management and strata management services licensees can anticipate and avoid include:

• Recommending a product or service (e.g. contractor, insurance broker, bank) to a client, where you expect to receive a referral fee or other benefit or have a personal relationship to the person offering the product or service;
• Holding secondary employment in the broader real estate sector, such as working as an appraiser, mortgage broker or contractor, where you may have access to otherwise confidential information about a property or party (e.g. individual, strata corporation) that is relevant to the interests of your rental property management or strata management services clients;
• Providing additional categories of real estate services (e.g. trading services), such as where you may have an interest in receiving a commission from the sale of a rental property that you manage;
• Providing rental property management services to a strata unit owner in a strata building that you or your brokerage manages;
  • Represent offering a discounted rental property management rate to owners in a strata corporation that the brokerage manages
  • Voting on behalf of a strata owner as a proxy
• Representing a client in leasing a property that is owned by your spouse, family, family partner or friend;

This list is by no means exhaustive and is intended to highlight common examples of conflicts of interest which may arise. As a real estate professional, you have a duty to avoid conflicts of interest wherever possible. In any situation where you identify a real or perceived conflict of interest that cannot be avoided, you should consult your managing broker.

While RESA does permit real estate professionals to engage in other employment that is not governed under the legislation, including in areas related to real estate, you should be aware that RESA requires that the remuneration you earn for providing real estate services (i.e. trading services, rental property management services or strata management services) must be through the brokerage with which you are licensed. This means that the exemptions from licensing provided for in the Real Estate Services Regulation cannot be used by anyone who already holds a license under RESA.

Communicate Early and Often With Clients About Potential Conflicts of Interest

Conflicts of interest can arise at any point during an agency relationship. Sometimes, conflicts can arise where there were none before. As a client’s needs evolve (e.g. rental unit owner, strata corporation), you must remain alert to the possibility that a potential conflict is on the horizon.

A key means of avoiding conflicts of interest is to have transparent discussions with clients about potential conflicts of interest early and often. For example, the potential for a conflict of interest between clients should be discussed at the outset of an agency relationship (e.g. a strata corporation and a strata lot owner in the same building). This potential conflict could be addressed by modifying your duties in advance by designating a primary and secondary client. The secondary client must understand and agree that the primary client the duties owed to them may be limited in certain situations. On-going communication is also required to identify, at an early point, any unanticipated conflicts that may arise during an agency relationship.

Ensuring your clients are fully informed in writing of both actual and perceived conflicts well in advance and having discussions about potential conflicts throughout the relationship will help to promote trust and transparency with your client and ensure that they are fully aware of facts that may be material to their interests.

For more information visit Duties to Clients.

Promptly Provide Clear Disclosure of Conflicts of Interest In Writing When They Arise

If, after taking reasonable steps to avoid the conflict of interest, a conflict still occurs, you must promptly and fully disclose the conflict to your client in writing. In some instances, your client may instruct you to avoid the conflict all together. In other instances, it may not be possible to completely avoid the conflict, and your client may permit you, through a modification of duties owed, to proceed despite the conflict. In some cases, you may not be able to resolve the conflict and will have to remove yourself from the transaction.

All conflicts of interest must be disclosed in writing (under Section 30 of the Rules). A copy of this disclosure must be provided to your managing broker and retained as part of brokerage records. Some conflicts of interest must be disclosed using a prescribed form (such as a Disclosure of Interest in Trade) while others do not require a prescribed form. For conflicts of interest with no prescribed form, these disclosures can be made by email or in print. At a minimum, the disclosure should include:

• your name
• the name of the recipient of the disclosure
• a delivery receipt or other acknowledgment of receipt from the recipient
• the date on which the disclosure was made
• a full and clear description of the nature of the conflict.

Written disclosures support greater transparency for consumers, who will be able to refer to the content of the disclosure provided to ask questions and seek independent advice. Written disclosures also allow licensees to have a full record of what information was disclosed to clients and when, and to update the disclosure (in writing) as needed as circumstances change.

For conflicts of interest involving representing multiple clients see the guidelines for Addressing Conflicts of Interest when Acting for Multiple Clients.

When a client chooses to permit you to modify your duties owed to them in order to address a conflict, appropriate amendments must be made to the service agreement or in the absence of a service agreement in the Disclosure of Representation in Trading Services (e.g. working with landlords to lease properties).

Please read more information on Duties to Clients and Disclosures.

In deciding whether you can maintain sufficient objectivity to fulfill your duties to clients in the event of a conflict of interest, it is useful to think about the situation from the perspective of a third party who has the relevant knowledge and experience to understand and evaluate the appropriateness of your decision in an impartial manner. If such a person were to weigh all the relevant facts and circumstances in the situation, what would they likely conclude?

Mitigating Conflicts of Interest

In addition to disclosing conflicts of interest in accordance with the Real Estate Services Rules (“Rules”), you are also strongly encouraged to adopt practices that help to mitigate conflicts, where they arise despite your best efforts.

For example, strata management companies or strata managers may sometimes recommend service providers to their clients, such as a contractor, insurance provider, financial institution, or any other service provider. At times, strata management companies or strata managers may also receive a direct or indirect benefit from making a referral or an expenditure on behalf of the strata corporation. A benefit could include money, gifts, points or any other type of benefit. Strata management companies may also have business relationships with service providers, such as insurance brokerages or other financial services providers.

These types of relationships, as well as the nature and extent of the benefit, must be disclosed in writing and in advance so that the strata corporation can be fully informed of all material information prior to selecting the service provider and making or authorizing the expenditure. You are also encouraged to provide multiple quotes to your client for products or services, to help mitigate any potential actual or perceived conflict of interest.

Similarly, brokerages who provide both rental property management and strata management services may find themselves in conflicts of interest between multiple clients, such as when you represent a strata corporation and a strata lot owner who rents their unit in the same building. In this case, you will need to obtain your client(s)’ consent to modify your duties in your written service agreements to one or both clients, as you would otherwise not be able to fulfill your full duties to them both.

Click here for more information on written service agreements and duties to clients.

Relevant Cases

Case #1: Strata Property Manager Licensee Taking Steps to Avoid Termination of Strata Management Services Contract

The licensee was the strata property manager for a strata property. The strata council notified the licensee that it intended to recommend at the then upcoming annual general meeting of the strata corporation that the strata corporation’s contract for strata management services with the licensee’s brokerage be terminated. The licensee responded to the notification by adopting a course of action that advanced the brokerage’s interest in continuing to provide strata management services to the strata corporation by attempting to circumvent and to undermine (in the eyes of the strata corporation’s owners) the authority of the Strata Council.

Contraventions: [Duty to take reasonable steps of avoid a conflict of interest] of the Rules, among others.

Case #2: Licensee in Conflict as Owner of Strata Lot, Member of Strata Council and Strata Property Manager

The licensee was the owner of a strata lot in the strata property, a member of the strata council for the strata property and at the same time was providing strata management services to the strata property. The licensee was found to have failed to take steps to avoid a conflict of interest and failed to fully and promptly disclose the conflict in writing to the owners and to the strata council, as required by the Rules.

Contraventions:[Duty to take reasonable steps of avoid a conflict of interest] and [Duty to promptly and fully disclose the conflict of interest] of the Rules, among others.

Managing Broker Considerations

Brokerages need to have policies and procedures on how conflicts of interest will be addressed that are consistent with the Real Estate Services Rules. As a managing broker, you should be vigilant in identifying situations within your brokerage that could cause conflicts of interest to arise. These situations should be monitored on an ongoing basis to avoid conflicts where possible and mitigate or eliminate them when they cannot be avoided. Your brokerage’s related licensees should be adequately trained and properly supported to ensure that they understand the requirements and know how to avoid and address conflicts. A failure to properly address conflicts of interest can not only lead to professional discipline, but also cause reputational damage to the brokerage and erode consumer trust in the profession.

A managing broker must ensure that the brokerage and its related real estate professionals uphold their duties to clients, including:

• Acting in the clients’ best interest;
• Taking reasonable steps to avoid conflicts of interest;
• Promptly disclosing conflicts in writing where they are unavoidable.

In the case of rental property management and strata management services, which operate under brokerage agency, these duties apply equally to all the brokerage’s related licensees.

Having standardized brokerage procedures will ensure that both the managing broker and the brokerage’s related real estate professionals are aware of the expectations when it comes to dealing with conflicts of interest.

As a managing broker, you must ensure that if representation is going to be initiated or continued despite a conflict of interest, the brokerage and real estate professional promptly and fully disclose the conflict to the client in writing and any modifications of duties owed is added to the service agreements. In cases where the conflict results in added benefits to the brokerage, such as earning referrals from third parties, additional disclosures may be necessary, whether the benefits are received directly or indirectly.

You must also ensure that the Real Estate Rules and RESA are followed regarding keeping all proper documentation – including disclosures of conflicts of interest to clients and/or consumers – in the brokerage file.

Applicable Section of RESA/Real Estate Services Regulation/Real Estate Services Rules

• Section 30, Real Estate Services Rules, Duties to Clients
• Section 31, Real Estate Services Rules, Modification of Duties
• Section 51, Real Estate Services Rules, definition of “associate”
• Section 53, Real Estate Services Rules, Disclosure of Interest in Trade
• Section 54, Real Estate Services Rules, Disclosure of Representation in Trading Services
• Section 58, Real Estate Services Rules, Benefits in Relation to Rental Property Management Services and Strata Management Services
• Section 2, RESA, Application of Act

Definitions

Rental property management services: means any of the following services provided to or on behalf of an owner of rental real estate:

1. trading services in relation to the rental of the real estate;
2. collecting rents or security deposits for the use of the real estate;
3. managing the real estate on behalf of the owner by
   1. making payments to third parties,
   2. negotiating or entering into contracts,
   3. supervising employees or contractors hired or engaged by the owner, or
   4. managing landlord and tenant matters

but does not include an activity excluded by regulation;

Client: means, in relation to a licensee, the principal who has engaged the licensee to provide real estate services to or on behalf of the principal.

Strata management services: means any of the following services provided to or on behalf of a strata corporation:

1. collecting or holding strata fees, contributions, levies or other amounts levied by, or due to, the strata corporation under the Strata Property Act;
2. exercising delegated powers and duties of a strata corporation or strata council, including
   1. making payments to third parties on behalf of the strata corporation,
   2. negotiating or entering into contracts on behalf of the strata corporation,
   3. supervising employees or contractors hired or engaged by the strata corporation, or
   4. enforcing bylaws or Real Estate Rules of the strata corporation,

but does not include an activity excluded by regulation;

Associate: means, in relation to a licensee a person who is any of the following:

1. in the case of an individual licensee,
   1. a spouse or family partner of the licensee,
   2. 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
   3. 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;
2. in the case of a brokerage that is a corporation or partnership,
   1. a director, officer or partner of the brokerage,
   2. a shareholder of the brokerage who holds more than 10% of the voting shares of the brokerage,
   3. a trust or estate
      1. in which the brokerage, or a director, officer or partner of the brokerage, has a substantial beneficial interest, or
      2. for which the brokerage, or a director, officer or partner of the brokerage, serves as trustee or in a similar capacity, or
   4. 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;

Real estate services: means

1. rental property management services,
2. strata management services, or
3. trading services.

Strata lot owner: means a person who is the owner, as defined in the Strata Property Act, of a strata lot.