Of particular importance to those licensed to provide rental property management services are the following Rules.
Section 5-1 of the Rules requires that a brokerage must enter into a written service agreement prior to providing rental property management services to a strata corporation.
Section 5-1(4) of the Rules requires that the written service agreement contain various information, including:
- the name of the client and the licensee name of the brokerage; the address of the real estate in relation to which services are provided under the agreement;
- the date on which the agreement is effective;
- the duration of the agreement;
- a general description of services to be provided by the brokerage;
- the remuneration to be paid under the agreement and the circumstances in which it will be payable;
- provision respecting the use and disclosure of personal information.
In addition, section 5-1(5) of the Rules requires that a service agreement respecting the provision of rental property management services also contain the following information:
- the circumstances in which the agreement may be terminated by either or both the client and the brokerage;
- the scope of the authority of the brokerage or a related licensee when acting on behalf of the owner, including any authority to sign cheques or make disbursements or enter into contracts on behalf of the owner;
- the timing, frequency, and nature of accounting statements and other records to be provided by the brokerage to the owner;
- how security deposits, pet damage deposits, and other deposits are to be dealt with; and
- a description of the records to be kept by the brokerage on behalf of the owner.
Any amendments or changes to the agreement must be made in writing and the amendment must be signed by the client and the brokerage.
Section 5-9 of the Rules requires all licensees to make disclosure to the opposite party when acquiring or disposing of real estate. Section 5-9 applies to individuals licensed to provide rental property management services in the same way that it applies to other licensees. As a result, an individual licensed as a rental property manager must make disclosure to the opposite party in writing before any agreement for the acquisition or disposition of real estate is entered into. Before purchasing, selling, or renting real estate, an individual who is licensed to provide rental property management services must complete a ‘‘Disclosure of Interest in Trade’’ form. A copy of the form is located on RECBC’s website under ‘‘Licensee Information’’. Licensees are not required to complete a Disclosure Form in relation to the rental of real estate if the real estate is to be used for residential use and the lease, including options, is less than one year.
For more information on the requirements of section 5-9 of the Rules, including the exception, see the section entitled ‘‘Disclosure’’.
Section 5-11 of the Rules requires that a licensee disclose all remuneration received or anticipated to be received from anyone other than the licensee’s client, which is paid as a result of providing the real estate services to the client. Such disclosure must be in writing and be separate from a service agreement or any other agreement under which real estate services are provided.
Licensees engaged in rental property management are required to disclose to the owner of the real estate any remuneration that the licensee receives or anticipates receiving, which is paid by someone other than the owner, and which is paid as a result of providing the rental property management services. Section 5-11 of the Rules provides that if a licensee receives or anticipates receiving, directly or indirectly, remuneration as a result of recommending persons to the owner who provide real estate related products or services or recommending the owner to such persons, the licensee must make written disclosure of the remuneration to the strata corporation.
‘‘Remuneration’’ is defined in RESA to be any form of remuneration, including any commission, fee, gain or reward, whether the remuneration is received or is to be received directly or indirectly.
Licensees who recommend mortgage brokers, suppliers, and service and tradespeople to an owner, and who receive any form of benefit, must disclose the benefit to the owner. The benefit may take the form of a referral fee or it may be loyalty points, air miles, or it may even be a discount on work done for the licensee personally. In each case, the licensee must promptly disclose the benefit to the owner and the licensee’s related brokerage in writing.
RECBC has development disclosure forms for rental property management services that are available on RECBC’s website at www.recbc.ca. Licensees may use these disclosure forms or any form of the licensees choosing so long as it satisfies the disclosure requirements outlined above.
Section 5-12 of the Rules requires that, if a licensee, who provides rental property management or strata management services, receives or anticipates receiving a benefit as a result of expenditures made by or on behalf of the principal to whom the management services are provided, the nature and extent of the benefit must be disclosed in writing to both the principal and the licensee’s brokerage before the benefit is accepted. A brokerage is a licensee and is subject to the same disclosure requirements as individual licensees. Disclosure is also required if an associate of the licensee is to receive the benefit.
A rental property manager or strata manager may obtain a benefit by retaining companies in which the licensee or an associate of the licensee has an interest to provide services or carry out work for in relation to the managed property. If, for example, the licensee retained a company owned by their spouse to provide landscaping services, section 5-12 of the Rules would apply and require that the benefit be disclosed to the principal, i.e. rental property owner or strata corporation. In such circumstances, an associate of the licensee is obtaining a benefit as a result of an expenditure made on behalf of the principal.
Section 5-7 of the Rules defines the meaning of ‘‘associate’’ for both individual licensees and brokerages. Rental property managers and strata managers should pay particular attention to the definition in order to ensure that the required disclosures are made.
Licensees must also ensure that, if they intend to direct business to any service provider on the understanding that the licensee will receive a benefit for doing so, this is first disclosed to and agreed to by the client on whose behalf the services will be provided.
A sample form entitled ‘‘Disclosure of Benefits’’ has been prepared by RECBC for use in situations where a representative, brokerage, or associate will receive a benefit.
[09/11/2010 The following information added to Professional Standards Manual]
RECBC has developed the following list of activities that may and may not be performed by unlicensed rental property management assistants employed by brokerages that are licensed to provide rental property management services (See section 2.14 of the Real Estate Services Regulation).
An unlicensed rental property management assistant employed by a brokerage may:
show the rental real estate to prospective tenants;
receive rental applications from prospective tenants for presentation to the licensee;
regularly inspect a property for signs of a grow-op, as required by many municipalities;
collect money in relation to the rental real estate, including money collected as rent, security deposits or pet damage deposits, provided that, on receipt, the exempt caretaker or manager promptly delivers the money to the brokerage;
perform bookkeeping or office functions, including recording and depositing rents and security deposits;
order items of routine repair;
call tradespersons for repair quotations as directed by the licensee;
answer the telephone, take messages and respond, as directed by the licensee, to emergencies by calling a restoration company or other tradesperson;
place routine telephone calls with respect to late rental payments;
perform maintenance work and answer questions about such work;
supervise employees or contractors hired by the brokerage.
An unlicensed rental property management assistant may not:
negotiate or enter into contracts on behalf of the brokerage or the owner of rental real estate;
make payments to third parties;
manage landlord and tenant matters, e.g. sign tenancy agreements, notices of eviction, inspection reports, notices of rent increases, etc.;
supervise employees or contractors hired or engaged by the owner;
make telephone calls, do telemarketing, or performing other activities to solicit business on behalf of the licensee;
provide any other service for which a licence is required under RESA.
Subject to exceptions, section 27 of RESA provides that a brokerage must promptly pay into a brokerage trust account all money received from or on behalf of a principal in relation to real estate services, including any money received on account of remuneration for real estate services.
As a result of section 27 of RESA, a brokerage providing rental property management services must pay into the brokerage trust account all money received as rent, security deposits, and pet damage deposits.
Section 28 of RESA provides that money received as rents, security deposits, and pet damage deposits are not held by the brokerage as a stakeholder.
Section 30 of RESA provides that when funds are not held by the brokerage as a stakeholder, the funds can be withdrawn from a trust to pay remuneration, when earned, as well as and in accordance with the instructions of the principal to whose credit the money was deposited.
[04/09/2013 The following information updated to reflect switch back to GST]
[05/17/2011 The following section was amended with new information]
[08/24/2010 The following information updated to reflect switch to HST]
Builders Lien Act – The Holdback
The Builders Lien Act provides a form of security to contractors, subcontractors, workers and suppliers who work on a building that is under construction – the builders lien. A builders lien is a charge on property by a person who has supplied work or material to a building under construction. A builders lien may be claimed by a contractor, subcontractor or worker.
The Builders Lien Act also creates a pool of money out of which claims may be paid, by requiring an owner to hold back 10% of each payment to the contractor – the builders lien holdback. The builders lien holdback provides two functions:
- It ensures that there is a pool of money out of which builders lien claims can be paid, although it does not guarantee payment of those claims. The requirement for owners to establish a holdback account is clearly intended to give the contractor and the subcontractors comfort that the holdback funds are indeed available. It also aims to assure the contactor and subcontractors that they will not be, for example, at the mercy of a mortgagee or owner who must come up with the holdback funds at the end of the project.
- It limits an owner’s liability for lien claims. If an owner complies with the holdback provisions of the Builders Lien Act, the owner’s maximum liability for lien claims will be limited to the amount of the 10% holdback or the unpaid balance of the contract price, whichever is greater.
The Builders Lien Act helps to ensure that money intended to finance construction is used for that purpose by imposing a trust on money received by contractors and subcontractors in connection with the construction project – the statutory or deemed trust. The holdback account will be treated like a trust account. Contractors and subcontractors are deemed to be trustees of the money received by them. The persons engaged directly by them are the beneficiaries of the particular trust fund.
The Holdback Account
The Builders Lien Act creates a mandatory obligation to retain a 10% holdback on the “person primarily liable on each contract, and the person primarily liable on each subcontract, under which a lien may arise under this Act”. In the case of work being done on behalf of a strata corporation, the persons primarily liable would be the strata corporation in the case of a contract with a contractor and the contractor in the case of each subcontract. It is not sufficient that the owner (the strata corporation in this case) simply hold back 10% of the payment amount from the contractor, the monies must actually be paid into the holdback account. If the owner acts as the general contractor, a separate holdback account will be required for every contract with the owner.
Establishing the Holdback Account
There are no regulations prescribing how the holdback account must be established and managed. The only conditions relating to the operation of the account is that the interest on the account is to be to the credit of the owner to the date it is due and to the contractor after the date the holdback is due. There are no rules setting out for example, whether the account is to have joint signatories, and whether all payments out of the holdback account are to be directly to the contractor or to a subcontractor when the progressive releases or payments are made. The parties are thus left with a wide discretion for what they can agree to concerning the management of the account and these issues are often addressed in the contract executed by the parties.
For every progress payment under the contract, 90% of the price of the work completed in any month is paid by the owner to the contractor or contractors, and 10% is retained as a holdback that must be paid into the holdback account. At the end of the contract, the amount in the account should equal 10% of the contract price.
At the direction of their strata corporation client, a strata manager can establish the account with its usual financial institution, with the account set up in the usual manner, but with a reference to it being a “holdback account for Strata Corporation ____”. If there are to be multiple accounts due to the strata corporation acting as the general contractor, the accounts could be set up as follows: “holdback account for Strata Corporation ____ – Contract A; holdback account for Strata Corporation ____ – Contract B,” and so on.
Exemptions from the requirement to establish Holdback Account
There are two major exceptions to the requirement that the 10% lien holdback be paid into an actual account.
The first is where the owner has a construction mortgage with a “savings institution” and authorizes the savings institution to disburse the mortgage money. In that case the lender may hold back 10% of the mortgage money from each mortgage draw, and the lender will be liable to the owner and any lien holders if it fails to fulfill its obligations in relation to the holdback. Mortgage lenders do not want to supervise holdbacks and will rarely agree to this arrangement. Most lenders will instead advance 100% of each draw, but will contractually require that the owner pay the 10% into the holdback account.
The second is where the total value of work and materials is less than $100,000 (e.g. renovations and smaller projects).
Clearly, if there is a general contractor and the contract price exceeds $100,000, the owner must establish the account. However, consider a situation in which a contract at first is less than $100,000, but as result of changes, eventually exceeds the amount. It would be difficult to allege the owner was then in default of the Act, if the owner did not voluntarily set up an account.
The same is true on a cost-plus contract where there is no specific amount for the value of the improvement or the contract. Presumably, there will be budgets or estimates that will show if the anticipated value of the work exceeds $100,000, and if it does, then the account must be established.
The Builders Lien Act does not indicate if the $100,000 limit includes GST. Although GST is considered to be a lienable part of the contract price, the applicability of taxes is a separate issue that remains unanswered. The conservative approach is to assume that if the GST takes the value of the project over the $100,000 threshold, a strata corporation should establish the account.
Problems arise in the construction management scenario, where there is no “head contractor” as defined in the Builders Lien Act. In construction management structures, all of the trade contractors, who normally act as subcontractors, contract directly with the owner. The construction manager only receives payment of his or her own fees and does not receive funds from the owner to be passed on to the trade or subcontractors. Payment is made directly by the owner to the trade contractor. The problems arise in relation to the exemption as to whether the $100,000 threshold relates to the value of the individual owner/trade contractor contracts or to the aggregate value of the improvements. There is no authority clearly determining whether or not an owner has to establish and maintain the holdback account in such circumstances, but the more conservative position is to establish the holdback if the total value of all contracts exceeds $100,000.
Note that the holdback is mandatory. The person primarily liable must retain the 10% holdback and there is no option to the owner but to retain at least that amount, even if they do not have to establish the holdback account due to falling within one of the exemptions.
Payment of Interest Accruing in the Holdback Account
Interest on monies on deposit in the holdback account accrues to the benefit of the owner until the holdback payment is due to be released, and to the contractor after payment of the holdback is due to be released.
Failure to Establish the Holdback Account
The failure of the owner to pay the holdback into a holdback account is an event of default under the construction contract, irrespective of the wording of the contract. If the owner fails to establish the account or make the payments into the account, the contractor can give a 10-day notice, and if the default is not corrected in that time, the contractor may stop work. Typically during this period the holdback funds are paid into the newly established holdback account.
Section 8-1 of the Rules requires all brokerages to maintain the necessary financial records in order to ensure the appropriate and timely accounting of all transactions relating to the real estate services provided by the brokerage. The financial records must readily distinguish between monies received and paid by the brokerage on its own account, and monies received and paid on behalf of others.
For each general account that a brokerage maintains, a brokerage must keep a record showing all receipts and disbursements, all bank documents, and monthly bank reconciliations of the bank statements to the cash record.
In relation to the trust accounts maintained by the brokerage, a brokerage must keep a trust cash record showing all transactions affecting the trust account, including deposits and withdrawals, a trust journal showing all amounts received and disbursed, and separate trust ledgers for each principal showing all amounts received and disbursed in relation to the principal and any unexpended balance. The brokerage must also prepare a monthly trust liability and asset reconciliation no later than five weeks after the monthly accounting cut-off date for the account, and retain all banking documents.
Section 8-4 of the Rules sets out the general records that a brokerage must retain which includes copies of all significant correspondence sent or received by the brokerage, a copy of all annual financial reports and a list for each fiscal year of all rental properties that are or were managed by the brokerage during the year.
Section 8-6 of the Rules sets out the specific records that a brokerage must keep with respect to its rental property management services.
The brokerage must retain:
- the tenancy agreements or other contracts for the rental of the real estate;
- any financial statements that are provided to clients;
- any accounting statements and invoices for expenditures that are provided to clients;
- any written service agreements; and
- a record of the current tenants at each rental property and the security deposits, pet damage deposits, and other deposits paid by each tenant.
Section 8-6 of the Rules sets out the requirements that a brokerage must meet after the brokerage is no longer retained to provide rental property management services. Section 8-6(1) provides that a brokerage must continue to prepare all financial records that relate to the services that were provided by the brokerage to the former client. In other words, the brokerage is required to record all transactions and prepare the monthly bank and trust reconciliations for the periods during which the brokerage provided rental management services.
If a brokerage has retained any of the following original documents, such as tenancy agreements, financial statements, written service agreements, accounting statements, and invoices, or the record of the current tenants and the deposits paid by each tenant, the original documents must be provided to the former client, or the brokerage retained by the former client to provide rental property management services, within 14 days of a request for the documents. In addition, copies of trust account records must be provided to the former client or the brokerage within 14 days of the completion of the reconciliation of the bank statements to the cash record.
Despite the obligation to return documents to the former client, brokerages should ensure that they have retained copies of the necessary documents to satisfy the requirements in the Rules regarding the retention of documents. Section 8-10 of the Rules requires that a brokerage keep all financial records, all general account and trust records, and numerous other records relating to the provision of rental management services for a minimum of seven years after their creation. This requirement applies to all records, even though the brokerage is no longer providing rental management services to the client.
[12/16/2010 The following information added to the Professional Standards Manual]
The BC Office of the Information and Privacy Commissioner has developed privacy guidelines for landlords/tenants. Licensees engaged in providing rental property management services should familiarize themselves with the Privacy Guidelines for Landlords and Tenants — will open in a new tab to ensure they comply with requirements of the Personal Information Protection Act.
Privacy Guidelines for Landlords and Tenants covers a range of frequently asked questions, including what information a landlord can collect from a prospective tenant on the initial application form and ongoing privacy issues that may develop during the course of a tenancy agreement, such as the use of video surveillance in an apartment building.
[12/12/2011 The following section was added to the Professional Standards Manual]
May condition inspection reports be completed by unlicensed individuals engaged by a brokerage?
RECBC has received complaints that unlicensed individuals employed by brokerages are completing reports of move in or move out inspections of the rental property, commonly referred to as condition inspection reports.
The concern is that the unlicensed employee is either completing the report incorrectly or without proper authorization of the licensed rental property manager, which may result in owners incurring additional costs for repairs that may have otherwise been the responsibility of the tenant.
“Rental property management services” as defined in section 1 of the Real Estate Services Act means any of the following services provided to or on behalf of an owner of rental real estate:
- trading serves in relation to the rental of the real estate;
- collecting rents or security deposits for the use of the real estate;
- managing the real estate on behalf of the owner by
- making payments to third parties;
- negotiating or entering into contracts;
- supervising employees or contractors hired or engaged by the owner, or
- managing landlord and tenant matters.
but does not include an activity excluded by regulation.
An individual wishing to provide any of the above services is required to be licensed under the Real Estate Services Act. However, section 2.14 of the Real Estate Services Regulation exempts a caretaker or manager employed by a brokerage that is licensed to provide rental property management services from licensing in respect of any of the following activities in relation to the provision of rental property management, if these services are provided in their capacity as an employee of the brokerage:
- (a) if the caretaker or manager complies with subsection (2), collecting money in relation to the rental real estate, including money collected as rent, security deposits or pet damage deposits;
(b) showing the rental real estate to respective tenants;
(c) receiving and presenting applications in respect of rental real estate from prospective tenants;
(d) supervising employees or contractors hired or engaged by the brokerage;
(e) communicating between landlords and tenants respecting landlord and tenant matters.
- on receipt of money referred to in subsection (1) (a), the exempt caretaker or manager must promptly deliver the money to the brokerage.
Completing condition inspection reports is contemplated in the definition under items subsections (c) (ii) “negotiating or entering into contracts” and (c) (iv) “managing landlord and tenant matters”.
RECBC considers a move in or move out inspection report, or the “Condition Inspection Report” as provided by the Office of Housing and Construction Standards, to be a contract between the landlord and tenant. It sets out an agreement between the landlord and tenant as to what repairs must be completed at the start of the tenancy, and what repairs the tenant is responsible for at the end of the tenancy, and the amount of the deduction from the tenant’s security deposit (and pet damage deposit if applicable).
In most cases, the written service agreement between the landlord and brokerage authorizes the licensed rental property manager to enter into contracts on behalf of the landlord, which includes completing and signing condition inspection reports.
The exemption for caretakers or managers employed by a brokerage under section 2.14 does not, however, apply in regard to negotiating or entering into contracts, or managing landlord or tenant matters on behalf of the landlord. As such, the completion and signing of condition inspection reports cannot be completed by an unlicensed individual under the exemption.
Licensees providing rental property management services must ensure that they are completing and signing condition inspection reports on behalf of their landlord clients.
The application of pesticides on multi-residence properties requires a Pesticide User Licence as of January 1, 2007. By requiring pesticide uses in multi-residence buildings to be performed under licence, the Ministry of Environment is ensuring that pesticides are being used safely, and that people who may be exposed to pesticides are informed of their use so they can take measures to avoid exposure.
The Pesticide User Licence is a requirement of the Integrated Pest Management Act Regulation. Under the regulation, any pesticide use in or around multi-residence properties with four or more units will require a Pesticide User Licence. All property owners and managers who apply pesticides will need to pass an exam on pest management and the safe handling of pesticides, and also register with the Ministry of Environment as pesticide applicators. This regulation pertains to the application of chemicals used for such things as eliminating bedbugs, controlling cockroaches, combating rodents, or even managing weeds. Multi-residence property managers will not need Pesticide User Licences if they hire licensed pest management services to perform all pesticide applications or if they only apply certain low-risk (‘‘Excluded’’ Class) pesticides. For further information about licensing requirements and a list of frequently asked questions, please visit the Ministry of Environment website at www.env.gov.bc.ca/epd/ipmp/ — will open in a new tab. The Integrated Pest Management Act and Regulation require that all pesticide use by licence-holders be part of an Integrated Pest Management program and that licence-holders provide pesticide use notices to all people who could be exposed to the pesticide. For further information, licensees may contact the Ministry of Environment at www.gov.bc.ca/env/ — will open in a new tab.
Real estate licensees should be aware that the Financial Institutions Act requires insurance to be placed only with insurers authorized to do business in British Columbia. Strata managers and rental property managers, in particular, need to ensure that they and their clients are aware of this requirement.
Insurance agents have a duty to their client to use due diligence in selecting an insurer that will not place the client unduly at risk. Where an insurer is not authorized to do business in BC, the client loses the benefit of the consumer protection provided through licensing and regulation of insurers under the Financial Institutions Act. As a result, the client can be placed at undue risk.
The Financial Institutions Act includes a very limited exception to permit insurance to be placed with insurers who are not authorized to do business in BC. The position of the Superintendent of Financial Institutions is that this exception will be applicable only in exceptional circumstances. Those circumstances may occur where a client is unable to obtain insurance from an authorized insurer. They would not occur where the client is unhappy with the quote from an authorized insurer.
Even where a client is unable to obtain insurance from an authorized insurer, an insurance agent is not permitted to offer to place insurance with an unauthorized insurer. The insurance agent can be subject to enforcement action if they do so. A client must initiate the idea of looking for insurance through an unauthorized insurer without any prompting by the insurance agent, and must give the insurance agent instructions to obtain quotes from an unauthorized insurer, also without prompting by the insurance agent.
Before giving those instructions, the client would need to be aware of the potential risks of doing business with an insurer not authorized to do business in BC. Those risks include issues such as:
- Is the unauthorized insurer subject to a regulatory framework in its home jurisdiction which ensures consumer protection through standards for minimum capital reserves, solvency requirements, requirements for financial statements prepared in accordance with accepted standards, independent audits, and regular actuarial reviews?
- Is there a regulator empowered to conduct periodic inspections and reviews to identify compliance with regulatory standards and to identify adequate financial strength?
- Do the governance standards for the unauthorized business provide assurance of prudent oversight?
- Is there any regulation in its home jurisdiction of the business conducted by the unauthorized insurer in BC ?
- Are there sufficient assets within the jurisdiction of BC courts to cover any claims against the unauthorized insurer ?
- Would the unauthorized insurer agree to appear before BC courts in an action? Does it have an attorney for service in BC ?
- Does the unauthorized insurer have any adjusters authorized by the Superintendent of Insurance to adjust claims in BC on its behalf?
- Does the unauthorized insurer handle claims and disputes using the same standards of fairness as in BC ?
Before acting on any client instructions to obtain a quote from an unauthorized insurer, licensees are advised to contact the office of the Superintendent of Insurance to further discuss the Financial Institutions Act requirements and risks of proceeding. For more information on this issue, please refer to the BC Financial Services Authority (BCFSA) Bulletin INS-06-010 at www.bcfsa.ca/pdf/insurance_bulletins/INS_06_010.pdf — will open in a new tab.
Rental property management and strata management service relationships are typically long-term. When special projects arise, brokerages will often agree to provide services that are in addition to those identified in the original written service agreement. For example, a strata corporation client may ask its strata management brokerage to oversee a substantial remediation project. The brokerage may agree to do so on the understanding it will receive remuneration in addition to that established in the original service agreement.
Section 5-1(6) of the Rules requires that any amendment of or addition to the terms of a service agreement must be in writing and be signed by the client and an authorized signatory of the brokerage. When either amending or adding to the service agreement, particular attention should be paid to establishing
- what additional services are to be provided by the brokerage, when the brokerage will begin providing the additional services, and for how long they will be provided;
- any additional remuneration to be paid and the circumstances in which it will be payable; and
- any additional scope of authority of the brokerage to act on behalf of the client, particularly related to signing cheques, making disbursements, and entering into contracts.
With respect to the second bullet above, brokerages should be aware that section 5-15(4) of the Rules establishes when money held in a brokerage trust account that is intended as remuneration is considered earned for the purpose of authorizing withdrawal from trust. That section states that such remuneration may be withdrawn in accordance with the service agreement or other agreement under which the applicable real estate services are provided, or at a time otherwise agreed to in writing by the client.
Both of these circumstances underscore the necessity of having written authority to withdraw remuneration.
The Unauthorized Practice Committee of the Law Society of British Columbia conducted an investigation with respect to the conduct of a licensee providing rental property management services at Residential Tenancy Branch (‘‘RB’’) Dispute Resolution Hearings. The purpose of the investigation was to determine whether the licensee contravened section 15 of the Legal Profession Act which refers to a person’s authority to practise law.
In this case, it came to the Committee’s attention that a licensee had advertised the services of advocating and/or representing tenants, as well as owners, for a fee, at R B Dispute Resolution Hearings, with whom the licensee’s related brokerage may not have had written service agreements. These services were intended to be provided in expectation of remuneration.
Section 15 of the Legal Profession Act provides that no person, other than a practising lawyer, is permitted to engage in the practice of law. Section 1(1) defines the ‘‘practice of law’’ to include:
(a) appearing as counsel or advocate,
(b) drawing, revising or settling* * *
(ii) a document for use in a proceeding, judicial or extrajudicial,* * *
(iv) document relating in any way to a proceeding under a statue of Canada or British Columbia,* * *
but does not include
- (h) any of those acts if not performed for or in the expectation of a fee, gain or reward, direct or indirect, from the person for whom the acts are performed,
* * *
It is important for licensees providing rental property management services to understand that their attendance at RB Dispute Resolution Hearings is as a landlord, in relation to the rental property, pursuant to the written service agreement held between their related brokerage and the owner of rental real estate. The Residential Tenancy Act contemplates the term ‘‘landlord’’, in relation to a rental property, to include the owner’s agent.
The Unauthorized Practice Committee has confirmed that they would take no position against licensees providing rental property management services who provided those services to owners of rental real estate, in relation to RB Dispute Resolution Hearings, for the rental properties they are managing. The Committee also confirmed that a situation where a licensee is providing advocacy and related services in R B Dispute Resolution Hearings to tenants or owners of rental real estate not managed by the licensee would constitute the unauthorized practice of law.
Licensees purporting to advocate on behalf of a tenant or owner of rental real estate for properties they are not managing may find themselves in a conflict with the Law Society for potentially contravening section 15 of the Legal Profession Act.
A brokerage that collects rent on behalf of a non-resident owner is required by the Canada Revenue Agency (CRA) to withhold and remit non-resident taxes of 25% of the gross income on a monthly basis. A non-resident who receives rental income can ask that a brokerage be allowed to deduct tax on the net amount instead of the gross amount. To do this, non-residents and their agent have to complete a Form NR6, which is an undertaking to file a Canadian tax return within six months of the year end. The non-resident has to file this form on or before January 1st of the tax year for which the request applies, or on or before the date the first rental payment is due.
Licensees dealing with rental property owners should familiarize themselves with the requirements of the Non-Resident Withholding Tax Guide available on the Government of Canada website at www.cra-arc.gc.ca — will open in a new tab or, for further information, call toll-free 1-800-267-3395. Licensees should also advise their non-resident clients to obtain professional advice.
IMPORTANT NOTE: If a brokerage files an NR6 on behalf of a non-resident client, and the non-resident client fails to file the required tax return within six months of the tax year, the brokerage will become responsible to pay all taxes and interest owing on tax not withheld.
Section 5-10 of the Rules provides that before providing trading services to or on behalf of a party to a trade in real estate, a licensee must disclose the nature of the representation that the licensee will provide, whether the licensee or related licensee is or expects to be providing trading services to or on behalf of any person in relation to the same trade, whether the licensee or related licensee is or expects to be receiving remuneration relating to the trading services for any other person and the nature of the licensee’s or related licensee’s relationship with the other person.
Included in the definition of ‘‘rental property management services’’ is the provision of trading services in relation to the rental of real estate. Trading services includes the activity of negotiating the terms of the trade in real estate, which includes the leasing of real estate.
As a result of these definitions, licensees providing rental property management services must disclose to all parties the nature of the representation that the licensee will provide. In relation to rental property management, such disclosure must be made to the person on whose behalf the property will be rented (generally the owner), as well as to each prospective tenant.
It is important for licensees providing rental property management services to consider the nature of the relationship that they intend to create with each party in relation to the rental of the property.
Licensees should review the section entitled ‘‘Agency’’ to review the obligations and duties that arise in relation to the different types of representation that can occur.
The Disclosure of Representation in Trading Services should be used by all licensees offering rental property management services in order to explain the nature of the representation that the licensee will provide.
Generally, a brokerage that provides strata management services to a strata corporation, while at the same time providing rental property management services or trading services to an owner of a strata lot in the strata corporation, is in a conflict of interest situation. The problem arises because the interests of the strata corporation may conflict with the interests of the strata lot owner, thus compromising the brokerage’s ability to act in the best interests of one of its clients. Specifically, the brokerage may find itself unable to fulfill all of the duties it owes to one client under section 3-3 of the Rules without at the same time breaching some of the duties owed to the other client under the same section. For example, consider a situation where a strata lot owner in an age 55+ strata titled complex, rents his or her lot to an ‘‘underage’’ tenant. A brokerage providing both strata management and rental property management services in these circumstances would find itself in an untenable position. Acting as strata manager, the brokerage’s duty to disclose material information to its strata corporation client would require the brokerage to inform the strata council of the bylaw infraction for necessary action. However, to do this would require the brokerage to breach its duty owed, as rental property manager, to the owner to maintain the confidentiality of information.
Another example of the conflict could arise where the brokerage, as strata manager, is aware of confidential financial issues which could lead the strata corporation to impose a special levy. This information could be material to the interests of an owner to whom the brokerage is providing trading services (e.g., the brokerage has listed that owner’s strata lot for sale); however, fulfilling the duty to disclose this information to the owner would lead the brokerage to breach its duty of confidentiality to the strata corporation. It is, of course, possible that a brokerage may be able to fully serve both clients without ever having to deal with the type of dilemma presented above. As well, there may be situations where the benefits of representing both clients could be seen to outweigh the risks posed by the conflict of interest. These practical realities are reflected in section 3-3.1 of the Rules, which allows the brokerage to obtain the client’s consent to an alteration or abridgement of some or all of the duties ordinarily owed to the client. This provision can be used by a brokerage that wishes to provide strata management services to a strata corporation, while at the same time providing rental property management or trading services to a strata lot owner. Using this provision, there are different approaches that can be taken by a brokerage in these circumstances to avoid a breach of section 3-3. Essentially, all approaches require the informed consent of any client who will not, or who might not, receive the full benefit of all of the duties ordinarily owed by the brokerage to that client. A brokerage may wish to seek legal advice about how to structure its client relations in order to avoid a breach of section 3-3 of the Rules. The following options present two different approaches that may be used:
1. Obtain the agreement of all clients to the provision of limited representation to all clients.
Under this approach, the brokerage would obtain each client’s informed consent to the brokerage acting for others and, accordingly, to its providing only limited representation to the client. The agreement with each client should disclose the following: (a) that the brokerage intends to provide rental property management services or trading services, or both, to one or more owners, as well as to provide strata management services to the strata corporation; (b) that the brokerage will not be able to (i) act in the client’s best interests, if those interests conflict with the interests of the other clients, (ii) act in accordance with the client’s instructions, if acting in accordance with those instructions would lead the brokerage to breach any of the brokerage’s obligations to the other clients; or (c) disclose to the client any confidential information about the other client. The agreement with each client should be in writing, and should be obtained before any services are provided to the client. NOTE: A brokerage that provides real estate services under this type of agreement must maintain the confidentiality of each client’s information.
2. Obtain the agreement of some clients to the provision of limited representation to those clients.
Under this approach, the brokerage would designate either its strata corporation client or its owner client as a ‘‘ primary client’’, and provide full representation to that primary client. Since there would be no limitation on the duties owed to the primary client, it would not be necessary to obtain that client’s agreement under section 3-3.1 of the Rules. However, the brokerage would have to obtain, before providing any services to a non-primary client, that client’s informed consent to the brokerage acting for a primary client, and accordingly, to providing only ‘‘limited representation’’ to the client. The agreement with each non-primary client should disclose the following: (a) that the brokerage intends to provide real estate services to the strata corporation or an owner, as the case may be, as a ‘‘primary client’’, and can only provide limited representation to the client; (b) that the brokerage will not be able to (i) act in the client’s best interests, if those interests conflict with the interests of a primary client, (ii) act in accordance with the client’s instructions, if acting in accordance with those instructions would lead the brokerage to breach any of the brokerage’s obligations to a primary client, (iii) maintain the confidentiality of information about the client, or (iv) disclose to the client any confidential information about the primary client.
The agreement with each non-primary client should be in writing, and should be obtained before any services are provided to that client. NOTE: A brokerage that provides real estate services under this type of agreement must maintain the confidentiality of information about the primary client, and must disclose to that primary client any known material information about any non-primary client. This should be made clear to any non-primary client.
Obtaining consent from existing clients:
A strata management brokerage that is also providing real estate services to owners of strata lots in the strata corporation may be offside section 3-3 of the Rules. If the brokerage cannot fulfill the full range of its duties under section 3-3 to any client, it should immediately disclose the situation to that client. Service agreements should be amended to reflect that disclosure (and the consent of the client to the arrangement) as soon as practicable, but in any event upon their renewal.