Your Brokerage Has Closed. Now What?
Meet Sally Seller. Sally is a licensee with several years of experience providing trading services. One morning, Sally gets an email from her managing broker to let her know that her brokerage, Anon Realty, will be closing down very suddenly – within the next few days, in fact.
If you were in Sally’s position, you’d very likely have a lot of questions and concerns. Let’s look at some of the issues that can arise when a brokerage suddenly ceases operations.
How is Sally’s licence affected?
Sally’s real estate licence, and the licences of her colleagues at Anon Realty, will become “inactive” as soon as the brokerage surrenders its licence to the Real Estate Council. This means that Sally and the other licensees at Anon Realty can’t provide any real estate services, unless they transfer their licences to other real estate brokerages.
To transfer a licence:
- Complete and submit an Application for Representative, Associate Broker or Managing Broker form to the Council
- Include the appropriate fee (currently, the fee to transfer a licence is $230)
- Make sure that your former brokerage returns your existing licence to the Council, indicating the reason for termination and the date.
What will happen to Sally’s clients at the brokerage?
Consumers who have been working with Anon Realty and its licensees may be concerned about what will happen with their home purchase or sale. Whenever a brokerage closes, for any reason, it is the Council’s first priority to ensure that consumers are protected and that any transactions in progress can complete.
If possible, any “subject” transactions must have the subject clauses removed prior to the winding up of the brokerage. If this is not possible, the transaction (including the deposit monies) must be transferred to another licensed brokerage before the closing brokerage’s licence is terminated. All parties must agree in writing before the transaction can be transferred to another brokerage.
It is not necessary to transfer transactions that are “firm” or where all subject clauses have been removed.
What is the Council’s role when a brokerage closes?
The Council’s first concern during a brokerage closure is to protect consumers. Most brokerages hold trust funds on behalf of clients, so we enforce the rules concerning brokerage trust accounts to make sure consumers’ money is fully protected.
Closing brokerages have a number of responsibilities, which are outlined in the Rules:
- The brokerage must submit a Winding Up report to the Council, showing the current balance of all the brokerage’s trust accounts.
- This must be accompanied by verification from the brokerage’s bank confirming the current trust account balances.
- If requested by Council auditors, the brokerage must produce additional financial information to ensure it manages and disburses trust funds as required by the Real Estate Services Act.
If the Council’s auditors find evidence of any trust account irregularities, the Council will immediately take action.
The Real Estate Special Compensation Fund provides financial protection to members of the public who suffer a financial loss because of fraud, breach of trust, or a failure to disburse or account for money held in trust by a licensee or brokerage. If a brokerage fails to disburse or account for money held in trust, consumers can apply for compensation from the Compensation Fund.
What about Sally’s commissions?
When a brokerage closes suddenly, licensees in Sally’s position may wonder how they can ensure they receive any outstanding commissions owed to them.
It is important to remember how commissions become payable to licensees. After a transaction closes and funds can be released from trust, the brokerage holding the funds forwards them from its trust account to the cooperating brokerage to deposit in its general account. The cooperating brokerage can then make commission payments to its licensees.
If a brokerage closes because of financial difficulties, the trustee in bankruptcy may not allow payment of funds from the general account unless you can prove priority on those funds. Typically, commissions owing to industry professionals do not have priority.
Can the Council help Sally get her commissions?
The Council’s primary concern when a brokerage closes suddenly is consumer protection. The Council does not have a role in ensuring that a closing brokerage pays its licensees for commissions owing.
The relationship between a brokerage and licensees at the brokerage is contractual. Sally’s employment contract or independent contractor agreement should state the terms and conditions for payment of remuneration. If a brokerage breaches the terms of employment contracts or independent contractor agreements, licensees should seek independent legal advice.