DISCLAIMER © Copyright: 2017 · Columbia: the Real Estate Services Act (“RESA”) and the Real Estate Development Marketing Act (“REDMA”). These statutes came into force early

DISCLAIMER: This publication is intended for EDUCATIONAL purposes only. The information contained herein is subject to change with no notice, and while a great deal of care has been taken to provide accurate and current information, UBC, their affiliates, authors, editors and staff (collectively, the "UBC Group") makes no claims, representations, or warranties as to accuracy, completeness, usefulness or adequacy of any of the information contained herein. Under no circumstances shall the UBC Group be liable for any losses or damages whatsoever, whether in contract, tort or otherwise, from the use of, or reliance on, the information contained herein. Further, the general principles and conclusions presented in this text are subject to local, provincial, and federal laws and regulations, court cases, and any revisions of the same. This publication is sold for educational purposes only and is not intended to provide, and does not constitute, legal, accounting, or other professional advice. Professional advice should be consulted regarding every specific circumstance before acting on the information presented in these materials. © Copyright: 2017 by the UBC Real Estate Division, Sauder School of Business, The University of British Columbia. Printed in Canada. ALL RIGHTS RESERVED. No part of this work covered by the copyright hereon may be reproduced, transcribed, modified, distributed, republished, or used in any form or by any means – graphic, electronic, or mechanical, including photocopying, recording, taping, web distribution, or used in any information storage and retrieval system – without the prior written permission of the publisher.

©Copyright 2017 by the UBC Real Estate Division

THE REAL ESTATE SERVICES ACT

C H A P T E R 2

Learning ObjectivesAfter studying this chapter, a student should be able to:

Discuss the purpose and the scope of the Real Estate Services Act (“RESA”)

Explain how RESA is administered

Describe the licensing system

Describe how RESA governs the conduct of licensees

Discuss how RESA provides protection to the public

Describe the consequences of a licensee’s breach of RESA

Describe the Real Estate Council’s disciplinary and enforcement procedures

Discuss the purpose and the scope of the Real Estate Development Marketing Act

Describe which types of developments require a disclosure statement when units are sold



2.1Chapter 2 – The Real Estate Services Act

INTRODUCTION

In May 2004, the legislature introduced two new statutes that govern the sale of real estate in British Columbia: the Real Estate Services Act (“RESA”) and the Real Estate Development Marketing Act (“REDMA”). These statutes came into force early in 2005, and replaced the Real Estate Act. RESA imposes licensing requirements on persons who provide trading services related to real estate, rental management services, and strata management services. REDMA imposes disclosure requirements on developers marketing various forms of real estate developments, such as, strata lots, cooperatives, time shares, and shared interests. In this chapter, we are primarily concerned with RESA; however, REDMA, as it relates to real estate licensee practices, will also be discussed.

In 2016, the British Columbia government amended RESA to increase oversight of the real estate industry and enhance consumer protection. The amendments transfer rule-making powers from the Real Estate Council (the “Council”) to the Superintendent of Real Estate and enable an enhanced oversight role for the Superintendent. Maximum penalties for real estate licensee misconduct were also increased. The Council continues to be responsible for licensing, licensee and public education, investigation of licensee conduct and licensee discipline. Many of the changes to RESA flowed from recommendations made by the Independent Advisory Group, a group initiated by the Council, to review the conduct requirements in place for real estate licensees in BC, and to examine whether those requirements were adequate and whether they were being effectively enforced.

RESA references regulations, rules and bylaws which also regulate the licensing and conduct of licensees and set out the regulatory framework for licensees in British Columbia.

• The Real Estate Services Regulation (the “Regulations”): Under section 130(1) of RESA, the Lieutenant Governor in Council may make regulations dealing with a variety of matters. The Regulations have the force of law. Currently, the Regulations deal with a number of matters, includ-ing exemptions from licensing, fees payable by licensees, trust account issues, disciplinary proceed-ings, administrative penalties, required standard terms in certain contracts, and personal real estate corporations (“PRECs”).

• Rules under the Real Estate Services Act (the “Rules”): under section 89.2 of RESA, the Office of the Superintendent of Real Estate (the “Superintendent”) may make rules that the Superintendent considers necessary or advisable respecting licensing, or regulating licensees in relation to the provision of real estate services. Currently, the Rules deal with a number of matters, including licensing, general responsibilities of licensees, business practices, relationships with principals and parties, dealing with other licensees and unlicensed persons, brokerage accounts and financial requirements, brokerage records, and licensee exemptions. Prior to September 30, 2016, the Rules were created by the Council. Under section 137.3(2), the rules enacted by the Council are deemed to be rules made by the Superintendent; however, in this Manual, you may still see reference to the Rules as “Council Rules”.

• Real Estate Council Bylaws (the “Bylaws”): Under section 84 of RESA, the Real Estate Council may make general bylaws that it considers necessary or advisable for the conduct of its business and affairs. For example, the Council is permitted to make bylaws respecting the conduct of council members and officers of the Council, the procedures for making bylaws, and the practice and proce-dures of a hearing committee, to name a few. Furthermore, under section 85 of RESA, the Council may make rules respecting licensing fees and assessments.

In this chapter, and those that follow, the section numbers of statutes, regulations, etc. will be given. Students are not expected to memorize these section numbers; instead, you should concentrate on the provisions themselves. To access the most current versions of RESA and the Regulations, students can visit www.bclaws.ca. To access the most current versions of the Rules and the Bylaws, students can visit the Real Estate Council’s website at www.recbc.ca.


2.2 Real Estate Trading Services – Licensing Course Manual

REQUIREMENTS FOR LICENSING

Purpose

The purpose of RESA is to protect the public by:

• ensuring that those offering real estate services meet certain minimum reasonable competency requirements in order to obtain a licence;

setting out certain standards to ensure that licensees conduct themselves appropriately while licensed; and

establishing a body called the Real Estate Council of British Columbia to administer, subject to the oversight and direction of the Superintendent, RESA, the Regulations, the Rules and the Bylaws.

Activities Requiring a Licence

RESA requires that a person who provides “real estate services” on behalf of another for or in expectation of remuneration must be licensed. Real estate services is defined in RESA to mean:

(a) rental property management services,

(b) strata management services, or

(c) trading services.

Trading Services: Trading services is the term that has been used to refer to the activities related to the purchase and sale of real estate. RESA defines “trading services” to mean any of the following services provided to or on behalf of a party to a trade in real estate:

(a) advising on the appropriate price for the real estate;

(b) making representations about the real estate;

(c) finding the real estate for a party to acquire;

(d) finding a party to acquire the real estate;

(e) showing the real estate;

(f ) negotiating the price of the real estate or the terms of the trade in real estate;

(g) presenting offers to dispose of or acquire the real estate; or

(h) receiving deposit money paid in respect of the real estate.

RESA defines “real estate” to mean:

(a) real property,

(b) regardless of whether it is or is not an interest in real property, a cooperative interest, shared interest in land or time share interest, as these are defined in the Real Estate Development Marketing Act, and

(c) a right in relation to real property that is defined by regulation to be real estate.

RESA defines “trade in real estate” to mean:

(a) a transaction for the purchase or sale of real estate, for the leasing of real estate or for any other form of acquisition or disposition of real estate,

(b) an assignment of a contract for purchase, sale or lease of real estate, or a transaction in relation to such an assignment, or

(c) a prospective trade in real estate within the meaning of paragraph (a) or (b);

As you can see, “trading services” is not limited to the purchase and sale of real estate, but rather includes transactions for the leasing of real estate and assignments of contracts for purchase, sale and lease of real estate.

It is important to note that a licence can be required even though a person is not involved in the selling of real property or an interest in land. Sales of time shares and cooperatives, if conducted on behalf of another, require a licence even though the transaction involves the sale of shares, or a contractual right to use property.



Rental Property Management Services: Under the former Real Estate Act the act of collecting money payable as rent for the use of real estate was an activity that required licensing. However, the activity of collecting rent was only one activity that a rental manager conducted. If a property manager did not collect rent, he or she could avoid the requirement for licensing. RESA defines rental property management services to include a broad range of activities. Unless specifically exempted, a person who carries out any of the activities that are contained within the definition of rental property management requires a licence. Thus, the fact that a person does not collect rent will no longer be sufficient to avoid the need for licensing.

RESA defines rental property management services to mean any of the following services provided to or on behalf of an owner of rental real estate:

(a) trading services in relation to the rental of the real estate;

(b) collecting rents or security deposits for the use of the real estate;

(c) managing the real estate on behalf of the owner by

(i) making payments to third parties,

(ii) negotiating or entering into contracts,

(iii) supervising employees or contractors hired or engaged by the owner, or

(iv) managing landlord and tenant matters.

Strata Management Services: RESA requires those who conduct strata management activities to obtain a licence. RESA defines strata management services to mean any of the following services provided to or on behalf of a strata corporation:

(a) collecting or holding strata fees, contributions, levies or other amounts levied by, or due to, the strata corporation under the Strata Property Act;

(b) exercising delegated powers and duties of a strata corporation or strata council, including

(i) making payments to third parties on behalf of the strata corporation,

(ii) negotiating or entering into contracts on behalf of the strata corporation,

(iii) supervising employees or contractors hired or engaged by the strata corporation, or

(iv) enforcing bylaws or rules of the strata corporation.

RESA applies, subject to the Rules, to every licensee who provides real estate services, even if the licensee is providing them on the licensee’s own behalf, or is providing services to another, but not in expectation of remuneration. Additionally, RESA applies to a licensee who would otherwise be exempt under the Regulations (section 2). Common infractions of licensees concern dealing with their own property – selling, buying, leasing or renting. Deposits and trading service agreements must conform to the requirements of RESA and the Regulations. For example, complete files of private sales or purchases must be provided to the licensee’s managing broker (section 3-2 of the Rules). RESA requires disclosure of the licensee’s interest in trade in many circumstances, whether buying, selling, renting or leasing, and The Canadian Real Estate Association’s REALTOR® Code requires an even broader standard. A detailed discussion of disclosure of inter-ests in trade can be found later in this chapter.

This provision means that even though the need for licensing is not met in the particular circumstances, either because the person is not acting for another, is not receiving a fee, or is exempted by the regulations, if the person has a licence, they must comply with RESA when acting in such circumstances. Once an indi-vidual is licensed, RESA holds the licensee to a higher standard in every real estate transaction in which they are involved, and not just the transactions for which a licence is required.

Exemptions

Exemptions from licensing are created for certain people who fall within any of the activities that are included in the term “real estate services”. Individuals exempted from licensing may provide rental property management services, strata management services, or trading services for a fee without the need to obtain a licence. Exemptions can be found in RESA, the Regulations and the Rules.

Firstly, section 3 of RESA exempts the following from the requirement to be licensed under RESA:

(a) a person acting under the authority of a court;



(b) a trustee in bankruptcy, custodian, receiver, receiver manager or liquidator who is appointed under a provincial or federal enactment, in respect of real estate services undertaken by the person in that capacity;

(c) an executor or administrator of an estate, in respect of real estate services provided in relation to real estate owned or held by the estate;

(d) a trustee, in respect of real estate services provided under the terms of a will, marriage settlement or deed of trust;

(e) a financial institution that has a trust business authorization under the Financial Institutions Act, in respect of real estate services provided in relation to real estate that it owns, holds or administers; and

(f ) a practising lawyer as defined in section 1 of the Legal Profession Act, in respect of real estate services provided in the course of the person’s practice.

In addition to the exemptions contained in RESA, Part 2 of the Regulations contains a number of exemp-tions. There are both general and specific exemptions for each of rental property management services, strata management services and trading services. The general exemptions to real estate services fall into the follow-ing four categories:

• employees of a principal who are providing real estate services to or on behalf of that principal;

• collection agents acting in the course of their business;

• individuals involved in various mining and oil and gas activities; and

• governments and government corporations.

The categories of exemptions available for rental property management services include caretakers or managers employed by the owners of different residential real estate properties, caretakers or managers employed by a brokerage if they only perform a number of limited tasks, individuals and non-profit organiza-tions who are providing services in relation to rental real estate that is administered by the British Columbia Housing Management Commission and savings institutions and mortgage brokers acting in accordance with an assignment of rents. The categories of exemptions available for strata management services include those who are strata lot owners themselves and provide services by reason of being the strata lot owner, caretakers or managers acting on behalf of a strata corporation, and owner developers. Those exempted from having a license with respect to trading services fall into the following eight categories:

• employees of developers;

• notaries;

• accountants in relation to purchase and sale of a business;

• appraisers and property inspectors;

• auctioneers;

• individuals who provide information of a general nature to assist owners to sell or otherwise dispose of their own real estate or who publish information contained in an advertisement of specific real estate;

• individuals who refer others to a licensee or exempt party; and

• agents of expropriating authorities.

Finally, the Rules provide for exemptions for certain activities performed by licensees from complying with RESA and the Rules. Part 9 of the Rules provides additional licensing exemptions for rental property manage-ment services and strata management services. Sections 9-1 and 9-2 provide exemptions for licensees who provide rental property management services on their own behalf in relation to their own real estate or a family member’s behalf in relation to his or her real estate, but only if the licensee satisfies certain require-ments. Section 9-3 contains an exemption from RESA and Rules for licensees providing strata manage-ment services to or on behalf of the strata corporation of which they are a member by reason of being a strata lot owner.



A licensee should always refer to the exact wording of RESA, the Regulations and Rules when consider-ing the available exemptions, as an exemption may require an individual or organization to fulfill a number of conditions. Furthermore, a licensee may contact the Council for guidance with respect to exemptions, if necessary.

Unlicensed Assistants

Licensees may employ unlicensed assistants, but must be diligent in ensuring that an assistant is not performing any tasks that fall within the definition of “trading services”. Detailed guidelines for the employ-ment of assistants are published by the Council in the Professional Standards Manual (which can be found online at www.recbc.ca). Activities that an unlicensed assistant may not perform include:

• hosting an open house or soliciting sellers or buyers in any manner;

• providing advice or guidance to a consumer with regard to any real estate contract;

• obtaining or renewing listing contracts, property management contracts, or rental contracts on behalf of the agent;

• presenting or negotiating an offer; or

• communicating with consumers about any real estate transaction.

Many of these activities are now specifically listed as activities under the term “trading services”. However, an unlicensed assistant may:

• unlock a property in order to let prospective buyers and their representative enter;

• perform office filing and bookkeeping;

• draft documents and correspondence for approval and signature by the licensee;

• place or remove signs;

• witness signatures; or

• arrange for repairs on a rental property.

THE LICENSING BODY – THE REAL ESTATE COUNCIL

Powers and Duties

Section 73 of RESA sets out the objectives of the Council as:

• administering, subject to the oversight and direction of the Superintendent, RESA, the Regulations, the Rules and the Bylaws;

• maintaining and advancing the knowledge, skill and competency of its licensees; and

• upholding and protecting the public interest in relation to the conduct and integrity of its licensees.

The Council has stated that strengthening consumer protection to ensure that members of the public can have confidence in the standards of practice provided by licensed real estate professionals is always their first priority.

The Council is responsible for issuing and renewing all licences under RESA. The Council administers the educational and experience requirements as set out in the Rules, assesses all applications, and may conduct an investigation or hold a hearing before a licence is issued or renewed. The Council may refuse to issue a licence or may issue a licence with conditions.

The Council is responsible for ensuring compliance with the requirements of RESA, the Regulations, Rules and Bylaws. The Council can carry out investigations into complaints regarding the conduct of licens-ees and may hold a hearing (via its discipline committee) to consider the complaint against the licensee.

As stated earlier, the Council has created Bylaws that deal with the conduct of its business and affairs and licensing fees and assessments. The Bylaws can be found on the Council’s website. Finally, the Council must prepare an annual report which includes audited financial statements and any other information that the Council considers relevant or necessary.



Composition

The Council consists of 16 individuals, who are to be appointed by the Lieutenant Governor in Council. The Chair and Vice Chair of the Council are also appointed by the Lieutenant Governor in Council.

The Council must appoint an executive officer, who is to be the chief administrative officer of the Council. The executive officer cannot be a licensee.

The Council maintains an office in Vancouver. Staff members other than the full-time executive officer include legal, accounting and audit, compliance, licensing, communication and education staff.

THE OFFICE OF THE SUPERINTENDENT OF REAL ESTATE

As mentioned above, legislative changes in 2016 greatly enhanced the Superintendent’s role in overseeing the real estate industry. The Superintendent now has three primary roles. Firstly, the Superintendent oversees and directs the operations and activities of the Council, including requiring that the Council do one or more of the following:

• investigate a particular matter;

• issue a notice of discipline hearing to a licensee believed to have committed professional miscon-duct or conduct unbecoming a licensee;

• establish committees for certain purposes;

• make a new bylaw or amend or repeal an existing bylaw;

• require certain information be included in discipline orders and other communications by the Council;

• provide reports to the Superintendent to provide assessments of the operations and activities of the Council; and

• engage independent third parties on the operations and activities of the Council.

Secondly, the Superintendent determines whether a person who does not hold a licence has engaged in any activity for which a licence under RESA is required.

Thirdly, the Superintendent determines whether a licensee has, in any way that is seriously detrimental to the public interest:

• contravened RESA, the Regulations or the Rules;

• breached a restriction or condition of his or her licence; or

• done anything that constitutes wrongful taking or deceptive dealing.

With respect to the third investigatory function mentioned above, the Superintendent could only act if the Council has not issued a notice of discipline hearing or urgent order (both of which will be discussed shortly). Following an investigation, the Superintendent can issue a notice of hearing and conduct a hearing. If the unlicensed person or licensee is found to be guilty, the Superintendent has the same disciplinary powers as the Council, with a few exceptions (e.g., the Superintendent cannot discipline a licensee by way of a repri-mand, require the licensee to complete a specific course of study or training, or prohibit the licensee from applying for a licence for a period of time). The Superintendent can also make an urgent order or an order freezing property if the circumstances warrant (discussed later in this chapter).

Additionally, the Superintendent may serve as a member of Council hearing committees (other than a discipline committee). Furthermore, RESA empowers the Superintendent to make rules that he or she considers necessary or advisable respecting licensees or regulating licensees in relation to the provision of real estate services. The Superintendent may make rules relating to the following:

• licences and the issuing of licences;

• conditions and restrictions applicable to licences;

• relationships between and among brokerages and their related licensees;

• continuing education requirements for licensees;

• standard of conduct and business practice standards for licensees; and

• disclosure and reporting by licensees to the Council and related record-keeping.



The Superintendent also has a wide degree of rule-making power for other more specific issues, subject to the Regulations. Prior to September 30, 2016, the Council possessed the rule-making authority. Now, the Superintendent has this power, and the Rules of the Council (made prior to September 30, 2016) are deemed to be Rules of the Superintendent (section 137.3(2)).

REAL ESTATE FOUNDATION, ERRORS AND OMISSIONS INSURANCE CORPORATION AND COMPENSATION FUND CORPORATION

In addition to creating the Council and Superintendent, RESA continues the Real Estate Foundation, and the Real Estate Errors and Omissions Insurance Corporation. RESA also establishes the Real Estate Compensation Fund Corporation.

Real Estate Foundation of British Columbia

The Real Estate Foundation of BC was established by a 1985 amendment to the Real Estate Act, and it has been continued under RESA as the “Real Estate Foundation of British Columbia”.

The Foundation is a non-profit corporation consisting of, and administered by, the five members comprising its Board of Governors. The British Columbia Real Estate Association, the Council, and the Real Estate Institute of British Columbia each appoint one governor, while the Minister of Finance generally appoints two governors. Each governor, other than the Minister (if he or she appoints him or herself ), is appointed for a three-year term and may not serve for more than six consecutive years.

Although the Foundation is a corporation, it is not currently subject to the Business Corporations Act, by virtue of section 90(4) of RESA.

The Foundation receives the interest payable on all brokerage trust accounts, except separate trust accounts maintained by brokerages for specific clients, and deposits it, together with any other money received by the Foundation, in an account or accounts controlled by the Foundation (referred to in RESA as the Foundation Fund). In short, the Foundation receives trust account revenue, invests it and uses it to fund the Foundation’s business: both its own operations and the real estate related initiatives of non-profit organizations.

Section 93(1) of RESA outlines the purposes of the Foundation as being:

(a) to undertake and carry out real estate public and professional education, real estate law reform, real estate research and other projects intended for the public or professional good in relation to real estate activities; and

(b) on written directions of the Minister of Finance, to undertake and carry out projects and activities the minister designates as being in the public interest.

In 1988, the Foundation launched its grants program, whereby the Foundation receives applications for funding, which are evaluated based on certain criteria. In 2011, the Board of Governors approved three grants program focus areas: Built Environment, Fresh Water Sustainability and Sustainable Food Systems. In 2012, the Foundation established a new mission statement, which expresses the Foundation’s goal: “to trans-form land use attitudes and practices through innovation, stewardship, and learning.”

As of November 2012, the Real Estate Foundation has approved over $62 million in grants to non-profit organizations in over 100 communities throughout British Columbia. For additional up-to-date information on the Foundation, visit www.refbc.com.

Real Estate Errors and Omissions Insurance Corporation

In 1988, by amendment to the Real Estate Act, the Real Estate Errors and Omissions Insurance Corporation was created. RESA continues the Real Estate Errors and Omissions Insurance Corporation (the “E&O Insurance Corporation”).

The E&O Insurance Corporation was created as an affordable method of protecting licensees from finan-cial loss due to errors and omissions. The compulsory program provides protection to the public as it reduces the chance that someone will be left with an empty judgment after having successfully sued a licensee.

The E&O Insurance Corporation has seven directors, four appointed by the Council and three appointed by the British Columbia Real Estate Association. The board of directors is responsible for administering the



E&O Insurance Corporation. The E&O Insurance Corporation is empowered to either make arrangements for insurance or to establish its own indemnity plan to indemnify licensees against their liability arising out of negligently performing, or negligently failing to perform, their duties in relation to the provision of real estate services. The E&O Insurance Corporation may levy premium assessments on licensees, and may levy different assessments on different classes of licensees. RESA provides that the failure to pay the assessment when due will result in immediate suspension of a license. The premiums, which are actually collected by the Council on behalf of the E&O Insurance Corporation, constitute a fund known as the Real Estate Errors & Omissions Insurance Fund. This fund is the property of the E&O Insurance Corporation and is not subject to any process of seizure or attachment by a creditor of the E&O Insurance Corporation.

The E&O Insurance Corporation indemnity plan came into effect on March 1, 1988. It is now a condition of licensing that each real estate licensee in the province be insured against errors and omissions under the indemnity plan, which provides a limit per licence of $1 million. The coverage is on a claims made basis, which means that a claim must be reported during the policy term in order to be covered. This differs from an occurrence type policy, under which claims arising during the term of the policy are covered regardless of when they are reported. In practice, many real estate firms have arranged excess insurance, which is not available through the E&O Insurance Corporation, but which provides them with both higher limits and prior acts coverage.

Figure 2.1 summarizes the main features of the indemnity plan.

As with all insurance plans, there are exclusions to coverage. With respect to errors and omissions coverage, some of the more important exclusions are listed below:

1. claims arising from acts or omissions which occurred prior to March 1, 1988;

2. acting as an insurance agent or broker, builder, contractor, property developer, mortgagee, notary public or property appraiser, or court appointed administrator;

3. claims arising from providing real estate services in a transaction where an insured has or may acquire an ownership interest;

4. disputes concerning commissions or fees;

5. bodily injury to, or sickness, disease or death of, any person;

6. dishonesty, fraudulent, criminal or malicious acts or omissions;

7. claims for discrimination arising from complaints of breaches of the Human Rights Code; and

8. claims pursuant to the Residential Tenancy Act.

This is a brief summary and does not in any way amend the terms and conditions of the indemnity plan’s actual wording, which should be referred to whenever there is any question as to coverage.

FIGURE 2.1: Errors and Omissions Indemnity Plan Features

1. Limits of Liability: Subject to the terms and conditions of the Indemnity Plan, the E&O Insurance Corporation will pay all sums, up to a limit of $1 million, which a licensee becomes legally obligated to pay as the result of an error, omission, or negligent act in the provision of real estate services under RESA.

2. Defense Costs: The E&O Insurance Corporation will pay the licensee’s defense costs, but has the right to settle a claim without the consent of the licensee. Defense costs are included within the $1 million limit.

3. Deductible: Where damages are paid, a $2,000 deductible is payable by each licensee. For example, in a situation where a licensee and his or her brokerage employer were sued successfully, each would pay a deductible of $2,000 for a total of $4,000. The Indemnity Plan features first dollar defense costs, which means that there is no deductible payable if defense costs are incurred by the E&O Insurance Corporation but no indemnification is paid to the claimant. Therefore, if a claim was dismissed at trial, the licensee would not pay a deductible even though the E&O Insurance Corporation had incurred legal costs in defending the matter.

4. Premium: The annual premium is $350 per licensee, or $700 for the two year licensing period. In the event the licensee surrenders his or her licence during the first year of the two year period, the second year’s premium is refundable.

5. Policy Territory: This coverage applies to claims arising anywhere, provided the claims are first made and proceedings are instituted in Canada.



Real Estate Compensation Fund Corporation

RESA establishes the Real Estate Compensation Fund Corporation (“Compensation Fund Corporation”) as a corporation. The board of directors of the Compensation Fund Corporation is to be made up of three directors appointed by the Council and two directors appointed by the British Columbia Real Estate Association. The board of directors is responsible for administering the Compensation Fund Corporation.

RESA requires the Compensation Fund Corporation to establish a fund to be known as the Real Estate Special Compensation Fund (the “Special Compensation Fund”). The Special Compensation Fund is intended to provide compensation to persons in relation to a real estate transaction for funds that were misappropriated, or intentionally not paid or accounted for by a licensee, officers or directors of a brokerage, or employees or independent contractors of the brokerage.

The initial funding for the Special Compensation Fund will come from a grant from the Council and/or a grant or loan from the Real Estate Foundation. The Special Compensation Fund will also be funded by assessments from licensees. Licensees who do not pay the assessment within the time provided are suspended on the day following the day the assessment was due.

The Special Compensation Fund replaces the requirements under the Real Estate Act that licensees be bonded. Now, instead of a brokerage paying funds to a company that provided security in the event that trust funds were misappropriated, each licensee will pay an assessment to the Compensation Fund Corporation.

Persons who have suffered a loss as a result of money held or received by a licensee, an officer, director, controlling shareholder or partner of the responsible brokerage, or an employee or person in an independent contractor relationship with a licensee or brokerage, may apply for compensation. The loss must have occurred as a result of the misappropriation of funds, the intentional failure to pay over or account for funds, or because the funds were obtained by fraud.

Persons who have suffered a loss must apply to the Council in writing providing the particulars of the loss, including a Court decision if one is available. The Council will then refer the claim to a Compensation Committee if there is reason to believe that the person suffered a loss. RESA provides time limits in which claims for compensation must be made.

The Compensation Committee of the Council may conduct a hearing, or decline to make an assessment on the basis that it considers that a court would more effectively deal with the matter. If the Compensation Committee determines that a loss has occurred and has assessed the amount of the loss, it will issue a certificate specifying the amount of the compensable loss.

If the matter of the claim is also the subject of a court proceeding and the court has made a final order that has found that the claimant has suffered a compensable loss and assesses the loss, the court decision is binding on the Compensation Committee. Similarly, if a disciplinary order has been issued by a discipline committee or the Superintendent, and the order finds that the licensee has misappropriated or wrongfully converted money received in relation to real estate services or has intentionally failed to account for or pay over money that belongs to principals in relation to real estate services, such a decision is also binding on the Compensation Committee.

A licensee who receives notice of a court proceeding, or a notice of a discipline hearing that could result in a decision in which the court finds that the person making the claim has suffered a compensable loss, or in which the discipline committee finds that the licensee committed a wrongful taking, must immediately provide written notice to the Council and the Compensation Fund Corporation.

RESA provides that the maximum amounts that will be paid out for a claim will be specified in the Regulations.

OTHER REAL ESTATE RELATED ORGANIZATIONS

British Columbia Real Estate Association

Although the British Columbia Real Estate Association (BCREA) is not created by RESA, it is an organization actively involved in the real estate industry and is one of which licensees should be aware. The members of BCREA are the local real estate boards that represent 11 geographic areas of the province. BCREA represents the interests of its 11 member real estate boards and their more than 20,000 REALTORS on all provincial issues, providing an extensive communications network, required licensing and continuing education courses, standard forms and government relations. To demonstrate the profession’s commitment to improving Quality of Life in BC communities, BCREA supports growth that encourages economic vitality,



provides housing opportunities, respects the environment and builds communities with good schools and safe neighbourhoods.

BCREA is responsible for providing the Residential Trading Services Applied Practice Course and the Commercial Trading Services Applied Practice Course, one of which is required for each new licensee to complete his or her initial licensing education. BCREA also develops and provides a variety of Continuing Professional Education (CPE) courses to help all REALTORS stay on top of the latest developments in the areas of residential and commercial real estate, ethics, property management, legal issues, office management and professional skills. BCREA has developed the Professional Development Program (PDP), a continuing education program required for membership in a real estate board.

In addition to its educational initiatives, BCREA provides many services to its member boards and to REALTORS, including:

• BCREA publishes several newsletters (Legally Speaking, The Bulletin, and Connections) to keep REALTORS informed;

• Economics information is published in monthly news releases on residential MLS sales, quarterly mortgage rates forecasts, twice-yearly forecasts outlining what the provincial and real estate board residential markets are expected to deliver, monthly market-at-a-glance charts that illustrate year-over-year comparisons by real estate board area and quarterly market trends graphs for the province and each real estate board area;

• The Government Relations Committee, comprised of REALTORS from across the province, identi-fies emerging issues and recommends actions to address them. In addition to year round public affairs activities, the Association holds an annual lobby event in Victoria to discuss the profession’s top priorities with MLAs, where REALTORS from across the province speak with one voice on issues that matter most to the entire profession.

Each licensee has an option to become a member of a real estate board. The real estate boards manage the listings through the Multiple Listing Service (MLS). Although membership in a real estate board is not a mandatory requirement of licensing, membership is necessary in order to access the MLS system. Additional information on BCREA and its member boards is available at www.bcrea.bc.ca.

Real Estate Institute of British Columbia

The Real Estate Institute of British Columbia (REIBC) is an organization made up of members from a variety of sectors of the real estate industry. REIBC is focussed on advancing the standards of education and profes-sional development of its members. REIBC offers a professional designation (the “RI”), indicating professional members who meet the educational and experience standards set by the REIBC, and appoints one of the Governors of the Real Estate Foundation.

Additional information on REIBC is available at www.reibc.org.

LICENSING SYSTEM

Issue of Licences

This part of the chapter is concerned with the levels of licences and the way in which licences are issued, maintained, and renewed. The suspension and cancellation of licences are considered later in this chapter under the heading “Discipline and Enforcement”.

Before considering the qualifications necessary to obtain a licence, it is useful to consider the different levels of licence that the Council can issue.

Levels of Licences

RESA prescribes four levels of licensing: brokerage, managing broker, associate broker and representative. An individual may be licensed at any level; however, a partnership or corporation may only be licensed as a brokerage.

Under the former Real Estate Act, a brokerage was referred to as the agent, the managing broker was a nominee, and the representative was called a salesperson. An associate broker was a person who was qualified as a nominee, but who was not acting in the capacity of a nominee.



Brokerage: Under RESA, a brokerage is a licensee on behalf of which other licensees must provide real estate services. In other words, the real estate services of the brokerage must be provided by its managing broker, and any associate brokers or representatives who are licensed to and engaged by the brokerage.

A brokerage must have a managing broker. The brokerage may only provide real estate services that are permitted by the licence of a managing broker who is licensed to the brokerage. All branch offices of a brokerage must have a brokerage licence and each branch office must have a managing broker. A brokerage may engage more than one managing broker. Generally, a managing broker may only be licensed in relation to one brokerage; however, an exception may be made pursuant to the Rules to permit a managing broker to be licensed to brokerages that are affiliated.

The restrictions or conditions imposed on a brokerage licence apply to the licences of all individuals licensed to and engaged by the brokerage.

Partnerships or corporations that apply for a brokerage licence must identify the person proposed to act as the managing broker.

An individual may also obtain a licence as a brokerage. If the individual is also qualified as a managing broker the individual is deemed to be the managing broker for that brokerage. Alternatively, the application for the brokerage may indicate that the applicant will not be acting in that capacity and name another person to act as the managing broker for the brokerage.

Managing Broker: Individuals who meet the education and experience requirements established by the Rules may apply for a licence as a managing broker. A managing broker is employed by or contracts with a brokerage. The managing broker is responsible for exercising the rights conferred on the brokerage and for performing the duties imposed on the brokerage by its licence. The managing broker is also responsible for the control and conduct of the brokerage’s real estate business including supervision of the associate brokers and representatives who are licensed in relation to that brokerage (section 6).

The real estate services that a managing broker is permitted to provide determine the real estate services that the brokerage that employs the managing broker may provide.

Associate Broker: A licensee who meets the educational and experience requirements to be a managing broker but is providing real estate services under the supervision of a managing broker is referred to as an associate broker. In order to be licensed as an associate broker, the licensee must be licensed to and engaged by a brokerage, and must not provide real estate services except on behalf of that brokerage (section 7).

Representative: A representative is a licensee providing real estate services under the supervision of a managing broker. The vast majority of individuals licensed under RESA are licensed as representatives. In order to obtain a licence as a representative, the individual must be licensed to and engaged by a brokerage, and must not provide real estate services except on behalf of that brokerage (section 7).

Personal Real Estate Corporations: Under Part 10 of the Regulations, a personal real estate corporation (“PREC”) can be licensed as a managing broker, associate broker or representative. The primary objective for Part 10 is to allow a licensee to take advantage of incorporation, which may permit better planning of income and tax streams. A PREC can only have one director, one shareholder and one president, all of which must be fulfilled by the “controlling individual” (i.e., the licensee operating through the PREC). A detailed discussion of PRECs is outside of the scope of this course; however, it is important to note that the use of a PREC does not shield the controlling individual from liability from third parties (which is generally the case in other corpo-rations). Furthermore, if a PREC commits professional misconduct or conduct unbecoming a licensee, the controlling individual will be subject to discipline proceedings as if the controlling individual had committed

brokerage a licensee (often corporate) on behalf of which other licensees must provide real estate services

managing broker the licensee responsible for a brokerage, and who is responsible for exercising the rights conferred on the brokerage as well as for the performance of the duties imposed on the brokerage by its licence. In addition, the managing broker is responsible for the control and conduct of the brokerage’s real estate business, including the supervision of its related licensees

associate broker a licensee who meets the educational and experience requirements to be a managing broker, but who is providing real estate services under the supervision of a managing broker (formerly known as an “Agent 9.15” under the now repealed Real Estate Act)

representativea licensee providing real estate services under the supervision of a managing broker



the conduct, and vice versa if it is the controlling individual who initially commits the professional miscon-duct or conduct unbecoming a licensee.

Applying for a Licence

In order to obtain a licence, an application must be submitted to the Council. The Bylaws establish the application form used by the Council.

An application for a managing broker, associate broker, or representative licence must identify the brokerage to which the applicant intends to be licensed. Generally, a managing broker, associate broker or representative may only be licensed in relation to one brokerage and may only provide real estate services on behalf of the brokerage to which they are licensed. However, if permitted by the Rules, a managing broker may be licensed to more than one brokerage if they are affiliated. The information and documents that must be provided in order to apply for a licence are set out in the Bylaws.

When evaluating an application, RESA permits the Council to conduct an investigation or require that applicants provide additional information. This investigation may, in some cases, be initiated after a licence has been issued. If, during the course of a licence application investigation, it is discovered that the application contains inaccurate, misleading or incomplete information, the Council may convene a hearing, which could result in a licence refusal, suspension or cancellation.

Qualifications for a Licence: A licensee is required to meet the educational and experience requirements appropriate for the level of licence for which the application is made.

Applicants for a representative licence meet the educational qualification by completing the licensing courses and passing the appropriate examinations. Furthermore, trading services licensees are required to complete one of two post-licensing courses, the Residential Trading Services Applied Practice Course or the Commercial Trading Services Applied Practice Course, within a specified time after obtaining a licence.

Generally, applicants for a licence as an associate broker or as a managing broker must meet the educational requirements for a representative licence before they are able to undertake the educational requirements for a licence as an associate or managing broker. Additionally, in order to be licensed for the first time as a managing broker or associate broker, the licensee must have been providing real estate services as a licensee in a Canadian province or Yukon for at least two years during the five years before the date of the application. For individuals who were licensed to provide real estate services outside Canada, the Council may, in some cases, waive some portion of the general requirements regarding education and experience in B.C. or another Canadian jurisdiction.

In addition to meeting the educational requirements for licensing, and, for associate brokers and managing brokers, obtaining the relevant experience, RESA sets out the following requirements that an applicant must meet (section 10).

• The applicant must be of good reputation and suitable to be licensed at the level and in the category for which the applicant is applying.

• Individuals must be at least 19 years of age and meet the educational and experience requirements established by the Rules.

• For partnerships or corporations, the partners of the partnership or directors and officers of the corporation must be of good reputation.

RESA also provides that other qualifications may be established by the Rules. When reviewing an application for a licence, the Council will carry out a number of checks to ensure

that licensees are of “good reputation”. The application form has various questions to be answered by the applicant in order to obtain this information. The Council will consider the following, if they have occurred, to determine whether they reveal that the applicant is unfit to be a licensee:

• whether the applicant has been refused a real estate, insurance, mortgage broker or securities licence in any jurisdiction or had such a licence suspended or cancelled;

• whether the applicant has been disciplined by a professional body; and

• whether the applicant has been convicted of an offence.



In addition, a check is made through the police to ascertain if the applicant has had any criminal convictions. The Council requires potential licensees to submit an original criminal record check from the police agency responsible for the area in which they reside. The record check must be an original copy and must be dated within 90 days of the date the Council receives a potential licensee’s application. If the record check reveals that an applicant has a criminal conviction, the Council will consider whether that applicant is unfit to be licensed. The Council will consider the circumstances of each case (e.g., when the offence was committed, the nature of the crime, the length of the sentence, and so on). Under RESA, the Council has the authority to investigate and require that an applicant for licensing provide additional information to the Council in order for the Council to evaluate the application.

Every licence applicant must make full and complete disclosure with respect to criminal charges or convictions, bankruptcy or other legal proceedings in the licence application. If applicants conceal adverse information by providing false or incomplete information in their applications, the presumption as to their “good reputation” is compromised. The most common “criminal charges” involve offenses such as impaired driving. Old convictions may be problematic for the applicant to recall with precise detail; however, inaccu-rate disclosure or missing detail can cause lengthy delays in the application process. There are a number of Canadian pardon services that may resolve the issue of a criminal record.

When issuing a licence, the Council can impose conditions or restrictions on the licence.

Term of Licence: The term of a licence as set out in the Rules is two years. RESA also permits the Council to issue a temporary licence. Such a licence will require the licensee to meet specific conditions within a specified period of time. If the conditions are not met within the time frame provided for on the temporary licence, the temporary licence is automatically cancelled.

Renewal of a Licence: Prior to the expiry of a licence, each licensee is required to apply to the Council for renewal. RESA provides that if a licensee has applied to renew a licence prior to the end of the licence term, the licence will continue in effect beyond the end of its term until the Council notifies the licensee of its decision with respect to the application.

Refusal to Issue or Renew a Licence

The Council can refuse to issue or renew a licence (section 13). If the Council determines that the licensee is not suitable to be licensed, has not met the appropriate education and experience requirements, or, as a result of a criminal conviction, or other disciplinary action, the Council determines that the individual is unfit to be a licensee, the Council can refuse to issue the licence. The Council may refuse to issue a brokerage licence if the Council considers that the applicant has a legal name or trade name that is likely to confuse or mislead the public.

Before refusing to issue or renew the licence, the Council must advise the applicant and allow the applicant an opportunity to be heard. If, after hearing the applicant the Council refuses to issue the licence, it must provide written reasons for the refusal and it must advise the applicant of the right to appeal to the Financial Services Tribunal.

Inoperative Licence

Under RESA, a licence may automatically become inoperative (section 19). If a managing broker, associate broker, or representative ceases to be engaged by a brokerage, that person’s licence automatically becomes inoperative. The licence can be reinstated if the person is re-engaged by the same brokerage, or engaged by another brokerage.

A brokerage licence will automatically become inoperative if the licence of the managing broker becomes inoperative, or is suspended or cancelled.

A representative’s licence was suspended for 14 days for failing to truthfully answer the questions on the application for licence. The applicant had answered “No” to the question, “Are you presently subject to a charge or indictment under any law?” The applicant failed to advise the Council that at that time he was subject to two charges under the Criminal Code. In addition to the suspension, the representative was required to pay costs of $400 (see June 2004 Report from Council).

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If the brokerage licence becomes inoperative or is suspended or cancelled, the licences of the managing broker, associate brokers, and representatives will automatically become inoperative at the time the brokerage licence becomes inoperative or suspended or cancelled. If the brokerage licence is reinstated, the related licensees who are licensed to and engaged by the brokerage at the time of reinstatement are automatically reinstated.

Employee vs. Independent Contractor

Under RESA, licensees may be engaged by a brokerage either as an employee or as an independent contractor. Generally, an employee is a person receiving or entitled to wages for work performed for another, or a person an employer allows, directly or indirectly, to perform work normally performed by an employee. Employers will deduct income tax, employment insurance, and CPP contributions from their employees’ income. On the other hand, a person who is an independent contractor is considered to be self-employed; amounts paid to the independent contractor will not be subject to income tax, employment insurance and CPP deductions. Various tests, beyond the scope of this course, have been developed by the courts to decide whether a person is an employee or independent contractor.

For the purposes of this course, it is important to know that, whether a licensee is an employee or an independent contractor, the duties and obligations of the licensee do not change. In other words, the obligations of a representative apply to every licensee licensed as a representative or associate broker, regardless of the manner in which they are engaged by the brokerage. The significance of the difference between an employee and an independent contractor is perhaps limited to its tax implications, and to the applicability of employment legislation such as the Employment Standards Act and the Workers Compensation Act, for which a licensee should consult a professional.

Categories of Licence

RESA provides that different categories of licences will be created under the Rules. RESA provides that within each level of licence, a person may be licensed within a category of licence (section 5(5)). The categories are based on the real estate services that can be provided under the licence. In other words, the services that the licensee is permitted or chooses to provide will determine the category of licence.

In the past, categories of licences were based on whether the licensee provided rental property management services, trading services, or both types of services. Section 2-1 of the Rules added a third category, strata management services, effective January 1, 2006, with licence categories encompassing all possible combinations.

Interrelationship of Categories and Levels

Each level of licence will be available to be issued in each category. For example: if a category of licence is rental property management services, licences in all four levels may be issued in that category. A brokerage licence for rental property management services could therefore be issued which limits the activities of that brokerage to the offering of rental property management services. The managing broker for the brokerage must be qualified to offer rental property management services and all associate brokers and representatives must also be qualified in that category.

In a number of cases, the Council has suspended licensees for acting as an agent without obtaining an agent’s licence. In one case, the licensee was suspended for 30 days for conducting property management services independently of his agent. The licensee failed to report the property management services to the agent. In addition, the licensee was ordered to complete Chapter 2 of the Licensing Course and the course “Professionalism - It Pays! Be Safe or Be Sued”. (See October 2003, Report from Council. Also see April 2004 and December 2003 Reports from Council.)

NOTE: These cases were heard under the old Real Estate Act. Licensees should expect that the Council would impose similar penalties for licensees who act independently of the brokerage (formerly “agent”) to which they are licensed, or provide services beyond the licensing categories for which a brokerage is licensed.

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LICENSEE CONDUCT

Brokerage

As indicated above, all real estate transactions are performed through the brokerage. The brokerage is permit-ted to offer only the real estate services that the managing broker is permitted to offer. The managing broker is responsible for exercising all of the rights of the brokerage, performing the duties imposed on the broker-age and controlling the brokerage’s real estate business, which includes supervising associate brokers and representatives who are licensed in relation to the brokerage (section 6). Furthermore, a recent amendment to RESA makes it clear that the training and supervision of managing brokers, associate brokers and repre-sentatives, with respect to real estate services or the provision of real estate services, cannot be performed by anyone within the brokerage (including owners, partners, directors and officers) unless the individual provid-ing the training or supervision is a licensee of the brokerage (section 7.1).The Rules describe the specific obligations of the brokerage, and the responsibilities of the managing broker. One of the duties imposed on a brokerage is the requirement to maintain proper books, accounts and other records in accordance with the Rules. Section 7-7 states that the brokerage must, within 120 days after the end of each fiscal year of the brokerage, file with the Council:

(a) financial statements for that fiscal year,

(b) an accountant’s report respecting that fiscal year, completed in accordance with the Bylaws, and

(c) a brokerage activity report respecting that fiscal year, completed in accordance with the Bylaws.

Both the accountant’s report and activity report must be submitted in the form approved by the Council, and samples of the forms are available on the Council’s website.

Bylaw 4-9 specifies what must be in the accountant’s report, and this includes an indication that the brokerage has maintained proper books, accounts and other records as required by RESA, the Regulations and Rules. Section 25 of RESA requires the brokerage to maintain one or more interest bearing trust accounts in British Columbia, and the accountant’s report must also specify that the brokerage has properly main-tained its trust account balances (sufficient to discharge its gross liabilities) and monthly trust reconciliations for all month ends during the reporting period.

Bylaw 4-10 sets out the requirements for the brokerage activity report, which is submitted annually to Council by the brokerage along with the accountant’s report and financial statements for the applicable fiscal year of the brokerage. The activity report contains information about the brokerage including the number of related licensees, a percentage estimate of the brokerage’s activities in the various real estate sectors (i.e., residential sales, industrial, commercial and investment sales, leases, appraisal, consulting, rental property management and strata management services), and other information about the brokerage’s activities.

Managing Brokers, Associate Brokers and Representatives

Managing brokers, associate brokers and representatives must only provide real estate services through the brokerage to which they are licensed. Associate brokers and representatives provide services under the super-vision of a managing broker (sections 5 and 6).

Section 3-1 of the Rules sets out the responsibilities of managing brokers:

• Supervision: Managing brokers have a duty to be actively engaged in the management of the brokerage, ensure that the business of the brokerage is carried out competently and in accordance with RESA and Rules, and ensure that that all licensees and employees of the brokerage have adequate supervision.

• Knowledge of improper conduct: If the managing broker has knowledge of conduct that may consti-tute professional misconduct or improper or negligent conduct by a licensee or other employee of the brokerage, the managing broker must take reasonable steps to deal with the matter.

• Accounts and records: A managing broker must ensure the trust accounts and records of the brokerage are maintained in accordance with RESA and Rules and ensure proper management and control of documents and other records related to licensing and regulatory requirements.

• Notice to parties respecting deposits: A managing broker must ensure that all parties involved in a real estate transaction are immediately notified if a deposit has not been received or a deposit cheque has not been honoured by a financial institution. This notice must be given or confirmed in writing.



Section 3-2 of the Rules sets out the responsibilities of associate brokers and representatives:

• Records: An associate broker or representative has a duty to provide the managing broker with a copy of all records referred to in sections 8-4 and 8-5 of the Rules that were prepared by or on behalf of the associate broker or representative, or received from or on behalf of a principal. Records referred to in sections 8-4 and 8-5 include disclosures, service agreements, accounting statements and contracts for real estate transactions.

• Keeping managing broker informed: An associate broker or representative must keep the managing broker informed of the business activities being performed by the associate broker or representative on behalf of the brokerage, and must immediately notify the managing broker if a deposit has not been received.

• Response to managing broker: An associate broker or representative must promptly respond to any inquiry that is addressed to the licensee by the managing broker.

• Supervision of employees: An associate broker or representative must ensure that there is an adequate level of supervision for his or her employees and others who perform duties on the associ-ate broker or representative’s behalf.

• Knowledge of improper conduct: An associate broker or representative has a duty to promptly notify his or her managing broker of improper conduct. This includes the licensee’s own misconduct as well as misconduct of the licensee’s employees and other licensees and employees of the brokerage.

Sales Procedures Under the Real Estate Services Act

It was explained earlier that RESA imposes standards on all licensees in providing real estate services. The Council is responsible for administering and enforcing the provisions of RESA and this includes various provisions covering sales procedures.

The following sections cover the sales or “trading services” procedures in the order they would occur in a typical real estate transaction, namely:

• disclosure of agency representation;

• the listing contract, or “service agreement”;

• advertising;

• fair dealing with the parties;

• personal dealings by licensees;

• contract assignments;

Under Section 3-2 of the Rules, associate brokers and representatives have a duty to report misconduct by other licensees within their brokerage. This duty is crucial to the protection of the public interest. Serious matters that must be reported include deceptive dealing, misappropriation of funds, unauthorized signing of documents and secret commissions. However, less serious examples of misconduct should also be reported, as investigations by the Council into “trivial” misconduct have often revealed more severe instances of misconduct by licensees.

To report misconduct, a licensee should contact his or her managing broker to discuss the situation. The managing broker will then contact the accused licensee or employee directly. If the managing broker believes the misconduct is serious enough, he or she will make a report to the Council. The Council will then open an investigation to review the evidence.

It is not always clear whether someone’s actions constitute misconduct. The Council has published the following list of questions to help licensees determine if another licensee’s behavior ought to be reported to their managing broker:

• Have the clients’ interests been harmed by the licensee’s actions?• Does it seem likely that the clients’ interests may be harmed in the future by the licensee’s actions?• Does the licensee seem unaware or unwilling to correct his/her actions?

If the answer to any of the above questions is “yes”, licensees are encouraged to report the alleged misconduct to their managing broker. Licensees may also make an anonymous report to the Council, as long as the report contains enough information for the Council to begin an investigation.

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• acceptance of the offer and the contract of purchase and sale;

• financial records (books, records and accounts); and

• commission issues.

For each procedure, the relevant provisions of RESA and/or Rules are listed.

Disclosure of Agency Representation and Relationship in Trading Services

Rules, section 5-10

Because of the high cost of houses in comparison to the average person’s resources, the protection of buyers against high pressure methods of selling is seen as a very important goal. The Rules contain a number of provisions to ensure that licensees deal fairly with all parties to the transaction.

The licensee must not enter into an agency relationship unless he or she can render a skilled and consci-entious service to the principal. The licensee must make clear for which party he or she is acting and not receive compensation from more than one party except with the full knowledge and consent of all parties to the transaction. Section 5-10 provides that before providing trading services to or on behalf of a party to a trade in real estate, a licensee must disclose to the party:

(a) the nature of the representation that the licensee will provide to the party;

(b) whether the licensee is or expects to be providing trading services to or on behalf of any other person, in any capacity, in relation to the same trade in real estate;

(c) whether the licensee is or expects to be receiving remuneration relating to the transaction from any other person; and

(d) the nature of the licensee’s relationship with any person referred to in (b) or (c) above.

If during the course of a real estate transaction in which a licensee is assisting any person, there is a substan-tive change in the information that the licensee is required to disclose to that person, then the licensee must immediately disclose the change to that person.

The Listing Contract or “Service Agreement”

Rules, Part 5, Division 1 (also covered in Chapters 11 and 12)

Members of the public should always know the terms on which their property is being offered for sale. For this reason, section 5-1 sets out the requirement that unless waived by the prospective client, a brokerage must have a written service agreement where the brokerage is to provide trading services to an owner of real estate in relation to the offering of the real estate for sale, commonly called the listing contract. The service agreement must be entered into before the brokerage represents the client in offering the real estate for sale (section 5-1(a)), and a copy must be delivered to the client immediately upon execution of the agreement (section 5-2). In addition, copies of any exclusive listing agreement must be delivered to each party immedi-ately after it is signed.

Section 5-1(4) also establishes that, where a written service agreement is required by RESA, it must include at a minimum, the following:

• 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; and

• provision respecting the use and disclosure of personal information.

The service agreement must be signed by the client and by an authorized signatory of the brokerage. Any amendment or addition to the terms of the agreement must be in writing and be signed by the client and an authorized signatory of the brokerage, as defined in the Rules.



Advertising

Rules, Part 4, Division 3

The Rules prohibit licensees from knowingly publishing real estate advertising containing any false statement or misrepresentation concerning real estate, a trade in real estate or the provision of real estate services. In addition, a licensee is prohibited from publishing real estate advertising indicating that specific real estate is being offered for sale or other disposition unless the owner of the real estate, or an authorized agent of the owner, has consented to the advertising. These provisions extend to pamphlets, letters and electronic commu-nications, and would also cover press releases about real estate deals and even references in letters to matters pertaining to properties. If photographs are used in advertising materials, licensees must use caution not to alter or enhance them in any way that would misrepresent aspects of the property.

When a licensee advertises real estate, section 4-6 requires:

• the licensee name of the brokerage must be displayed in a prominent and easily readable way;

• if the advertising identifies a managing broker, associate broker or representative, it must be done using the licensee name of the individual; and,

• if an office address for the licensee is included, it must be the address of the related brokerage office.

This information is not required if the licensee is advertising real estate owned by himself or herself, as long as the name, address, and phone number of the licensee’s brokerage or place of business is not used.

Licensees are permitted to maintain personal offices (as opposed to their related brokerage office) from which they provide real estate services. Personal offices include an office that is in the residence of the licensee or of any other person. However, the following restrictions apply to personal offices (section 4-3):

• no sign may be placed outside the office or the building in which the office is located, or from where it is visible from outside the office or building, that indicates real estate services are provided from the office;

• the phone for the office must not be answered in the name of the related brokerage of the licensee; and

• the licensee must not indicate the office address on any real estate advertising or on any other records relating to the provision of real estate services.

Representations as to Sale, Resale, Purchase, etc.

Rules, section 5-6

A limitation is placed on a licensee who makes a promise in order to induce anyone to purchase, sell or exchange real estate or a related interest or benefit. Section 5-6 prohibits licensees from making a promise:

• to acquire, or resell or otherwise dispose of, the real estate or any other real estate;

• to procure a lease or an extension of a lease;

• to procure financing or an extension of financing; or

• to buy or sell rights under financing.

unless at the time the licensee makes the promise, he or she gives a signed statement containing the details of the promise to the person to whom it is made, and including the signature of any other party involved in the promise.

It should be emphasized that there is nothing wrong with making such promises if they are put in writing and signed. It is therefore wrong for a salesperson to tell a prospective buyer that he or she can “sell the buyer’s house for $74,000 within three weeks” without giving the buyer a signed statement or letter containing that promise, and also telling the buyer the terms on which he or she would act in the sale.

In making such promises, the licensee must disclose all important facts. Any intentional misrepresen-tation or intentional omission of such a fact would be misconduct, negligence, or incompetence, and could result in the suspension of his or her licence.

When considering both representations and advertising (discussed previously), it is important to note that the federal Competition Act has significant penalties for false or misleading representations, including criminal charges resulting in fines and imprisonment, or civil infractions resulting in financial penalties.



Inducing Breach of Contract Prohibited

Rules, section 5-5

It is an offence to induce any party to a real estate contract to break that contract in order to contract with someone else (section 5-5). Therefore, if Smith has agreed to buy a house from Jones, it is wrong for a licensee to persuade Smith to break that contract so that Smith can buy another house which the licensee is trying to sell. This rule also means a licensee must take care if a prospective buyer is dealing with other brokers. In case of doubt, it is always wiser to approach the other firms who might be involved, rather than approaching the buyer directly.

Disclosure of Interest in Trade (Personal Dealings by Licensees)

Rules, section 5-9

The main function of a licensee devoted to real estate services is to act on behalf of others who wish to deal in property. Therefore, it is particularly important that when licensees buy, sell or rent real estate for themselves, there should be no reason to suspect that they may have taken advantage of their position. For this reason, the Rules impose disclosure requirements on licensees when they (or certain related parties) personally deal with real estate. These requirements protect the public by ensuring that licensees reveal potential advantages in knowledge, and allow members of the public to make informed decisions as to whether or not they wish to enter into a contract with a licensee (or a related party).

A licensee must make a disclosure of interest in trade to the other party (buyer, seller, renter or landlord) in the transaction, before the agreement is entered into, in the following two cases:

1. The licensee or an associate of the licensee is directly or indirectly acquiring real estate.

2. The licensee or an associate of the licensee is disposing of real estate.

An example of an indirect acquisition would be a situation where a third party purchases real estate with the intention of reselling the real estate to the licensee or the licensee’s associate (section 5-9(2)). The definition of “associate” in the Rules is quite broad, and in the case of an individual licensee, includes a licensee’s spouse or family partner (someone who is cohabiting with the licensee in a marriage-like relationship); a trust or estate in which the licensee has a substantial beneficial interest; and, a corporation, partnership, etc., in which the licensee or his or her spouse or family partner holds a 5% or greater interest (for the full definition, see section 5-7). In the case of associates, the disclosure is only required where the licensee is providing real estate services to the associate.

An exemption from disclosure is contained in section 5-9(2.1), which says that disclosure is not required if:

• the real estate being acquired is rental real estate;

the rental real estate is being acquired by the licensee, or the licensee’s spouse or family partner, with the intention that it will be used for personal residential purposes;

the lease is for a term not exceeding one year (and any provisions for renewal do not extend the total lease period beyond one year); and

the lease or agreement does not contain an option to purchase or a right of first refusal.

As mentioned above, disclosure must be made before any agreement for the acquisition or disposition of real estate is entered into. Furthermore, disclosure must be made by providing the other party with the Real Estate Council’s Disclosure of Interest in Trade form, which contains the following:

A licensee was suspended for 6 months as a result of his breach of section 35 of the Real Estate Act (section 35 was effectively the same as section 5-6 of the Rules). The licensee had induced the complainant to purchase a property through his brokerage by guaranteeing to purchase the complainant’s existing property. The licensee failed to provide a written disclosure as required by the Act and should have known that he would be unable to purchase the property if asked to do so.

Source: In the matter of a Hearing before the Real Estate Council held March 19, 1980.

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• the name of the person to whom the disclosure is made;

the legal description and street address of the subject real estate;

an indication that the licensee is licensed under RESA and, as applicable, that the licensee or an associate of the licensee is acquiring or disposing of the real estate;

the name of the associate (if applicable) and the nature of the licensee’s relationship with the associate;

the signatures of the licensee making the disclosure, a witness, and the recipient of the disclosure; and

in the case of acquisition of real estate by the licensee or associate:

o whether the real estate will be held for personal, rental or other use, or whether it will be resold or sublet;

o the terms under which the real estate is to be resold or sublet (if applicable);

o the amount of remuneration or other money that is anticipated to be received by the licensee, associate, or another buyer/tenant;

in the case of a disposition of real estate by the licensee or associate, an indication of whether the licensee or the associate is disposing of the real estate as an owner or as a tenant of the real estate.

The above is only a brief summary of a rather technical section of the Rules. Should any questions arise in practice, reference should be made to section 5-9 itself, to the official form, to the brokerage’s managing broker, and to the Real Estate Council. Finally, it should be noted that the common law places disclosure obligations on individuals when acting in certain scenarios, and that simply fulfilling the requirements of section 5-9 may not be enough to satisfy these common law requirements.

Strict compliance with the disclosure of interest in trade rules is important; otherwise, the transaction itself might be voidable by the other party in the transaction and the licensee may face disciplinary proceedings.

The Transaction may be Voidable by the Other Party

In Compar Services Inc. v. Foss, 1983 CanLII 626 (BC SC), a company, represented by a real estate agent, contracted to buy two lots from a seller. However, the agent failed to provide disclosure in writing prior to the offer being presented regarding his position as an officer of the company, as well as his ownership interest in the company. As a result, the court allowed the seller to treat the contract as void.

You May Face Disciplinary Proceedings

The Council requires strict compliance with the disclosure of interest in trade rules. The following are examples of the disciplinary proceedings that can result from a breach of the rules.

In one case (2013 CanLII 18903 (BC REC)), a licensee acted as a dual agent (an agent for both the buyer and the seller) in the sale of property held by a company. However, the licensee failed to provide proper disclosure to the buyer regarding his position as the owner of the company. This constituted a breach of disclosure requirements, as the Rules mandate disclosure where the licensee is providing real estate services to a corporation in which the licensee holds a 5% or greater interest. Consequently, the Council suspended the licensee for 90 days and required him to pay expenses of $1,000.

In another case (2012 CanLII 32117 (BC REC)), a licensee was disciplined for providing the buyer/seller with a Disclosure of Interest in Trade form after the Contract of Purchase and Sale was signed by the buyer/seller. This case highlights the fact that the Disclosure of Interest in Trade form should not be treated as one of many documents accompanying a Contract of Purchase and Sale – it must be completed and delivered to the other party before the sale agreement is entered into.

The Council recommends that licensees who provide a Disclosure of Interest in Trade form should include the following clause in the Contract of Purchase and Sale:

Buyer’s/Seller’s Acknowledgement of Licensee’s Interest in Trade Clause

The Buyer/Seller acknowledges having received and signed a disclosure of the licensee’s interest in the transaction before the making/receipt of this offer.

As a Licensee...



Contract Assignment Requirements

The Regulations, section 8.2

A contract assignment occurs when one of the parties to an enforceable contract transfers his or her rights in the contract to a third party. In the real estate sales context, an assignment occurs when a buyer under a contract of purchase and sale, before the completion date, enters into an agreement with a third party to transfer the buyer’s right to purchase the property from the seller. Once the assignment occurs, the third party can demand that the seller transfer the property directly to him or her; however, the original buyer remains liable (to pay the purchase price) to the seller if the third party does not complete the sale. Buyers assign their contracts for a variety of reasons, including changes in their circumstances (job transfer, marriage, divorce, birth of a child, etc.) and the opportunity to make a profit if the property has increased in value since the buyer initially entered into the contract.

On May 16, 2016, the provincial government enacted section 8.2 of the Regulations. Section 8.2 requires that standard terms be included by default in any offer to purchase real estate, unless the buyer instructs otherwise. These requirements are intended to protect sellers’ interests and deter potential licensee miscon-duct in relation to contract assignments. The provincial government’s rationale was to provide notification and protection to sellers in situations where a buyer purchases a property only to assign the contract to a new buyer at a higher price, without the seller’s knowledge.

Section 8.2 governs the conduct of real estate licensees involved in the sale of both residential and commercial real estate; however, sales of development units by a developer (under REDMA) are exempt.

Section 8.2 states that, unless instructed in writing by the party to whom or on whose behalf the licensee is providing trading services, a licensee must include the following terms in the offer presented to the other party for consideration (the “Standard Assignment Terms”):

1. this contract must not be assigned without the written consent of the seller; and

2. the seller is entitled to any profit resulting from an assignment of the contract by the buyer or any subsequent assignee.

Furthermore, section 8.2 requires that a licensee acting for a buyer must provide notice if the offer does not contain the Standard Assignment Terms. A licensee who intends to acquire the property, directly or indirectly, must also provide notice if the offer does not contain the Standard Assignment Terms. To fulfill this requirement, licensees must use the ‘Notice to Seller Regarding Assignment Terms’ form (the “Notice Form”) provided by the Council. Furthermore, the Notice Form must be provided at the same time the offer is presented to either the seller’s licensee or the seller (if the seller has not engaged a licensee). While section 8.2 does not require the seller to sign the Notice Form, it contains a section for the seller’s signature. The Council states that the licensee delivering the Notice Form should use best efforts to obtain the seller’s signature because the signature provides proof that the licensee has complied with section 8.2. Finally, the Council advises that the licensees on both sides of the transaction provide a copy of the Notice Form to their broker-ages. The Notice Form contains a space for the licensees’ brokerages to acknowledge receipt of the form.

When acting for a seller, if an offer is made without the Standard Assignment Terms, the seller’s licensee must always have a discussion with the seller about whether the offer allows for the buyer to assign the contract and if so, on what terms (i.e., conditions to assignment and whether the seller has any right to the profit resulting from the assignment). Furthermore, if the seller’s licensee receives a Notice Form from the buyer’s licensee, he or she must forward it on to the seller.



Acceptance of Offer

Rules, section 5-4

As soon as a licensee has obtained a signed acceptance of an offer to acquire or dispose of real estate, he or she must promptly deliver a copy of this signed acceptance to each of the parties to the trade in real estate, as well as to the related brokerage of the licensee. In British Columbia, this agreement if for the purchase of real estate, is referred to as the contract of purchase and sale.

In most cases, the contract of purchase and sale starts as the buyer’s signed offer prepared by the licensee. This offer will be accepted if the seller signs the contract without changing it and while the offer is still open for acceptance. At this point, it becomes the duty of the licensee to deliver a copy of the signed acceptance to all of the parties, including the seller.

Contract of purchase and sale forms usually contain multiple copies so that the delivery of copies of the acceptance will be easier. In some situations, it is possible that what is commonly done in practice does not meet the requirements of RESA. For example, what if A sells to B and C who are purchasing as co-owners? When A accepts the offer by signing the contract of purchase and sale, it would be usual practice for a signed copy of the acceptance to be delivered to either B or C (but not to both). RESA, however, uses the words “each of the parties to the transaction,” and B and C are separate parties. Therefore, B and C each require an individual copy of the signed acceptance.

In the example given above, it was assumed that the person accepting the offer was the seller. This is not always so. It is quite common for the seller to make an offer or counter-offer to the buyer. If so, the buyer’s signature on the document constitutes the acceptance and the above procedure would still be followed.

Financial Records

RESA, section 25, Rules, Part 8, Division 1.

Information Required. Section 25 of RESA specifies that the brokerage must maintain proper books, accounts and other records and must keep these records in British Columbia. Section 8-1 specifies that the brokerage must keep such financial records in connection with its business as are necessary to ensure the appropri-

The following is a summary of your obligations under section 8.2 of the Regulations:

When acting for a buyer or when making an offer to directly or indirectly acquire real estate:

• The offer that you prepare must contain the Standard Assignment Terms, unless instructed otherwise in writing by the buyer; and

• If the prepared offer omits the Standard Assignment Terms, you must deliver the Notice Form to the seller’s licensee or seller (if the seller is unrepresented).

When acting for a seller:

• If an offer to your client does not contain the Standard Assignment Terms, you must:

– Deliver the Notice Form prepared by the buyer’s licensee, if applicable; and

– Discuss the terms in the contract relating to assignments with your client.

As a Licensee...

A licensee was suspended for 7 days and he was ordered to complete the disciplinary education course provided by UBC as a result of his:

failure to obtain the seller’s and buyer’s initials to amendments to the contract of purchase and sale;

failure to advise the buyer that the fridge and stove in the premises being purchased belonged to a tenant; and

incompetence in the wording of a mortgage commitment clause in the contract of purchase and sale.

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ate and timely accounting of all transactions relating to real estate services provided by the brokerage and its related licensees. The brokerage must be able to show and distinguish between the money it receives or pays out on behalf of others, and the money it receives and pays out on its own behalf. These records must show the amount of money held on behalf of each person, and, if applicable, whether the money is held or received on behalf of the person as a principal or licensee. They must be kept up to date. The failure to do this has resulted in the suspension of licences.

Trading Records. A brokerage must keep a real estate trade record sheet in the required form for each trans-action in which the brokerage or a related licensee holds or receives money (section 8-5(2)). The record sheet must contain the following information on each transaction (this includes every transaction where a deposit is received and paid into the brokerage’s trust account even though the transaction itself might not have been completed):

• the nature of the trade in real estate (i.e., is this a sale or a lease?);

• a description sufficient to identify the real estate involved in the trade in real estate (i.e., the legal description or address);

• a deal number for the purposes of identifying the trade in real estate;

• the sale price or other consideration for the trade in real estate;

• the name and address of every party to the trade in real estate;

• the amount of money received and paid into the brokerage’s trust account (in accordance with section 27 of RESA) and details of every payment out of it; and

• the amount of remuneration paid or payable to any licensee or other person, the name of the party paying it and the name of the person who has received or is to receive it.

In addition, section 8-4 of the Rules requires a brokerage to keep the following records:

(a) copies of all written disclosures required by the Rules and any written acknowledgments;

(b) copies of all significant correspondence sent or received by the brokerage or a related licensee respecting the provision of real estate services by the brokerage or a related licensee;

(c) a copy of all annual financial reports;

(d) a list, maintained separately for each fiscal year of the brokerage, of

(i) all trades in real estate in which the brokerage is or was involved during that year,

(ii) all rental properties that are or were managed by the brokerage during that year, and

(iii) all strata corporations that are or were managed by the brokerage during that year.

Trust Account

RESA, Part 3, Rules, sections 5-15 and 7-16

A brokerage must have at least one account in a bank, trust company or credit union designated as a trust account (section 26). All money received for or on behalf of a client must be put into this account as soon as the brokerage receives it, including referral fees (section 27). Section 27 also allows licensees and brokerages to hold cheques, drafts, or money orders payable to third parties without paying them into a trust account so long as the licensee or brokerage delivers the money to the person to whom it is payable. Once money is in the trust account, a brokerage is permitted to withdraw it from the account if it is:

• money paid into the trust account by mistake;

• interest paid to the Real Estate Foundation pursuant to section 29;

• money intended as remuneration for a licensee (section 31) and that has been earned in accordance with the Rules (section 5-15);

• unclaimed money transferred under section 32;

trust accountan account where money is deposited by one for the benefit of another. The money is devoted to a particular purpose and cannot or should not be diverted for other purposes



• money paid into court under section 33, where a dispute has arisen between the parties over the right to it; and

• money paid to or in accordance with the instructions of the principal to whose credit the money was deposited.

The Council may conduct an investigation of the records of a licensee or former licensee to ensure that the above requirements have been met (section 37), and the Rules state that a brokerage must allow the Council to review, inspect and audit the brokerage’s accounts, financial records and any other records relating to the dealings of the brokerage (Rule 7-6). Where the Council does so, it can require the brokerage to pay the cost of the audit if all is not in order.

Commission

Rules, Parts 5 and 6

There are many provisions dealing with commission, with the first already having been discussed: the seller’s written service agreement must contain a term outlining the remuneration to be paid and the circumstances in which it will be payable (section 5-1(4)). Licensees are not prevented from agreeing to charge a rate of commission different than that prevailing in the community. Any attempt (for example, by a local real estate board or group of real estate firms) to fix the rate of commission is contrary to the provisions of the Competition Act and is subject to very severe penalties. The following paragraphs outline some specific provisions regarding commission.

• It is illegal to enter into an agreement for payment on the basis of a net listing. Net listing means it is agreed that the licensee’s commission will be the difference between the price at which real estate is listed for sale, lease or other disposition, and the actual amount realized on the sale, lease or other disposition (i.e., the amount over and above the list price (section 5-14)).

It is easy to see why net listings are illegal. Sellers usually have no idea what their house is worth. In this situation, Vince’s commission was unfairly high.

• Secret commissions or undisclosed compensation or profits are illegal (section 5-11). A licensee must disclose to his or her brokerage the full amount of commission received or anticipated as a result of providing real estate services. In addition, the licensee must promptly disclose to the client and to the licensee’s related brokerage the source of the remuneration, the amount or method of calculat-ing the amount of the remuneration, and all other relevant facts relating to the remuneration.

• The above rule is very similar to another. A licensee must not act for more than one party in a trans-action without the knowledge of all parties for whom he or she acts. If a licensee intends to act for more than one party, everyone concerned must be notified and consent. Generally, it is unwise for a licensee to represent more than one party in a transaction. It is easy for a licensee acting in such a dual capacity to incur liability for some breach of fiduciary duty owed to one or the other party.

• Because the success of RESA depends on the effectiveness of the licensing system, RESA forbids licensees from paying any commission to an unlicensed person who acts or tries to act in a capacity that requires a licence (section 6-1). This prohibition covers both indirect and direct payments. If a commission is paid to someone who is not licensed, both the person who receives the money and the licensee making the payment are guilty of an offence under RESA. For this reason, it would be impossible for an unlicensed person to recover any unpaid commission in the courts.

An exception to this rule is made for payments to people who are licensed outside British Columbia. Commission can be paid to someone who is licensed in a jurisdiction other than British

Example

George wants to sell his home. He agrees to list it with Vince. George tells Vince that if he gets $150,000 from the sale he’ll be happy. Vince draws up a listing contract which gives him a commission of the amount received on the sale over and above $150,000. The house sells for $215,000.



Columbia for equivalent real estate services. Therefore, if a licensee in Alberta has been instructed to find a buyer for a property in British Columbia, it would be necessary for him or her to act in conjunction with a licensee of this province. In such circumstances, the Alberta licensee would normally be paid a portion of the commission earned, even though he or she does not have a licence under RESA.

• There are other rules designed to deny any unlicensed person the protection of acting with a licensed person. A brokerage must not act on behalf of any unlicensed person unless the brokerage is acting for them in their capacity as a seller or buyer (or landlord or tenant, etc.), or unless the person is licensed in a jurisdiction outside the province to provide equivalent real estate services (section 6-2).

• It was explained earlier in the chapter that a licensee must not act for any brokerage other than the brokerage to which they are licensed according to the Council’s records (section 7). It is an offence for a licensee to receive any payment or commission for the provision of real estate services except from the brokerage registered as his or her employer. To increase the effectiveness of this rule, brokerages are forbidden from employing licensees of other brokerages or to pay commission to them. Therefore, if a licensee acts for a brokerage other than his or her registered employer, both the licensee and the brokerage will have committed a breach of RESA (section 7(5)).

Although there may be no intention to break any statutory rules, failure to comply with the procedure laid down may well lead licensees into a breach of section 7. For example, such a situ-ation could occur if a licensee transferred from one brokerage to another, but the Council was not notified of the change. For the purpose of section 7, the records of the Council are conclusive, and if a licensee is acting for and receiving commission from a brokerage other than his or her registered employer, there is a breach of RESA. In the case described, the licensee’s new employer would not appear as such in the Council’s records. To ensure that no accidental breach of this kind occurs, a licensee changing employer should see to it that the brokerages involved promptly give the Council the information required by RESA.

PROPERTY MANAGEMENT

RESA applies to every person who provides real estate services to or on behalf of another for or in expectation of remuneration. Real estate services include rental property management services and trading services; however, a person must not provide real estate services unless the person is licensed to provide those services. Clearly, therefore, a person acting for another as a property manager (as well as any of his or her licensees employed for the same function), is subject to RESA and he or she is required to hold a valid licence to provide those rental property management services. Rental property management services include trading services in relation to the rental of the real estate, collecting rents or security deposits, and generally managing real estate on behalf of the owner.

Illegal property management will not be tolerated by the Council and it is imperative that licensees not licensed for rental property management services ensure that they do not engage in any improper property management activities. This particular breach of RESA will be taken very seriously by the Council, as is evident from the excerpts found in the Chairman’s Report (April 1992) which are reproduced below.

Stricter Penalties for Illegal Property Management

I am disappointed in having to report that despite my earlier warning, some licensees persist in engaging in property management independently of their agent (brokerage) employers. Some continue to believe that such activity is acceptable provided they do not charge a fee. They fail to recognize that they are acting as agents (brokers) if they act “in expectation of a fee, gain or reward, direct or indirect from any person....”

Last year a salesperson (representative) appealed a Council decision to the Commercial Appeals Commission (now the Financial Services Tribunal). The Commission dismissed the appeal and concluded its decision as follows: “One further comment: This Commission would expect that agents and nominees would not facilitate, condone or acquiesce in any such improper property management activities by their licensees. It appears that the Real Estate Council should at least consider assessing more stringent penalties in this area.”

The Council will be guided by that direction in the future.



ADDITIONAL RESPONSIBILITIES OF A BROKERAGE

Vicarious Liability

A licensee may be personally liable for any wrongs done in the course of his or her business as a real estate licensee. The brokerage, however, is under an additional liability implied by the law. Under common law principles, as the employer of a licensee (regardless of the terms of the contract between them), a brokerage is responsible for his or her licensee’s actions performed in the course of employment. Consequently, if a licensee fraudulently misrepresents a property to a buyer during the course of employment and causes the buyer damage, the buyer can sue not only the licensee, but also the brokerage, as the employer. This is true even though the brokerage was not aware of the misrepresentation. This type of liability of an employer for acts committed by employees is called vicarious liability.

However, if the licensee’s actions fall outside of the scope of his or her employment, the brokerage may not be vicariously liable. In Ottesen v. Wolstencroft Agencies Ltd., [1979] BCJ No 856 (SC), the BC Supreme Court acknowledged that:

… the sphere of employment of a real estate salesperson (now representative) is limited to his sales activities ... conveyancing and registration, and agreements relative thereto, are completely outside his sphere of employment. It follows that a real estate agent (now brokerage) will be liable for the fraud of his salesperson in making false representations to a buyer because the making of representations is part of the everyday work of a real estate salesperson. It follows also that a real estate agent will not be liable for the fraud of his salesperson in obtaining delivery of a deed by means of fraud. Conveyancing, registration and bargains relating thereto are not matters ordinarily dealt with by real estate salespeople. These are matters to be dealt with by management.

Deposits Held as Stakeholder

Section 28 of RESA provides that if the brokerage holds deposit money in respect of a trade in real estate, the brokerage holds that money as a stakeholder and not as agent for one of the parties to the trade in real estate, unless the parties agree otherwise or unless authorized by the Regulations. The best example of a “stakeholder” is a person who holds money until the outcome of a bet is known. Such a person does not hold it on behalf of one of the parties. A stakeholder is the “middleman”. If there is a dispute over who is entitled to a deposit, section 33 of RESA provides that the brokerage can pay the money into court, after which the brokerage is relieved of all further liability. Because the brokerage holds the deposit as a stakeholder, a seller cannot successfully demand payment of the deposit to him or her before the transaction is completed, nor can a buyer successfully demand the return of the deposit if he or she does not want to proceed with the transaction.

DISCIPLINE AND ENFORCEMENT

Categories of Complaints

RESA sets out two broad categories of improper conduct by licensees, namely, professional misconduct and conduct unbecoming a licensee (section 35).

RESA states that a licensee commits professional misconduct if he or she:

• contravenes RESA, the Regulations or Rules;

• breaches a restriction or condition of their licence;

• does anything that constitutes wrongful taking or deceptive dealing;

• demonstrates incompetence in performing any activity for which a licence is required;

• fails or refuses to cooperate with an investigation by either the Council or the Superintendent;

• fails to comply with an order of the Council; or

• makes or allows to be made any false or misleading statement in a document that is required or authorized to be produced or submitted under RESA.

RESA defines conduct unbecoming a licensee as conduct that:

• is contrary to the best interests of the public;



• undermines public confidence in the real estate industry; or

• brings the real estate industry into disrepute.

A person may make a complaint to the Council if the person believes that a licensee may have committed professional misconduct or conduct unbecoming a licensee.

Investigations

Whether or not it has received a complaint, the Council can conduct an investigation to determine whether a licensee has committed professional misconduct or conduct unbecoming a licensee (section 37).

The Council staff receives and investigate any complaints. The Council may also contract with other investigators, depending on the number and nature of the complaints received. Persons investigating on behalf of the Council may (during business hours) inspect and copy records that are located on the business premises of a licensee and of certain other related parties, and may require that the parties answer or meet with the investigator and produce information and other records in the person’s possession.

An investigation is usually preceded by a written notice from the Council asking for statements from those involved, even those not named in the complaint but involved in the transaction or file. Managing brokers receive copies of all such communications. At the brokerage level, a discussion with the managing broker is recommended for direction and experience.

The parties who are subject to investigation by the Council are licensees or former licensees, or officers, directors or controlling shareholders or partners of a licensee or former licensee. All such parties are prohib-ited by RESA from withholding, concealing, destroying or refusing to provide any information reasonably required for the purpose of the investigation.

The Council may also apply to the Court for an order authorizing the seizure of records or other evidence wherever located if the Council has reasonable grounds to believe that the licensee committed professional misconduct or conduct unbecoming a licensee (section 38).

Discipline Process

The Council must establish hearing committees for the purpose of conducting disciplinary hearings (section 39).

After the Council has gathered the necessary evidence relevant to the complaint, if it finds that there is evidence to support the complaint, the Council will issue a notice to the licensee advising that a hearing by a disciplinary committee will be held. The notice will set out the nature of the complaint and the time and place for the hearing. The notice will also advise the licensee that the discipline committee is entitled to proceed even if the licensee does not appear at the hearing.

Once the notice of hearing is issued, the matter can either proceed to a full hearing, or it can be resolved by means of a consent order.

Urgent Orders: In cases where there has been professional misconduct or conduct that is unbecoming a licensee, and the length of time that would be required to complete an investigation or hold a discipline hearing, or both, in order to make such an order would be detrimental to the public interest, a discipline committee may make an order suspending a licence, imposing restrictions or conditions on a licence, or requiring a licensee to cease or to carry out a specified activity without holding a hearing (section 45). This order can be made whether or not a notice of discipline hearing has already been issued, without giving notice to the licensee, and without providing the licensee an opportunity to be heard. An order by the discipline committee of this nature is called an “order in urgent circumstances” or an “urgent order”.

Once an urgent order has been made, the Council must give the affected licensee a copy of the order and written reasons for it, and a written notice that a discipline hearing may be held. A licensee who is the subject of an urgent order may require that a discipline hearing be held by delivering a written notice to the Council. If a hearing is requested, at the conclusion of the hearing, the discipline committee must either rescind the urgent order, or, if the discipline committee determines that the licensee committed professional misconduct or conduct unbecoming a licensee, rescind the urgent order and make a disciplinary order in its place.

The Superintendent also has the power to make orders in urgent circumstances (section 51), which can be exercised if he or she considers that:



• there has been conduct in respect of which the Superintendent could make an order (which are orders respecting unlicensed activity (section 49) and orders against licensees in the public interest (section 50)); and

• the length of time that would be required to complete an investigation or hold a hearing, or both, in order to make such an order would be detrimental to the public interest.

Consent Orders: Once a licensee receives a notice of hearing, the licensee may choose not to dispute the alle-gations set out in the notice. RESA permits licensees who are the subject of a notice of a disciplinary hearing to enter into an agreement with the Council regarding a disciplinary order without the need for a hearing (section 41).

In order to proceed without a hearing, the licensee must consent to the discipline committee making a specified discipline order. Additionally, the licensee must agree to a Statement of Facts relating to the matter in question.

RESA provides that the proposal, whether or not the Council accepts it, can be used for the purposes of considering a claim from the Special Compensation Fund, but that the proposal cannot be used for civil proceedings or other proceedings under RESA.

If the licensee does not offer or is not willing to consent to the discipline order as proposed by the disci-pline committee, a hearing would proceed.

Disciplinary Hearings: At a disciplinary hearing, lawyers employed by the Council present the evidence that has been gathered regarding the complaint. A lawyer generally represents the licensee, although a licensee may conduct his or her own defense.

The Council and the licensee are each permitted to call witnesses to provide evidence relating to the events in dispute. The licensee can also appear as a witness in the proceedings. The witnesses at the hearing present their testimony under oath and the proceedings are recorded by a court reporter.

At the conclusion of the hearing, the disciplinary committee must determine whether the licensee has committed professional misconduct or conduct unbecoming a licensee. If the discipline committee finds that neither offence has been committed, it must dismiss the matter. However, if it finds that either offence has occurred, the discipline committee has a range of discipline that it can impose.

Available Sanctions: Section 43 of RESA states that, if the discipline committee determines that a licensee has committed professional misconduct or conduct unbecoming a licensee, it must do one or more of the following:

1. reprimand (i.e., formally warn) the licensee;

2. suspend the licensee’s licence for the period of time the committee considers appropriate or until specified conditions are fulfilled;

3. cancel the licensee’s licence;

4. impose restrictions or conditions on the licensee’s licence or vary any restrictions or conditions applicable to the licence;

5. require the licensee to cease or to carry out any specified activity related to the licensee’s real estate business;

6. require the licensee to enrol in and complete a course of studies or training specified in the order;

7. prohibit the licensee from applying for a licence for a specified period of time or until specified conditions are fulfilled;

8. require the licensee to pay enforcement expenses incurred by the Council in relation to either or both of the investigation and the discipline hearing (with maximum amounts set out in the Regulations);

9. require the licensee to pay a discipline penalty in an amount of:

a. not more than $500,000, in the case of a brokerage or former brokerage; or

b. not more than $250,000, in any other case;

10. require the licensee to pay an additional penalty up to the amount of the remuneration accepted by the licensee for the real estate services in respect of which the contravention occurred.



The discipline penalties can be imposed for each contravention by the licensee. For example, if an individual licensee failed to provide a disclosure of interest in trade form to three clients, he or she could be subject to three separate discipline penalties of up to $250,000 each. The final available sanction is known as the return of compensation penalty and allows the discipline committee to order that the amount of remuneration (or compensation) that a licensee generated from the professional misconduct or conduct unbecoming a licensee be paid as an additional penalty to the Council. The money received by the Council on account of a discipline penalty or a return of compensation penalty may be expended by the Council only for the purpose of educat-ing the public, and licensees and other participants in the real estate industry in BC, about

(a) the operation and regulation of the industry, and

(b) issues related to real estate and real estate services.

If it considers it to be in the public interest, the discipline committee may also make an order freezing funds on deposit in a financial institution or being held by a third party. The order will prevent the licensee from withdrawing any of the licensee’s funds. Additionally the discipline committee may order the licensee to hold all property in trust for a receiver, custodian, trustee or liquidator. Typically, Council only makes this order when an order in urgent circumstances has been made.

RESA requires that the Council publish all orders (consent orders, discipline orders, urgent orders, and orders freezing property) on its website and provide copies to any person upon request. The Council intends to link these orders to a licensee’s search results available from the Council’s online licensee search page. This means that members of the public who search for a licensee on the Council’s webpage will be able to see the licensees’ disciplinary history. The discipline section of the Council’s Report from Council publication also contains Council orders and is frequently used as a teaching tool and is cited in Legal Update courses for licensees. Finally, discipline orders can also be found on The Canadian Legal Information Institute’s webpage at www.canlii.org.

Appointment of a Receiver

Either the Council or the Superintendent can apply to the Court for an order for the appointment of a receiver or receiver manager of the property of the licensee (section 59). As in the case of an order freezing funds, Council typically only makes this order when an order in urgent circumstances has been made.

The Court can authorize the receiver to wind up or manage the business and affairs of the licensee. The receiver is authorized to exercise all the powers necessary to the winding up or management.

Appeals to Financial Services Tribunal

In most circumstances in which a licensee is the subject of a decision or order from the Council or Superintendent, the licensee may appeal the decision. The appeal is to the Financial Services Tribunal (section 54).

The Financial Services Tribunal was created in 2004 to partially replace the Commercial Appeals Commission. The Financial Services Tribunal will hear appeals under a variety of legislation including RESA.

An appeal to the Financial Services Tribunal can only be submitted by way of a written appeal, unless specific permission is received from the Tribunal and notice of the appeal must be filed with the Chair of the Financial Services Tribunal within 30 days of the Council’s decision.

Administrative Penalties

RESA allows the Superintendent, by rule, to designate contraventions of specified rules as being subject to administrative penalties and to establish the amount of administrative penalty that may be imposed in respect of each contravention of a specified rule (section 56). If the Council is satisfied that a licensee has contravened a rule subject to administrative penalties, the Council may issue a notice imposing the penalty on the licensee. Once served with such a notice, the licensee has an opportunity to be heard, if requested, to defend himself or herself.

Administrative penalties are less onerous than the penalties set out in RESA for professional misconduct or conduct unbecoming a licensee. The maximum amount of administrative penalty that may be imposed is $50,000 per contravention. Money received by the Council on account of administrative penalties may be



expended by the Council only for the purpose of educating the public, licensees and other participants in the real estate industry in BC about:

1. the operation and regulation of the industry; and

2. issues related to real estate and real estate services.

Offences

RESA provides that certain conduct is an offence for which a person, including a corporation, may be convicted. The following conduct is specified as an offence under section 118 of RESA:

• Failing to hold a real estate licence (section 3);

• Failing to pay funds into a trust account (section 27);

• Improperly withdrawing money from the trust account (section 30);

• Interfering with an investigation (section 37(4));

• Failing to comply with an order of the Council, a disciplinary committee or the Superintendent; and

• Making a false statement in a record required by RESA.

RESA provides that the maximum fine on a first conviction for a corporation is $1.25 million and that the maximum for each subsequent conviction is $2.5 million. The maximum fine for an individual on a first conviction is $1.25 million or imprisonment for not more than two years, or both, and on each subsequent conviction the maximum fine is $2.5 million or imprisonment for not more than two years, or both (section 119).

THE REAL ESTATE DEVELOPMENT MARKETING ACT

The Real Estate Development Marketing Act regulates the marketing within British Columbia of “develop-ment units” in a “development property”.

REDMA is directed at developers who develop and market various types of real estate developments called the “development property”. Development properties include subdivisions, strata properties, coopera-tives, time shares and other shared interests in land or residential leasehold complexes. REDMA applies to the marketing of all real estate development properties, whether located in British Columbia or not. REDMA aims to protect purchasers by requiring developers who market or intend to market development units in development properties to:

1. meet any preliminary requirements or approvals applicable to the type of property to be marketed (requirements are found in sections 4 to 10 of REDMA for the different types of developments covered by REDMA);

2. ensure appropriate steps are taken to pay the cost of utilities or other related services and to assure the purchaser’s title (or other interest) upon purchase (section 3); and

3. prepare and file a disclosure statement in the form required by the Superintendent (section 3).

A “developer” is defined in REDMA as a person who, directly or indirectly, owns, leases or has a right to acquire or dispose of development property, subject to exclusion by regulation. Because developers often retain and rely on real estate licensees to market developments on their behalf, it is important that licensees understand the different types of development units and the applicable regulatory requirements. It is also important that a licensee market under the developer’s name and not the name of another entity.

The Superintendent has published a number of policy statements in relation to REDMA and the Real Estate Development Marketing Regulation (the “REDMA Regulation”), and the policy statements are available on the Financial Institutions Commission website. These policy statements provide further particulars regarding the form and content of disclosure statements filed under REDMA, and the circumstances in which the Superintendent deems actions or arrangements to be in accordance with REDMA (for example, adequate arrangements to ensure title).



For a discussion of the potential liabilities of a licensee in relation to marketing development units, see the ‘Council Discipline Matters Relating to REDMA’ section at the end of this chapter. Even though you may be acting on behalf of a developer, as a licensee, you owe the same duties to customers and clients as if you were acting for individual buyers and sellers.

Real Estate Development Property

REDMA defines “development property” in relation to the number of development units created. The requirement for a disclosure statement, as discussed below, applies to the sale of development units in a development property, where no exemption applies.

Development property means any of the following:

• 5 or more subdivision lots in a subdivision, unless each lot is 64.7 ha or more;

• 5 or more bare land strata lots in a bare land strata plan;

• 5 or more strata lots in a stratified building;

• 2 or more cooperative interests in a cooperative association;

• 5 or more time share interests in a time share plan;

• 2 or more shared interests in land in the same parcel or parcels of land; or

• 5 or more leasehold units in a residential leasehold complex.

The REDMA Regulation sets out a number of exemptions from the requirements of REDMA, both in relation to certain types of development units and to development properties as a whole. Part 2 provides that a devel-oper who markets a development property in a single transaction is exempt from the marketing requirements of Part 2 of REDMA (which includes the disclosure statement requirements) in respect of that marketing. This exemption is intended to allow the sale of development property between developers without imposing the same disclosure requirements that would be expected in marketing those properties to the general public. Other exemptions apply to:

• the marketing of development units zoned and used for industrial or commercial purposes;

• leases of 3 years or less;

• sales or leases subject to Securities Act requirements, provided those requirements are met; and

• certain subdivision lots within municipalities (discussed below).

Real Estate Development Units

A “development unit” is defined in REDMA to mean a subdivision lot, bare land strata lot, strata lot, coopera-tive interest, time share interest, a shared interest in land or a leasehold unit, provided they are located in a development property.

If you are a licensee acting on behalf of a developer, you should verify that the developer is in compliance with REDMA generally. Specifically, you should:

1. verify that a disclosure statement has been filed with the Superintendent before offering for sale any property that meets the definition of a development unit;

2. provide the disclosure statement to the purchaser in accordance with section 15 of REDMA (i.e., before the purchase agreement is entered into) and obtain the written statement from the purchaser;

3. review the deposit provisions in any purchase agreement to see if they are consistent with the deposit provisions in the disclosure statement, and if they are not, recommend that the purchaser seek legal advice; and

4. know that REDMA applies to properties outside British Columbia if those properties are marketed and sold in British Columbia.

As a Licensee...



Subdivisions

REDMA defines a “subdivision” as land that is divided into lots or parcels, other than under the Strata Property Act. Therefore, a subdivided lot in a development property is a development unit. As a result, unless exempted from the requirements of REDMA, a developer must comply with all of the marketing require-ments of REDMA before a subdivided lot can be marketed for sale or lease.

The REDMA Regulation provides that a developer who markets a subdivision lot is exempt from the marketing requirements of Part 2 of REDMA (including the disclosure statement requirements) if the subdi-vision lot is located in a municipality and the developer has complied with all of the requirements of the municipality’s subdivision bylaws, or deposited any security required by the municipality under the Local Government Act.

Strata Lots

A strata lot can be either a strata lot in a stratified building or a bare land strata lot. Strata lots are created under the Strata Property Act and fall under the requirements of REDMA. A developer must not market a strata lot unless either:

1. a strata plan (or a bare land strata plan) has been deposited in the land title office; or

2. a building permit (or an approving officer’s preliminary approval) has been issued in relation to the strata lot.

Policy Statement 5 allows for the early marketing of strata lots, in certain circumstances, as set out in section 10 of REDMA.

Cooperative Interests

A cooperative interest is an interest held in a cooperative association, either as a shareholder, partner or member, which includes a right to occupy land in which the cooperative association has an interest.

Cooperative associations are any corporation or limited liability company (as defined in the Business Corporations Act), or partnership.

The sale of shares that includes a right to occupy land is exempt from the registration requirements of the Securities Act. As a result, licensees can sell such shares.

Time Share Interest

A time share interest is an interest in a time share plan that allows a person to have a right of recurring use of land on a periodic basis. It is not necessary that the person acquire an interest in the land that is the subject of the plan.

Historically, the sale of time share interests permitted the use of the land on a week-by-week basis, without an ownership interest in land. More recently, a number of developments in British Columbia have offered a fractional interest in a property, such as a 1/5 interest. The purchaser is entitled to occupy the property for approximately 10 weeks per year. Such a development also qualifies as a time share interest, since the person is participating in a plan that allows the person to use the land in question on a periodic basis. However, in this case, the person is able to use the land for 10 weeks instead of the traditional 1 week, and also acquires an ownership interest in the land.

Example

For example, suppose that a company owns a parcel of land and intends to build a fourplex. Each unit will be occupied by a different individual or family. Instead of creating four strata lots, the company chooses to sell a share to each of four different buyers. The sale of the share to each buyer is accompanied by a right to occupy one of the units. By selling a share, which is accompanied by a right to occupy land, the company has sold a cooperative interest.



Shared Interest in Land

A development offering a shared interest in land is a development in which the purchaser buys or leases the land with at least one other person, and enters into an agreement, as part of the purchase or lease, that restricts the purchaser’s use of the land to only a part of the land.

Leasehold Unit

REDMA includes leasehold units in a residential leasehold complex as a development unit. A residential leasehold complex is a complex containing one or more buildings capable of being used for leasehold residential purposes. Buildings comprised of strata lots, cooperative interests and shared interests in land are excluded from the definition of residential leasehold complex.

The sale of leasehold units in British Columbia has primarily taken the form of the sale of life leases which are generally marketed to seniors.

Marketing Requirements

REDMA contains a number of requirements that developers must satisfy before the developer can market a development unit (section 3). The developer must obtain the necessary approvals (or have permission to market prior to obtaining the necessary approvals), make adequate arrangements relating to the title or interest being sold or leased, and prepare and file a disclosure statement with the Superintendent.

Although marketing development units is prohibited before the relevant requirements have been met, the policy statements have clarified that some “pre-marketing” activities will be considered permissible even before a disclosure statement is filed and the other relevant criteria have been satisfied. According to the Superintendent’s policy statements:

“Developers may advertise a proposed development and communicate with potential purchasers so long as potential purchasers do not gain the impression that they have a right to acquire a [development unit]. To avoid confusion, it is recommended that every advertisement contain the developer’s name and address, the telephone number of at least one representative from whom information and a copy of the disclosure statement (when available) may be obtained, and prominent disclaimer stating that the advertisement is not an offering for sale and that such an offering can only be made after filing a disclosure statement.”

Disclosure Statements and Rescission Rights

Disclosure Statements

As mentioned previously, REDMA requires developers to prepare and file a disclosure statement with the Superintendent. It also requires developers to provide potential purchasers with copies of the filed disclosure statement. One of the central objectives of REDMA is to ensure that material facts are provided to purchasers when development units are being marketed to them. Section 15(1) provides that a developer must not enter into an agreement for the sale or lease of a development unit with a purchaser unless a copy of the disclosure statement has been provided to the purchaser, the purchaser has had the opportunity to read the disclosure statement and has provided the developer with a written statement acknowledging that the purchaser has an opportunity to read the disclosure statement.

Example

For example, suppose that a developer wishes to build an eight unit apartment style building and sell the development to eight purchasers. Rather than file a strata plan, the developer sells a 1/8 interest in the title to eight different purchasers. The title is not subdivided. Instead, each purchaser obtains a 1/8 interest as tenant in common with the other seven owners. As part of the transaction, each purchaser enters into an agreement to occupy one of the units. Each purchaser agrees to occupy a different unit. In this case, each purchaser has purchased a shared interest in land.

disclosure statement (in development)a document prepared by the developer of a subdivision to ensure that investors or purchasers have adequate information upon which to base a purchasing decision



Section 14(2) states that a disclosure statement must be in the form and include the content required by the Superintendent, and that it has to plainly disclose all material facts related to the development property, without misrepresentation. Under section 22(3) of REDMA, a purchaser of a development unit is deemed to have relied on the contents of the disclosure statement and will have a statutory right to damages, subject to certain defences and limitations, if the disclosure statement contains a misrepresentation. However, it should be stressed that in order to give rise to a developer’s liability, the information omitted or misrepresented must be material.

Material Changes

As soon as a developer becomes aware that a disclosure statement does not comply with REDMA or the REDMA Regulation or contains a misrepresentation, the developer must file and deliver a new or amended disclosure statement to both prospective purchasers and purchasers who have not yet received title to their development unit to rectify the issue. Section 16 sets out the circumstances in which a developer must file a new disclosure statement and those in which filing an amendment is adequate. The amendment must clearly identify and correct any misrepresentations or defects in the original disclosure statement. Section 15.2 of REDMA provides for the filing of a consolidated disclosure statement by the developer if the developer is filing an amendment to a disclosure statement. A consolidated disclosure statement is the original disclosure statement that incorporates all of the filed amendments up to that point.

A new disclosure statement will be required when:

• the identity of the developer changes;

• the court appoints a receiver, liquidator or trustee in bankruptcy over the development property; or

• the Superintendent gives notice to the developer that a new disclosure statement must be filed.

The distinction between being required to file a new disclosure versus an amendment to the existing disclo-sure statement is important because a purchaser who receives a new disclosure statement gets another seven days (under section 21(2)) during which he or she may unequivocally rescind the contract, while a purchaser who receives an amendment does not. The rescission rights available to a purchaser are discussed next.

Rescission Rights

REDMA also provides that, regardless of whether title to the development unit has been transferred, a purchaser may have a right to rescind or cancel the purchase agreement by serving written notice of the

rescission on the developer. Effectively, this powerful remedy allows the purchaser to “back out of ” the purchase agreement, without penalty. These rescission rights cannot be ‘contracted out of ’, and any attempt by the developer to have a purchaser waive them will be void.

Licensees should keep in mind that the developer’s disclosure obligations under REDMA are totally separate from a licensee’s disclosure obligations, and that the licensee is still obligated to comply with all common law and statutory duties such as disclosure of latent defects of which a licensee is aware, and disclosure under section 5-13 of the Rules regarding material latent defects.

As a Licensee...

Licensees acting on behalf of developers should ensure that:

• they provide a purchaser with a copy of a disclosure statement;

• a purchaser has had ample opportunity to familiarize himself or herself with the disclosure statement provided; and

• the purchaser has provided the necessary confirmation in writing, before the developer and the purchaser enter into a purchase agreement.

As a Licensee...

rescission in the law of contracts, a rescission amounts to the unmaking, or an undoing of the contract from the beginning, as opposed to a termination



The requirements necessary to exercise a rescission can be complex, and the following is only a general summary of the legislation; therefore, if a purchaser is seeking to rescind his or her purchase agreement, a licensee should not attempt to advise him or her on the rescission process. The purchaser should be told to seek legal advice.

There are a number of rescission rights available to purchasers, depending on the circumstances.

Seven Day Rescission Right

First, a purchaser may rescind the purchase agreement by serving written notice of the rescission on the developer within seven days after the later of:

1. the date that the purchase agreement was made; or

2. the date that the developer obtained a written statement from the purchaser, acknowledging that the purchaser has had an opportunity to read the disclosure statement.

For the purposes of obtaining the latter, it is not sufficient to have a receipt clause built directly into the purchase agreement, stating that, upon signing the agreement, the purchaser acknowledges having read the disclosure statement. The Superintendent recommends acquiring a stand-alone receipt statement. This “seven day rescission right” can be exercised for any reason, regardless of a developer’s actions.

Failure to Deliver a Disclosure Statement to the Purchaser

The second rescission right arises if the developer fails to deliver a disclosure statement to the purchaser. The previous sections discussed when a disclosure statement is needed, and when a new disclosure statement must be provided to a purchaser. If the developer fails to deliver a disclosure statement to the purchaser, the purchaser may rescind the purchase agreement at any time by serving a written notice of rescission on the developer. It should also be noted that a failure to deliver a disclosure statement to a purchaser is a breach of REDMA, which, according to section 23, generally makes the purchase agreement unenforceable against the purchaser. Therefore, if the purchaser does not complete the transaction, the developer may not be able to bring a lawsuit against the purchaser for a failure to complete.

Failure to Deliver an Amendment to a Disclosure Statement to the Purchaser

The last rescission right arises if the developer fails to deliver an amendment to a disclosure statement; however, written notice of the rescission must be served on the developer, and the following must apply:

1. the amendment was “reasonably relevant” to the purchaser in deciding to enter into the purchase agreement; and

2. no more than one year has elapsed after the transfer of title.

As with the delivery of disclosure statements, a failure to deliver an amendment, in certain circumstances, can also constitute a breach of REDMA, which according to section 23, may make the purchase agreement unenforceable, if certain materiality and timing thresholds are met.

Offences and Penalties

Failure to comply with the disclosure requirements set out in REDMA is an offence. For a corporation, it can result in liability for a fine of up to $100,000 for a first offence and fines up to $200,000 for subsequent offences. For an individual, the first conviction can give rise to a fine not exceeding $100,000 or imprisonment for up to 2 years, or both. For subsequent offences, the fine can be as high as $200,000 and can be imposed instead of or together with imprisonment for up to 2 years. Additionally, the Superintendent has the power to order a developer that did not comply with REDMA to cease marketing units or to pay an administrative penalty of up to $50,000.



Council Discipline Matters Relating to REDMA

Real estate licensees who fail to comply with the requirement to provide a purchaser with a disclosure statement, as prescribed by REDMA, may be disciplined by the Council. In addition, licensees have been disciplined for the following:

1. accepting remuneration directly from the developer and not the brokerage in relation to which the licensee was licensed;

2. allowing or assisting the developer to breach REDMA by receiving, placing and releasing deposits not in accordance with REDMA;

3. failing to recommend legal advice to purchasers where the amount of the deposit to be paid to the developer contravened REDMA;

4. marketing out of province development units in British Columbia without a disclosure statement being filed with the Superintendent; and

5. failing to act with reasonable care and skill on behalf of the developer when preparing the purchase agreement which included a waiver of the purchaser’s rescission rights under REDMA.


Documents

DISCLAIMER © Copyright: 2017 · Columbia: the Real Estate Services Act (“RESA”) and the Real Estate Development Marketing Act (“REDMA”). These statutes came into force early