Agent Fails to Determine HST Implications (RECO Discipline)
This particular situation is relatively straightforward. The HST implications were not addressed.
Harry Rosen took a listing of a mixed use property and subsequently arranged for the negotiations and sale of that property.
The Property was a mixed-use commercial/industrial/retail structure containing an accessory dwelling unit. Just what were the HST implications? Who knew? Rosen never looked into it or recommended that any advice be obtained.
The Agreement was as follows:
a) Purchase Price: $850,000.00;
b) Completion date: October 3, 2011;
c) HST: included in the Purchase Price:
d) Requisition date: September 23, 2011;
e) Present Use: E2 Mix Commercial & Residential;
f) Conditions (inter alia): “This Offer is conditional upon the Buyer determining, at the Buyer’s own expense, that an occupancy permit for the use as a Chiropractic Clinic from the municipality for the property is feasible”.
Prior to completion, the Sellers were advised by their solicitor that, contrary to their expectations, they would be responsible for remitting HST to the Canada Revenue Agency (the “CRA”).
The Sellers attempted:
1) to extricate themselves from the transaction, and
2) to resolve the dispute over liability for HST with the Buyer.
They had no success with either endeavour and the transaction was completed as scheduled.
The Sellers were required to pay $50,849.55 in HST to the CRA because of Rosen’s failure to stipulate in the APS that HST was payable in addition to the purchase price for the Property.
In partial compensation for the HST his clients were required to pay on account of his negligence, Rosen waived the commission payable by the Sellers to Brokerage ABC in the amount of $12,750.00.
This is a summary of the decision by RECO.
It is agreed that Rosen acted unprofessionally by:
1. Failed to inform himself of the HST implications to his clients that arose from the sale of the Property and to advise the Sellers accordingly;
2. Failed to document a referral or recommendation for his clients to a solicitor or accounting professional, with respect to the Sellers’ potential HST liabilities upon the sale of the Property before they entered into the APS.
3. Failed to ensure that his recommendations and referrals to outside professionals with respect to this clients’ potential exposure to HST were reduced to writing.
It is agreed that Rosen breached the following sections of REBBA Code of Ethics:
4. A registrant shall promote and protect the best interests of the registrant’s clients.
CONSCIENTOUS AND COMPETENT SERVICE, ETC.
5. A registrant shall provide conscientious service to the registrant’s clients and customers and shall demonstrate reasonable knowledge, skill, judgment and competence in providing those services.
21. (1) A broker or salesperson who has a client in respect of the acquisition or disposition of a particular interest in real estate shall take reasonable steps to determine the material facts relating to the acquisition or disposition and, at the earliest particular opportunity, shall disclose the material facts to the client.
WRITTEN AND LEGIBLE AGREEMENTS
27. (1)(a) A registrant who represents a client in respect of a trade in real estate shall use the registrant’s best efforts to ensure that any agreement that deals with the conveyance of an interest in real estate is in writing.
Rosen was ordered to pay a penalty of $8,000.00 and enroll in the Ethics and Business Practice Course provided by the Real Estate Institute of Canada (REIC).
Most software programs include a reference to the HST. The choices are:
1) included in, or
2) in addition to.
The first is for strictly residential transactions and the second is for commercial transactions.
Obviously here we had a residential Offer Form used for a commercial transaction.
It is reasonable to recommend that the client seek the advice of an accountant. This decision takes it one step further and requires that recommendation to be placed in writing. That is certainly worthy of note!
Brian Madigan LL.B., Broker