Agent Fails to Specify Rental Items in Agreement
In this particular case the real estate agent, Aaron Carter took a listing and placed it on the MLS which said:
“High Efficiency Furnace (2011), Central Aircon (2011)”.
As it turned out, this was incorrect. These two were rented, as was the hot water tank. This matter arose because the Buyer’s Representative reported the matter to RECO.
Offer and Agreement
The Seller signed the Confirmation of Acceptance of the APS on July 6, 2013, at 1:15 p.m. That was the final confirmation of the deal.
The Agreement of Purchase and Sale, which had been going back and forth as Offers and Counter-Offers included the following:
· Clause 4 of the Agreement of Purchase and Sale (APS) did not include the Rental Items as chattels that were specifically included in the APS.
· Clause 5 of the APS did not include the Rental Items as fixtures that were specifically excluded from the APS.
· Clause 6 of the APS did not include the Rental Items as items that were rented by the Seller.
· The APS did not contain any clause under which the Buyer agreed to assume the rental contracts for these items.
Timing About Notice of Rental Items
Carter received an email from the Seller which clearly indicated that the Seller rented the furnace and the air conditioner. That email was dated July 5, 2013, at 7:10 a.m., which was at least a day prior to the APS being finally executed.
Notwithstanding this fact, clause 6 of the APS remained blank.
After the Buyer had taken possession, the Buyer received an Invoice with the following charges from August 7, 2013 to September 6, 2013:
a) Water Heater: $19.24;
b) Furnace: $48.07; and
c) Air Conditioner: $42.73
These charges, totaling $110.04 for the month of August, were significant in that they meant that the Rental Items were in fact rented, and had not been included as chattels in the sale of the Property.
The Buyer was also advised by the rental company that the furnace would cost $3,600.00 to purchase and the air conditioner would cost $2,850.00 to purchase.
Set out here is a copy of the RECO decision:
Aaron Carter acted unprofessionally including as follows:
1. Carter failed to treat the Buyer and the Complainant fairly, honestly and with integrity, by failing to notify them that the furnace, hot water tank and air conditioner in the Property were rented by the Seller, and not included in the purchase price for the Property, or in the alternative ensuring that appropriate clauses were included in the APS, despite having knowledge of that fact, thereby breaching s.3 of the Code of Ethics under the Act (the “Act”).
2. Carter failed to promote and protect the best interests of his client and failed to provide conscientious service to his client, and failed to demonstrate reasonable knowledge, skill, judgment and competence in providing those services, in that, subsequent to becoming aware that the Rental Items, or at least the furnace and air conditioner, were all rented, and before his client entered into the APS, he failed to ensure the Rental Items, or at least the furnace and the air conditioner were listed in the APS as items that the Seller rented, or in the alternative ensuring that appropriate clauses were included in the APS, thereby breaching s.4 and s.5 of the Code.
3. Carter failed to use his best efforts to prevent an error, misrepresentation, or any unethical practice by failing to include appropriate wording in the MLS listing information for the Property that indicated that the Rental Items, or at least the furnace and air conditioner, were in fact rented by the Seller, and by failing to inform the Complainant and the Buyer that the Rental Items were not owned by the Seller and were not included in the purchase price of the Property, and by failing to ensure that the Rental Items were properly identified in the APS as items that the Seller rented, thereby breaching s.38 of the Code.
It is agreed that Aaron Carter breached the following
Fairness, honesty, etc.
3. A registrant shall treat every person the registrant deals with in the course of a trade in real estate fairly, honestly and with integrity.
4. A registrant shall promote and protect the best interests of the registrant’s clients.
Conscientious 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.
Error, misrepresentation, fraud, etc.
38. A registrant shall use the registrant’s best efforts to prevent error, misrepresentation, fraud or any unethical practice in respect of a trade in real estate.
Carter was ordered to pay a penalty of $6,000.00 on or before June 30, 2016.
In addition to the above penalty, Respondent must enroll in the Ethics and Business Practice Course provided by the Real Estate Institute of Canada (REIC), and provide proof of successful completion of the course on or before June 30, 2016.
The lack of due diligence in this case didn’t help anyone. It is noteworthy that a day before the final deal, Carter was aware of the rental items. He had a duty right then to speak up.
He never did apparently and simply permitted the deal to close, possibly hoping that the Buyer would simply assume the payments.
This conduct is particularly deceptive. This was not an omission or mistake. This was a deliberate attempt to deceive.
Note that the RECO Discipline Panel placed emphasis on the duty to the Buyer by the Listing Agent:
· Carter failed to treat the Buyer and the Complainant
· fairly, honestly and with integrity,
· by failing to notify them
· that the furnace, hot water tank and air conditioner in the Property were rented by the Seller, and not included in the purchase price for the Property,
· or in the alternative
· ensuring that appropriate clauses were included in the APS, despite having knowledge of that fact, thereby breaching s.3 of the Code of Ethics under the Act (the “Act”).
So, the duty was twofold:
1) advising of the correct facts,
2) placing the correct clauses in the Agreement for the benefit of the Buyer.
Chattels and Fixtures
It should however be noted that in 99% of all cases, the furnace, central air-conditioning and the hot water tank will be fixtures and not chattels.
That makes a difference, because, “they go with the house”. It also means that they have to be “paid off” prior to closing. If the rental company wished to retain an interest in them they would have had to register a mortgage against the title. Their rights would only continue as against the Seller, personally after closing and they would have had no rights as against the Buyer.
The Panel apparently treated these items as chattels rather than fixtures.
The balance of the decision is straightforward.
Note: As a rule, I use fictitious names. The actual case is published on RECO’s website and is available to the public. For educational purposes, the names of the parties really don’t have any bearing. If you need to quote the case, you will have to obtain the proper legal citation.
Brian Madigan LL.B., Broker