Agent Misrepresents Status of Basement Apartment (RECO Discipline)
This is a case which unfortunately has become all too familiar. There are all kinds of basement apartments throughout the Province. Some are legal and some are not. It all depends upon the municipality.
Even if the municipality agrees that the zoning is right, the unit must be compliant with the Building Code and the Fire Code. This means four things:
1) An application to the City,
2) The issuance of a building permit,
3) An inspection,
4) A Compliance letter.
You will appreciate that many people don’t want to be bothered. If the unit is illegal, the municipality can shut it down. However, you would think that the Listing Agent would get it right.
The Property had been listed on the Multiple Listing Service® by Lewis Day.
Among other information, the listing stated that:
“Investors!! Or First Time Buyers. Income Potential 3 + 1 Bdrm Bungalow w/Separate Entrance/In-Law Suite, 3 pc Bath + 4th Bdrm, Possible to make a 5th
Disclaimer in MLS to Brokerages (not public)
“Agnts & Seller Do Not Warrant Lgl Retrofit Status of In-Law Suite.”
This particular disclaimer would be seen by other agents but not by the public on MLS.
Meaning and Interpretation of Disclaimer
The RECO Panel concluded that the inclusion of the text “Agnts & Seller Do Not Warrant Lgl Retrofit Status Of In-Law Suite”
· implies that the seller of the property either has not taken steps to make the basement suite legal, or
· that he has no documentation from previous owners to confirm whether such steps were taken.
Here is the summary of the RECO decision:
It is agreed that Day acted unprofessionally, including as follows:
1. Day included information in an MLS listing which was either false, inaccurate, misrepresentative or misleading to consumers, regarding the status of the basement suite.
2. Day failed to take steps to verify the legal status of the basement suite so that the appropriate language may be used in the MLS listing and available to consumers.
It is agreed that Day breached the following sections of the Code of Ethics:
FAIRNESS, HONESTY, ETC.
3 A registrant shall treat every person the registrant deals with in the course of a trade in real estate fairly, honesty and with integrity.
37(1) A registrant shall not knowingly make an inaccurate representation in respect of a trade in real estate.
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.
UNPROFESSIONAL CONDUCT, ETC.
39 A registrant shall not, in the course of trading in real estate, engage in any act or omission that, having regard to all of the circumstances, would reasonably be regarded as disgraceful, dishonourable, unprofessional or unbecoming a registrant.
Day was ordered to pay a fine of $5,000.00 payable to RECO within 180 days of sending this decision and to successfully complete the Real Estate Institute of Canada “REIC: Legal Issues in Real Estate” course within 180 days of sending this decision.
There are two issues here:
1) A Buyer acquires the property but they cannot rectify it.
2) A Buyer acquires the property and incurs substantial additional costs associated with the rectification.
In the first case, the Buyer is “out” the long term rental income associated with this unit.
In the second case, there is the short term loss of income and the associated costs of rectification and compliance.
In both cases, this amounts to a substantial sum of money.
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