Brian Madigan LL.B., Broker
BRMadigan@iSourceRealEstate.com

RE/MAX West Realty Inc.,
Brokerage
Independently owned and operated

96 Rexdale Blvd. 
Toronto, Ontario 


Phone: 416-745-2300
Toll Free: 1-888-507-0817

 

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Listing Agent Fails to Protect Both Seller and Buyer (RECO Discipline)

March 11, 2016 - Updated: March 11, 2016

 

Listing Agent Fails to Protect Both Seller and Buyer

 

We are looking at a property that was being operated as a rooming house, but it was simply zoned “single family”. The building was divided up, but all that work took place without permits. The municipality tried to inspect but couldn’t get in, so the property was then sold.

 

In this case, we are examining the conduct of the Listing Agent, however, you may very well inquire into the role of the Buyer’s Agent, but, that matter was not covered in this case.

 

MLS Listing

 

Boris Karloff, took the listing and advertised it on MLS as follows:

 

          a) Price - $249,900.00

b) Number of bedrooms – 3+3

c) Number of bathrooms: 5

d) In the ‘Extras’ section, the list of chattels to be sold with the Property included

“…4 Fridges And 4 Stoves…”.

e) In the ‘Remarks for Brokerages’ section, the listing stated “Please Note: 3

Separate Self Contained Bachelor Apts” (“accessory apartments”).

 

 Offer

 

Wilma Flintstone, the Buyer’s agent submitted an Offer which was accepted, subject to financing and inspection conditions and included the following representation and warranty from the Sellers:

 

“The Seller warrants and represents that there are no work orders or deficiency notices outstanding against the Property and if so such will be complied with on or before the date of closing at the Seller’s expense.”

 

Home Inspection

 

The Home Inspector conducted an inspection of the Property. Wilma attended. In his written report, the Home Inspector recommended that:

 

  1. the Buyer ask the Sellers for “any permits regarding addition(s)/renovation(s).”

 

  1. the Buyer obtain from the Sellers a receipt for recent roof work for warranty purposes.

 

The report did not reveal any structural deficiencies, nor did it note any potential Building Code violations.

 

Overall, the Home Inspector gave the house a “typical” rating compared to other homes similar in age, construction and/or neighbourhood.

 

Waiver of Conditions

 

Before waiving the conditions, the Buyer asked Wilma to confirm with the Sellers that building permits for any renovations would be provided.

 

On or about August 26, 2010, Wilma called Brokerage XYZ to request copies of any building permits relating to the accessory apartments.

 

Verbal Undertaking

 

Boris advised the Buyer that the permits would be left at the Property before the completion of the transaction.

 

The Sellers did not provide building permits for the accessory apartments, the added front stairwell or the alterations to the foundation wall of the Property that gave access to them.

 

Later that day, August 26, 2010, the Buyer waived the conditions relating to financing and home inspection; the waiver was acknowledged by Brokerage XYZ at 7:00 p.m.

 

Closing

 

The transaction closed as scheduled on September 30, 2010.

 

The Sellers did not leave copies of the building permits or any other documentation relating to the accessory apartments at the Property.

 

Post Closing Inquiry by Buyer

 

Buyer filed an application pursuant to the Municipal Freedom of Information and Protection of Privacy Act, and learned:

 

  • that on July 30, 2010, the local City Councillor received a complaint that the Property was being used as a rooming house.

 

  • five days before the Buyer’s offer on the Property, that a municipal zoning officer had attended the Property with the intention of inspecting it for zoning violations.

 

Illegal Accessory Units

 

On October 27, 2010, a Provincial Offences Officer attended the Property, with the Buyer present, and discovered that there were three illegal accessory apartments in the basement, one of which was occupied by a tenant.

 

Fire Code Issues

 

On November 23, 2010, Fire Services conducted a safety inspection of the Property and found it in contravention of five separate sections of the Ontario Fire Code, specifically:

 

a) The accessory apartments did not have adequate fire separation, nor did the ceiling of the basement have proper separation from the ground floor.

 

b) The basement hallway did not have adequate fire separation from the apartment units, nor did the hallway have proper separation from the floor above.

 

c) The basement doors were not fire-rated, and the ground floor entrance to the east side stairwell could not be used as a safe means of egress.

 

d) The east side stairwell did not have proper fire separation from the rest of the house.

 

e) Carbon monoxide detectors, which are required in each accessory apartment as well as on the ground floor, were missing.

 

Further Infractions

 

On December 23, 2010, a Building Inspector conducted an inspection. The Building Inspector issued the Buyer with an Order to Comply, noting that the Property had modifications which had not been authorized by building permits. In six instances the Property contravened the Ontario Building Code, as follows:

 

a) The front porch had been enclosed.

 

b) The concrete floor of the front porch deck had been cut to create an opening to the basement.

 

c) A set of circular stairs had been installed in the opening noted above.

 

d) A door opening had been created in the front foundation wall to permit access to the circular stairs.

 

e) The stairway leading to an outside door and the first floor from the basement had been removed.

 

f) Drains and vents for 4 toilets, 4 showers, 3 bathroom sinks, 2 utility sinks and one kitchen sink had been installed in the basement.

 

Provincial Offences

 

On April 1, 2011, the Buyer pled guilty to four counts of contravening the Fire Prevention Act, 1997 and was ordered to pay a fine of $880.00 for each count, for a total of $2,540.00, by March 31, 2012.

 

Consequences

 

The Buyer incurred considerable and unanticipated expenses in:

 

a) bringing the property into compliance with the –

 

i) Fire Code,

 

ii) the Ontario Building Code, and

 

iii) the municipal by-laws,

 

b) hiring a contractor to demolish and remove the existing accessory apartments and associated appliances in the basement, and

 

c) hiring a professional engineer to prepare drawings in support of a building permit to bring the property back in compliance.

 

 

RECO DECISION

 

The RECO decision is as follows:

 

I. Karloff failed to treat the Buyer honestly, fairly and with integrity, contrary to s. 3 of the Code of Ethics, when he:

 

a) Failed to state in the MLS® listing information for the Property a clause indicating that the Sellers provided no warranty as to the legality of the basement apartments;

 

II. He failed to promote and protect the Sellers’ best interests, contrary to s. 4 of the Code of Ethics, when he:

 

a) Failed to disclose on the MLS® listing information that the Sellers made no representations or warranties as to the legality of the alterations to the Property or the Property’s complied with municipal by-laws and provincial legislation, thereby exposing the Sellers to the risk of litigation.

 

III. He failed to disclose to the Buyer the material facts relating to the disposition that he knew or ought to have known, contrary to s. 21(2) of the Code of Ethics, by:

 

a) Failing to explain to the Buyer that the Sellers made no representations or warranties as to the legality of the alterations to the Property or the Property’s compliance with municipal by-laws and provincial legislation, thereby depriving the Buyer of information that would affect a reasonable person’s decision to acquire an interest in the Property.

 

IV. He failed to use his best efforts to prevent error, misrepresentation, fraud or any unethical practice in respect of a trade in real estate, contrary to s. 38 of the Code of Ethics, when he:

 

a) Failed to disclose on the MLS® listing information that the Sellers made no representations or warranties as to the legality of the alterations to the Property or the Property’s compliance with municipal by-laws and provincial legislation, thereby exposing the Sellers to the risk of litigation and depriving the Buyer of information necessary to make an informed decision about whether or not to purchase the Property.

 

V. He engaged, in the course of a trade in real estate, in an act or omission that, having regard to all of the circumstances, would reasonably be regarded as disgraceful, dishonourable, unprofessional or unbecoming a registrant, contrary to s. 39 of the Code of Ethics, when he failed to correct clause 8 of the Offer, which identified the Property as a “Single Family Resident”, or in the alternative include appropriate clauses in the offer regarding the apartments.

 

Karloff breached the following sections of the Code of Ethics:

 

3. Fairness, honesty, etc.

 

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. Best interests

 

A registrant shall promote and protect the best interests of the registrant’s clients.

 

21. (2) Material facts

 

A broker or salesperson who has a customer in respect of the acquisition or disposition of a particular interest in real estate shall, at the earliest practicable opportunity, disclose to the customer the material facts relating to the acquisition or disposition that are known or ought to be known by the broker or salesperson.

 

38. Error, misrepresentation, fraud, etc.

 

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.

 

39. Unprofessional conduct, etc.

 

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.

 

PENALTY

 

Karloff was ordered to pay a penalty of $8,000.00 on or before February 24, 2014, and complete the Real Property Law Articling Course provided by the Ontario Real Estate Association (OREA).

 

COMMENT

 

It is easy to appreciate that the Listing Agent has a primary duty to protect their own client. By failing to investigate, determine and verify the material facts, that didn’t happen. The Seller was exposed to the risk of a lawsuit from the Buyer.

 

Karloff should have included a disclaimer about the accessory units to protect the Seller.

 

It is interesting to note that the balance of the transgressions actually involved the Buyer.

 

  • Failed to state “no warranty”, this would have alerted the Buyer
  • Failed to disclose material facts, s. 21. (2)
  • Failed to explain the implications of “no warranty”
  • Failed to prevent error, misrepresentation, fraud
  • Engaged in unethical practice
  • failed to correct clause 8 of the Offer, which identified the Property as a “Single Family Resident”.

 

The Faulty Explanation

 

Let’s have another look at the faulty explanation conclusion. It states above:

 

III. He failed to disclose to the Buyer the material facts relating to the disposition that he knew or ought to have known, contrary to s. 21(2) of the Code of Ethics, by:

 

a) Failing to explain to the Buyer that the Sellers made no representations or warranties as to the legality of the alterations to the Property or the Property’s compliance with municipal by-laws and provincial legislation, thereby depriving the Buyer of information that would affect a reasonable person’s decision to acquire an interest in the Property.

 

There are several matters here. Wilma represented the Buyer, not Boris. Surely, Wilma should have the major role in explaining the documentation.

 

You would also think that “silence is golden”. Why would a disclaimer be necessary to alert the Buyer? Naturally, it may be of help to protect the Seller. But, here, the conclusion was that the explanation to the Buyer was insufficient. Why was there any need for an explanation at all?

 

Boris can only communicate to the Buyer through Wilma. This decision seems to be pushing the limits somewhat.

 

There is a reference to s.21 (2), which deals with material facts for “customers”. The Buyer was a client of Wilma’s, and neither a client nor customer of Boris.

 

I think that this part of the decision is “somewhat on the MUSHY side”.

 

Public Duties Owed to Buyers

 

Nevertheless, there are public duties owed by Boris. The expectation was that he would discover the material facts and make them known.

 

So, in conclusion, there were breaches under the Code of:

 

  • Honesty, integrity and good faith
  • Failure to prevent error
  • Unethical and unprofessional conduct

 

Those were DUTIES owed to the public generally, and owed to the Buyer specifically.

 

In that regard, the decision is very helpful in terms of guidance.

 

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

www.iSourceRealEstate.com


Tagged with: discovery facts zoning building infracxtions building permit fire code reco discipline
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Brian Madigan LL.B. Broker

RE/MAX West Realty Inc. Brokerage

Independently owned and operated

96 Rexdale Blvd. , Toronto Ontario,

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