RECO Discipline – Duty to Discover Facts
RECO issues copies of its Discipline decisions in order to educate the public and real estate practitioners of their duties and obligations under the Real Estate and Business Brokers Act, 2002.
The Buyers, Fred and Wilma were looking to buy a Condominium. They retained Johnny Brin as their “agent”. After looking at several properties, they submitted an Offer, and closed on a unit. Shortly after they moved in, they were served with notice of violations under the Fire Code.
Johnny Brin had arranged for a home inspection. So, what went wrong?
First, the Seller was Bob Jones in his personal capacity, but the legal owner of the property was Bob Jones’ company 1213456 Ontario Inc. Johnny Brin took an exclusive listing for this property.
After the deal was struck, that is, the Agreement of Purchase and Sale was signed, Brin attended at the Buyer’s residence and had them sign a WWR and a BRA. He was acting for them too.
Brin contacted a Home Inspector whom he knew and made arrangements for the inspection, at the Buyer’s expense. The report which noted some deficiencies was given directly to Brin, and only when specifically requested was it sent to the Buyer by the Home Inspector. The Report indicated that it was not a Code compliance investigation and should that be required a further and qualified inspector should be retained.
In addition to the Fire Code violation, the Buyers were served with a “Working Without Electrical Inspection” notice by the Electrical Safety Authority (the “ESA” and “ESA Notice”), which noted that electrical wiring had been done at the Property without having satisfied the requirement for filing an Application for Inspection with the ESA.
It should also be noted that the agreement contain several conditions including financing, inspection and the sale of the Buyer’s own house.
"SUMMARY OF AGREEMENTS
It is agreed that Brin acted unprofessionally when he:
1. Failed to take reasonable steps to verify material facts, in contravention of section 21(1) of the Code of Ethics, by checking with the appropriate municipal and provincial authorities and with the Corporation, before the Buyers submitted the Offer, and after the Offer was submitted during the three (3) Amendments made to the APS:
a) The identity of the legal titleholder to the Property and to list that entity or person’s name in the APS;
b) [intentionally blank]
c) That the Individual and/or the Company had obtained all permits and/or inspections necessary to ensure that all renovations to the Property by the Individual and/or the Company were to the standards set out in municipal by-laws and provincial legislation, or in the alternative, if the renovations were not in compliance with said by-laws and legislation, to insert conditions appropriate for the protection of his buyer clients in the APS;
d) Failed to verify with the Corporation that the extensive renovations to the Property undertaken by the Individual and/or the Company were performed in accordance with the by-laws of the Corporation and with the consent of its Board of Directors, thereby failing to act in his buyer and seller client’s best interests, and practicing incompetently, unethically and unprofessionally.
2. Failed to treat his buyer and seller clients fairly, to act in their best interests, and to provide them with conscientious and competent service by failing to conduct independent inquiries into the status of property taxes, permits and compliance with governing municipal by-laws and provincial legislation with respect to the Property, thereby contravening sections 4, 5, and 38 of the Code of Ethics.
It is agreed that Brin breached the following sections of the Code of Ethics:
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.
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 of disposition and, at the earliest practicable opportunity, shall disclose the material facts to the client.
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.
Brin, the Respondent, be ordered to pay a penalty of $9,000.00 on or before April 30, 2016.
In addition to the above penalty, Respondent must enroll in the Legal Issues in Real Estate Course provided by the Real Estate Institute of Canada and provide proof of successful completion of the course on or before April 30, 2016.
In addition to the above penalties, the Respondent must provide to the Registrar a short essay in an electronic word processing format, not less than 500 words in length, outlining what he has learned about his responsibilities to clients and customers from the educational courses set out above."
There were some basic issues right at the outset. The agency relationship is to be explained and documented before the Offer.
Home Inspection Contract
The Home Inspector should report directly to the Buyer. This is particularly so, when the Buyer is paying the cost of the inspection.
Check Registered Title Holder
The Agent should double-check the ownership of the property. This takes place simply with an MPAC search or GeoWarehouse search. Notice that in this particular case, we had an exclusive listing.
There was no MLS listing, so this was an expectation on behalf of the Buyer, since this was a Buyer’s complaint that was filed.
Renovations: Permits, Inspections, Compliance, Conditions
The Buyer’s Representative should have check to see if proper permits had been obtained and that inspections had been completed for the renovations. These inquiries would have been directed to the appropriate municipal or provincial authorities. Absent a proper response, then the Buyer should have been protected with appropriate conditions. This would have afforded the time to find out.
Condo Verification of Renovations
The Buyer’s representative failed to take steps to verify that the extensive renovations had the consent, approval and were completed in compliance with the Condominium’s requirements. This failure was incompetent, unethical and unprofessional.
Taxes, Permits and Compliance
Falling short of verification of these items, the Buyer’s representative failed to act in the best interests of the Buyers. This failure amounted to a breach of 4 (best interests), 5 (competent service, failure to discover material facts) and 38 (prevent error, misrepresentation and fraud) of the Code.
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