RECO Discipline Panel Offers Suggested Clauses for Agreements
This is unusual and doesn’t happen very often. In one case, the RECO Discipline Panel provided its own suggestions in terms of the way an Offer should be handled.
I thought that you might be interested in their comments, so here we go.
A recent case involved a Listing Agent who failed to identify zoning, building and fire code violations. If you wish to look at that case, follow the link at the bottom of the page.
The complainant in this case was the Buyer who got stuck with a non-compliant property and had to spend a great deal of money to remove the illegal renovations and convert the property back to a single family home.
The accusation was made against the Listing Agent, so it was ONLY the conduct of the Listing Agent which was under review. There was no complaint against the Buyer’s Agent, so their conduct (and shortcomings) didn’t matter.
This was the same case in which the Home Inspector sought to intervene and help out with the deal.
There was a settlement in this case. That’s just like a “plea of guilty”. So, we really don’t know all the evidence that would have come by the Panel had there been a full hearing.
The guilty plea is by the Listing Agent.
The Buyer decided not to report their own agent.
The Offer contained 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.”
In addition to the above warranty, there were also certain conditions, namely –
1) Arranging a mortgage satisfactory to the buyer within five banking days;
2) obtaining a home inspection report satisfactory to the buyer within five banking days.
Suggested Offer Proposal
Without dealing in any way with the conduct of the Buyer’s Representative, the Panel decided to offer the following commentary:
The Offer did not contain conditions that would have made the purchase contingent on:
a) the provision of proof from the Sellers that any additions or renovations to the Property had been made in compliance with –
i. municipal by-laws,
ii. the Ontario Fire Code,
iii. the Ontario Building Code or
iv. the Ontario Electrical Safety Code; or that
b) the provision of proof from the Sellers that the accessory apartments were in compliance with municipal zoning by-laws and that the renovations complied with municipal building standards.
c) the provision of proof from the Sellers that the number of parking spots available on the Property was sufficient for the number of rental units therein.
d) disclosure of the rental income, existing leases and deposits, and expenses relating to the Property.
Conditions and Warranties
It is interesting to find that the Panel would offer those suggestions. Of course, they knew the facts, at hand, and we don’t. We simply have a copy of a rather “bland” summary.
Obviously, they thought that there should have been conditions to this same effect. And, they also thought that warranties were insufficient. But, they didn’t get to say that, because no one complained about the Buyer’s Agent.
A condition would have been a deal breaker. If it were not satisfied, the transaction is “off”, the agreement becomes “null and void” and the buyer gets his deposit back. Nothing ventured, nothing gained, we all go back at the starting line.
A warranty is a little different. There is a promise that requires fulfillment in the future. The deal will get done. The warranty will patch things up later. Naturally, a non-merger provision should be included for additional certainty.
In this case, the Buyer may have preferred to buy the property with the warranty. Now, since the warranty was incorrect, the Seller is under an obligation to make good and pay damages. That would have paid for a lot of the renovations and work in this particular case.
So, point ONE! Maybe, that’s what the Buyer wanted.
Point TWO! Let’s have both. That would even be better. These matters could be written both as Conditions and Warranties. The real estate profession seems to miss the boat on that one. Usually, it’s an “either or” choice, and interestingly, that seems to be the Panel’s suggestion.
Assume that there is a problem with the fuel pump on a 2016 Mercedes. Expressed as a condition, the buyer would walk away from the deal and never get the car. Expressed as a warranty, the buyer would get the car and Mercedes would fix it later, if there was a problem.
In the first case, the buyer has NOTHING.
In the second case, the buyer has the CAR and a Warranty from Mercedes.
Here is the link to the case commentary.
Brian Madigan LL.B., Broker