Under Regulation 567/05 pursuant to the Real Estate and Business Brokers Act, 2002, there is an obligation to produce the financial statements (including the profit and loss statement and the balance sheet), failing which at the absolute minimum, the seller’s agent must produce a statement of liabilities.
I have noted the obligation to provide the “A” list documents, failing which, the seller’s agent must produce the “B” list documents.
The only way to move from “A” to “B” is to ensure that informed consent has been obtained.
The liabilities are clearly required for the purchaser to be in a position to comply with the Bulk Sales Act.
We have previously considered the obligations under that Act, as well as the issues of compliance and the risks of non-compliance.
This particular issue is of prime importance because it imposes a statutory duty upon the seller’s agent. The issue is with respect to disclosure.
Here, the seller’s agent will often push this one over to other professionals such as lawyers, and accountants acting for the seller, or even the buyer’s agent.
It is important to note that this duty cannot be simply discharged by abandonment or delegation. Compliance is required.
The seller’s agent needs to be able to prove:
- the liabilities as of a certain date,
- an updated list of liabilities as of the closing date,
- the fact that both documents were delivered to the purchaser, or the purchaser’s agent.
Understanding the nature of the liabilities is paramount. So, the seller’s agent must be careful to ensure that the purchaser is able to review and understand them.
If the statements are delivered to the buyer’s agent (and there is no dual representation) and the buyer has a lawyer and an accountant, then this duty, in my view, would be discharged satisfactorily.
There are often cautions in the transaction material to seek professional assistance, but that may not be enough. Frequently, these clauses are not drawn to the attention of the buyer.
Brian Madigan LL.B., Broker