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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What is RECO's Real Role?

January 1, 2017 - Updated: January 1, 2017

What is RECO’s Real Role?

 

This is the most recent publication from RECO appearing on the RECO website. It appears in the public section of the website. It’s there for everyone to read who has access to the internet:

 

“When a deal falls through, understand how to handle written consent to release the deposit

 

FOR THE RECORD

 

December 28, 2016

 

By Joseph Richer

 

In a recent post on REM Online, Vito Campanale proposed an alternate way to obtain consent from buyers and sellers, in order to release the deposit back to the buyer if conditions are not fulfilled. This article presents RECO’s position on Mr. Campanale’s proposal.

 

When an agreement of purchase and sale falls through, RECO’s position is that the deposit should be disbursed only if the parties have agreed in writing that the money be released, or by court order. This is reflected in our Registrar’s Bulletin on the topic. Registrant questions primarily revolve around how they establish the parties’ written agreement to the release of the deposit monies.

 

There are different ways to get written approval to release deposits. In fact, before writing his article, Mr. Campanale contacted RECO to confirm that his process would not violate the Real Estate and Business Brokers Act, 2002 (REBBA 2002)  and the Code of Ethics.

 

At the basic level, Mr. Campanale proposes including the following clause in an Agreement of Purchase and Sale, which must be understood and agreed to by the parties to the agreement:

 

The Seller agrees in the event that the Buyer does not waive the conditions within the dates and times as set out in this agreement and its amendments, the Seller gives the Deposit Holder, the Brokerage or other Party holding the deposit an irrevocable direction to release the deposit to the Buyer without the necessity of a Mutual Release signed by either Party.

 

There is nothing in REBBA 2002 that would prohibit the use of this clause to satisfy the requirement of written direction.

 

That said, it’s important to emphasize that the buyer – and more importantly, the  seller – must clearly understand what this clause means, and agree to it. In addition, both the buyer’s brokerage and the seller’s brokerage should acknowledge their agreement with the direction, by initialling it, for example.

 

RECO also strongly recommends that both parties get independent legal advice before they proceed.

 

In general, RECO encourages buyers and sellers to make decisions only when they have all the information, which usually is when the deal has failed. Mr. Campanale’s clause commits sellers to releasing the deposit when the conditions are not met—before they know the specific circumstances that caused the deal to fall through.

 

As such, RECO continues to recommend the leading practice of only disbursing deposits by mutual agreement in writing or court order, after the deal has failed. However, provided that proper informed agreement is obtained, along with independent legal advice, using Mr. Campanale’s proposed clause would not violate REBBA 2002 or the Code of Ethics.

 

Before recommending the use of such contractual terms, you should always consider whether it is in your client’s best interests. As a real estate professional, that’s your duty to your client.”

 

COMMENT

 

So, that was the article in its entirety. What seems odd, is that it was written at all.

 

RECO’s Role

 

It seems curious that RECO feels that it must provide direct real estate advice to consumers, thereby “competing” with its own membership.

 

Three other regulators, namely the Law Society of Upper Canada, the Chartered Professional Accountants of Ontario and the College of Physicians and Surgeons, all with the same mandate, protect the public, regulate the profession, educate the profession and discipline the profession do just that. They recognize that their membership is composed of professionals who do provide “advice” to consumers.

 

They don’t enter into the “advice” business, they leave that to the professionals whom they regulate.

 

Indeed, it seems peculiar that RECO would publish anything along these lines at all. Three other regulators wouldn’t. Why does RECO?

 

REVIEW and ANALYSIS

 

Let’s go through the same article once again, this time with some commentary. This time RECO’s statements are in BOLD and mine are in Italics:

 

“When a deal falls through, understand how to handle written consent to release the deposit

 

FOR THE RECORD

 

December 28, 2016

 

By Joseph Richer

 

In a recent post on REM Online, Vito Campanale proposed an alternate way to obtain consent from buyers and sellers, in order to release the deposit back to the buyer if conditions are not fulfilled. This article presents RECO’s position on Mr. Campanale’s proposal.

 

Why is RECO reading newspapers directed largely to the profession of real estate agents? This is a national publication, Not one other Regulator has chosen to respond. Is there anything odd about that?

 

Why does RECO feel that it is necessary to respond?

 

By the way, I personally offered comment, as did others, but then again I’m “in the business”.

 

When an agreement of purchase and sale falls through, RECO’s position is that the deposit should be disbursed only if the parties have agreed in writing that the money be released, or by court order. This is reflected in our Registrar’s Bulletin on the topic.

 

 

Just to be sure, RECO has already written on this point before.

 

Registrant questions primarily revolve around how they establish the parties’ written agreement to the release of the deposit monies.

 

There are different ways to get written approval to release deposits. In fact, before writing his article, Mr. Campanale contacted RECO to confirm that his process would not violate the Real Estate and Business Brokers Act, 2002 (REBBA 2002)  and the Code of Ethics.

 

I would think that Mr. Campanale’s conversations with RECO should remain personal and confidential. Why is RECO making reference to them at all, other than, of course, to indicate that they are the higher authority here, and even Mr. Campanale knows that, otherwise, “why would he call”.

 

At the basic level, Mr. Campanale proposes including the following clause in an Agreement of Purchase and Sale, which must be understood and agreed to by the parties to the agreement:

 

The Seller agrees in the event that the Buyer does not waive the conditions within the dates and times as set out in this agreement and its amendments, the Seller gives the Deposit Holder, the Brokerage or other Party holding the deposit an irrevocable direction to release the deposit to the Buyer without the necessity of a Mutual Release signed by either Party.

 

There is nothing in REBBA 2002 that would prohibit the use of this clause to satisfy the requirement of written direction.

 

Let’s be clear here about RECO’s role. They regulate, govern, discipline and educate real estate practitioners. They have absolutely nothing to do with the deal. They don’t deal with Sellers, Buyers, or Owners of real property. They have nothing to do with contracts. That’s the role of the Courts applying the common law relating to contracts and various statutory laws to the parties to the transaction.

 

Just to be sure, the real estate practitioners are not parties to the deal. Courts won’t ever be looking at the Real Estate and Business Brokers Act, 2002 to interpret the contract between a Seller and a Buyer. That will only come up, if a part decides to sue one of the agents.

 

That said, it’s important to emphasize that the buyer – and more importantly, the  seller – must clearly understand what this clause means, and agree to it.

 

Great advice! Isn’t this the case with every deal concerning anything at all. No one needs RECO’s helpful thoughts here.

 

In addition, both the buyer’s brokerage and the seller’s brokerage should acknowledge their agreement with the direction, by initialling it, for example.

 

This is very, very peculiar advice here. I’m not entirely sure what is meant or what is intended. You will appreciate that in the course of negotiations, neither the Buyer’s Brokerage nor the Seller’s Brokerage are present. This can only mean that the representatives would sign on their behalf.

 

You will also appreciate that neither Brokerage are parties to this agreement. It’s a deal between the Seller and the Buyer. This particular clause is good for the Buyer, but not good for the Seller. So, why does the Listing Brokerage have to initial? They don’t initial anything else?

 

 

Next issue, is the initialing at all. Sometimes agreements include a variety of different pages, and to be sure Ontario practice has developed that each page is to be initialled by the parties. In addition, any changes are to be initialled too. This requirement is a little different. These initials are now for the purpose of acknowledging that a particular paragraph was present and confirming that it was understood. Sorry, I just went too far. The understanding part, you couldn’t really prove. That’s not how you show “informed consent”.

 

In addition, it should be noted that the “initialing craze has not struck the legal profession. Once you start down that road, you wil be initialling everything, which will simply mean that you are not initialling anything. Besides, your document wil look” crazy”.

 

RECO also strongly recommends that both parties get independent legal advice before they proceed.

 

The parties here are the Buyer and the Seller. Why does the Buyer need legal advice? This is a good clause for him. If anybody at all needs advice is would be the Seller.

 

For the moment, let’s just go with the Seller needing legal advice. That would really mean that no real estate agent could properly explain the clause or the risks associated with it. That, of course, doesn’t make any sense!

 

However, it does illustrate RECO’s assessment of the qualifications, education and experience of the registrants which it regulates. Obviously, they are just not good enough here to give the proper advice.

 

In general, RECO encourages buyers and sellers to make decisions only when they have all the information, which usually is when the deal has failed.

 

 

This makes sense. The more information the better.

 

Mr. Campanale’s clause commits sellers to releasing the deposit when the conditions are not met—before they know the specific circumstances that caused the deal to fall through.

 

This seems a little condescending. Only RECO, AND, the legal profession can anticipate and/or understand the risks, without them actually having materialized into facts. RECO knows this. Lawyers know this. But, Sellers and real estate agents would not.

 

As such, RECO continues to recommend the leading practice of only disbursing deposits by mutual agreement in writing or court order, after the deal has failed.

 

 

RECO doesn’t like this clause. Neither do I and I already said that, as did many others.

 

However, provided that proper informed agreement is obtained, along with independent legal advice, using Mr. Campanale’s proposed clause would not violate REBBA 2002 or the Code of Ethics.

 

Naturally, we all want “informed consent”. I have written about that, and initialling as suggested here is not the right way to do it. Legal advice is no longer optional, it’s mandatory in this statement.

 

Now, we are back to the agreement. The agreement, other than for disciplinary purposes of competence has nothing to do with this Act.

 

What laws apply:

 

1)Common law,

 

2)Contract law,

 

3)Tort law,

 

4)Law of restitution,

 

5)Vendors and Purchasers Act,

 

6)Conveyancing and Law of Property Act,

 

7)Certain other Acts and regulations relating to specific issues, for example, the Planning Act, The Income Tax Act etc.(but not REBBA, 2002).

 

Before recommending the use of such contractual terms, you should always consider whether it is in your client’s best interests. As a real estate professional, that’s your duty to your client.”

 

As I have written before, it’s fine for the Buyer, usually not fine for the Seller.

 

My primary issue here, is the RECO role and the fact that RECO seems to think that it needs to practice real estate and provide “advice” directly to the consumer.

 

I would just leave that issue to the real estate practitioners!

 

Brian Madigan LL.B., Broker

www.iSourceRealEstate.com

 

 


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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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