Copyright 2017 by the UBC Real Estate Division

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1 DISCLAIMER: This publication is intended for EDUCATIONAL purposes only. The information contained herein is subject to change with no notice, and while a great deal of care has been taken to provide accurate and current information, UBC, their affiliates, authors, editors and staff (collectively, the "UBC Group") makes no claims, representations, or warranties as to accuracy, completeness, usefulness or adequacy of any of the information contained herein. Under no circumstances shall the UBC Group be liable for any losses or damages whatsoever, whether in contract, tort or otherwise, from the use of, or reliance on, the information contained herein. Further, the general principles and conclusions presented in this text are subject to local, provincial, and federal laws and regulations, court cases, and any revisions of the same. This publication is sold for educational purposes only and is not intended to provide, and does not constitute, legal, accounting, or other professional advice. Professional advice should be consulted regarding every specific circumstance before acting on the information presented in these materials. Copyright: 2017 by the UBC Real Estate Division, Sauder School of Business, The University of British Columbia. Printed in Canada. ALL RIGHTS RESERVED. No part of this work covered by the copyright hereon may be reproduced, transcribed, modified, distributed, republished, or used in any form or by any means graphic, electronic, or mechanical, including photocopying, recording, taping, web distribution, or used in any information storage and retrieval system without the prior written permission of the publisher.

2 THE REAL ESTATE SERVICES ACT Learning Objectives After studying this chapter a student should be able to: Discuss the purpose and the scope of the Real Estate Services Act ( RESA ) Describe the consequences of a licensee s breach of RESA Describe how RESA is administered Describe the Real Estate Council s disciplinary and enforcement procedures Describe the licensing system Describe how RESA governs the conduct of licensees Describe specific requirements of RESA relating to rental property management Discuss the purpose and the scope of the Real Estate Development Marketing Act Describe which types of developments require a disclosure statement when units are sold Discuss how RESA provides protection to the public

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4 The Real Estate Services Act 1 INTRODUCTION In May 2004, the legislature introduced two new statutes that govern the sale of real estate in British Columbia: the Real Estate Services Act ( RESA ) and the Real Estate Development Marketing Act ( REDMA ). These statutes came into force early in 2005, and replaced the Real Estate Act. RESA imposes licensing requirements on persons who provide trading services related to real estate, rental management services, and strata management services. REDMA imposes disclosure requirements on developers marketing various forms of real estate developments, such as, strata lots, cooperatives, time shares, and shared interests. In this chapter, we are primarily concerned with RESA; however, REDMA, as it relates to real estate licensee practices, will also be discussed. In 2016, the British Columbia government amended RESA to increase oversight of the real estate industry and enhance consumer protection. The amendments transfer rule-making powers from the Real Estate Council (the Council ) to the Superintendent of Real Estate and enable an enhanced oversight role for the Superintendent. Maximum penalties for real estate licensee misconduct were also increased. The Council continues to be responsible for licensing, licensee and public education, investigation of licensee conduct and licensee discipline. Many of the changes to RESA flowed from recommendations made by the Independent Advisory Group, a group initiated by the Council, to review the conduct requirements in place for real estate licensees in BC, and to examine whether those requirements were adequate and whether they were being effectively enforced. RESA references regulations, rules and bylaws which also regulate the licensing and conduct of licensees and set out the regulatory framework for licensees in British Columbia. The Real Estate Services Regulation (the Regulations ): Under section 130(1) of RESA, the Lieutenant Governor in Council may make regulations dealing with a variety of matters. The Regulations have the force of law. Currently, the Regulations deal with a number of matters, including exemptions from licensing, fees payable by licensees, trust account issues, disciplinary proceedings, administrative penalties, required standard terms in certain contracts, and personal real estate corporations ( PRECs ). Rules under the Real Estate Services Act (the Rules ): under section 89.2 of RESA, the Office of the Superintendent of Real Estate (the Superintendent ) may make rules that the Superintendent considers necessary or advisable respecting licensing, or regulating licensees in relation to the provision of real estate services. Currently, the Rules deal with a number of matters, including licensing, general responsibilities of licensees, business practices, relationships with principals and parties, dealing with other licensees and unlicensed persons, brokerage accounts and financial requirements, brokerage records, and licensee exemptions. Prior to September 30, 2016, the Rules were created by the Council. Under section 137.3(2), the rules enacted by the Council are deemed to be rules made by the Superintendent of Real Estate; however, in this Manual, you may still see reference to the Rules as Rules. Real Estate Council Bylaws (the Bylaws ): Under section 84 of RESA, the Council may make general bylaws that it considers necessary or advisable for the conduct of its business and affairs. For example, the Council is permitted to make bylaws respecting the conduct of council members and officers of the Council, the procedures for making bylaws, and the practice and procedures of a hearing committee, to name a few. Furthermore, under section 85 of RESA, the Council may make rules respecting licensing fees and assessments. In this chapter, and those that follow, the section numbers of statutes, regulations, etc. will be given. Students are not expected to memorize these section numbers; instead, you should concentrate on the provisions themselves. To access the most current versions of RESA and the Regulations, students can visit To access the most current versions of the Rules and the Bylaws, students can visit the Council s website at

5 2 Rental Property Management Licensing Course Manual REQUIREMENTS FOR LICENSING Purpose The purpose of RESA is to protect the public by: ensuring that those offering real estate services meet certain minimum reasonable competency requirements in order to obtain a licence; setting out certain standards to ensure that licensees conduct themselves appropriately while licensed; and establishing a body called the Real Estate Council of British Columbia to administer, subject to the oversight and direction of the Superintendent, RESA, the Regulations, the Rules and the Bylaws.. Activities Requiring a Licence RESA requires that a person who provides real estate services on behalf of another for or in expectation of remuneration must be licensed. Real estate services is defined in RESA to mean: (a) rental property management services, (b) strata management services, or (c) trading services. Trading Services: Trading services is the term that has been used to refer to the activities related to the purchase and sale of real estate. RESA defines trading services to mean any of the following services provided to or on behalf of a party to a trade in real estate: (a) advising on the appropriate price for the real estate; (b) making representations about the real estate; (c) finding the real estate for a party to acquire; (d) finding a party to acquire the real estate; (e) showing the real estate; (f ) negotiating the price of the real estate or the terms of the trade in real estate; (g) presenting offers to dispose of or acquire the real estate; or (h) receiving deposit money paid in respect of the real estate. RESA defines real estate to mean: (a) real property, (b) regardless of whether it is or is not an interest in real property, a cooperative interest, shared interest in land or time share interest, as these are defined in the Real Estate Development Marketing Act, and (c) a right in relation to real property that is defined by regulation to be real estate. RESA defines trade in real estate to mean: (a) a transaction for the purchase or sale of real estate, for the leasing of real estate or for any other form of acquisition or disposition of real estate, (b) an assignment of a contract for purchase, sale or lease of real estate, or a transaction in relation to such an assignment, or (c) a prospective trade in real estate within the meaning of paragraph (a) or (b); As you can see, trading services is not limited to the purchase and sale of real estate, but rather includes transactions for the leasing of real estate and assignments of contracts for purchase, sale and lease of real estate. It is important to note that a licence can be required even though a person is not involved in the selling of real property or an interest in land. Sales of time shares and cooperatives, if conducted on behalf of another, require a licence even though the transaction involves the sale of shares, or a contractual right to use property. Rental Property Management Services: Under the former Real Estate Act the act of collecting money payable as rent for the use of real estate was an activity that required licensing. However, the activity of collecting rent was only one activity that a rental manager conducted. If a property manager did not collect rent, he or she could avoid the requirement for licensing. RESA defines rental property management services to include a broad range of activities. Unless specifically exempted, a person who carries out any of the activities that are

6 The Real Estate Services Act 3 contained within the definition of rental property management requires a licence. Thus, the fact that a person does not collect rent will no longer be sufficient to avoid the need for licensing. RESA defines rental property management services to mean any of the following services provided to or on behalf of an owner of rental real estate: (a) trading services in relation to the rental of the real estate; (b) collecting rents or security deposits for the use of the real estate; (c) managing the real estate on behalf of the owner by (i) making payments to third parties, (ii) negotiating or entering into contracts, (iii) supervising employees or contractors hired or engaged by the owner, or (iv) managing landlord and tenant matters. Strata Management Services: RESA requires those who conduct strata management activities to obtain a licence. RESA defines strata management services to mean any of the following services provided to or on behalf of a strata corporation: (a) collecting or holding strata fees, contributions, levies or other amounts levied by, or due to, the strata corporation under the Strata Property Act; (b) exercising delegated powers and duties of a strata corporation or strata council, including (i) making payments to third parties on behalf of the strata corporation, (ii) negotiating or entering into contracts on behalf of the strata corporation, (iii) supervising employees or contractors hired or engaged by the strata corporation, or (iv) enforcing bylaws or rules of the strata corporation. RESA applies, subject to the Rules, to every licensee who provides real estate services, even if the licensee is providing them on the licensee s own behalf, or is providing services to another, but not in expectation of remuneration. Additionally, RESA applies to a licensee who would otherwise be exempt under the Regulations (section 2). Common infractions of licensees concern dealing with their own property selling, buying, leasing or renting. Deposits and trading service agreements must conform to the requirements of RESA and the Regulations. For example, complete files of private sales or purchases must be provided to the licensee s managing broker (section 3-2 of the Rules). RESA requires disclosure of the licensee s interest in trade in many circumstances, whether buying, selling, renting or leasing, and The Canadian Real Estate Association s REALTOR Code requires an even broader standard. A detailed discussion of disclosure of interests in trade can be found later in this chapter. This provision means that even though the need for licensing is not met in the particular circumstances, either because the person is not acting for another, is not receiving a fee, or is exempted by the regulations, if the person has a licence, they must comply with RESA when acting in such circumstances. Once an individual is licensed, RESA holds the licensee to a higher standard in every real estate transaction in which they are involved, and not just the transactions for which a licence is required. Exemptions Exemptions from licensing are created for certain people who fall within any of the activities that are included in the term real estate services. Individuals exempted from licensing may provide rental property management services, strata management services, or trading services for a fee without the need to obtain a licence. Exemptions can be found in RESA, the Regulations and the Rules. Firstly, section 3 of RESA exempts the following from the requirement to be licensed under RESA: (a) a person acting under the authority of a court; (b) a trustee in bankruptcy, custodian, receiver, receiver manager or liquidator who is appointed under a provincial or federal enactment, in respect of real estate services undertaken by the person in that capacity; (c) an executor or administrator of an estate, in respect of real estate services provided in relation to real estate owned or held by the estate; (d) a trustee, in respect of real estate services provided under the terms of a will, marriage settlement or deed of trust;

7 4 Rental Property Management Licensing Course Manual (e) a financial institution that has a trust business authorization under the Financial Institutions Act, in respect of real estate services provided in relation to real estate that it owns, holds or administers; and (f ) a practising lawyer as defined in section 1 of the Legal Profession Act, in respect of real estate services provided in the course of the person s practice. In addition to the exemptions contained in RESA, Part 2 of the Regulations contains a number of exemptions. There are both general and specific exemptions for each of rental property management services, strata management services and trading services. The general exemptions to real estate services fall into the following four categories: employees of a principal who are providing real estate services to or on behalf of that principal; collection agents acting in the course of their business; individuals involved in various mining and oil and gas activities; and governments and government corporations. The categories of exemptions available for trading services include employees and those acting on behalf of developers, notaries, accountants, appraisers, property inspectors, auctioneers, agents for expropriating authorities and those only providing information or referral services. The categories of exemptions available for strata management services include those who are strata lot owners themselves and provide services by reason of being the strata lot owner, caretakers or managers acting on behalf of a strata corporation, and owner developers. Exemptions for rental property management services fall into the following four categories: caretakers or managers employed by the owners of different residential real estate properties, if those owners agree among themselves that the individual will provide the rental property management services only to them; caretakers or managers employed by a brokerage licensed to provide rental property management services with respect to: the collection of money in relation to the rental real estate, such as rent, security deposits and pet damage deposits; showing rental real estate to prospective tenants; receiving and presenting rental applications from prospective tenants; supervising employees or contractors hired or engaged by the brokerage; and communicating between landlords and tenants respecting landlord and tenant matters; individuals and non profit organizations who are providing services in relation to rental real estate that is administered by the British Columbia Housing Management Commission and is rented to tenants based on the tenant s income; and savings institutions and mortgage brokers who are acting on behalf of a person who has granted them an assignment of rents. Finally, the Rules provide for exemptions for certain activities performed by licensees from complying with RESA and the Rules. Part 9 of the Rules provides additional licensing exemptions for rental property management services and strata management services. Section 9 1 states that RESA and Rules do not apply to licensees who provide rental property management services on their own behalf in relation to their own real estate, but only if the licensee satisfies certain requirements, including disclosing to all potential tenants prior to entering into a tenancy agreement that the licensee is not acting as a licensee in the circumstances and that they are therefore not regulated in relation to the rental real estate. Additionally, licensees must make disclosure to their related brokerage and may not use the brokerage=s name in the provision of the services nor in any advertising relating to the rental real estate. This exemption extends to the provision of rental property management services provided to certain of the licensee s family, provided those services are not provided in expectation of remuneration and that the licensee adheres to further disclosures as set out in Section 9 2. Section 9 3 contains an exemption from RESA and Rules for licensees providing strata management services to or on behalf of the strata corporation of which they are a member by reason of being a strata lot owner. A licensee should always refer to the exact wording of RESA, Regulations and Rules when considering the available exemptions, as an exemption may require an individual or organization to fulfill a number of conditions. Furthermore, a licensee may contact the Council for guidance with respect to exemptions, if necessary.

8 The Real Estate Services Act 5 Unlicensed Assistants Rental property managers may employ unlicensed assistants, but must be diligent in ensuring that an assistant is not performing any tasks that fall within the definition in RESA of rental property management services. Detailed guidelines for the employment of assistants are published by the Council in the Professional Standards Manual. Activities that an unlicensed assistant may not perform include: negotiating or entering into contracts on behalf of the brokerage or the owner of rental real estate; making payments to third parties; managing landlord and tenant matters, e.g., signing tenancy agreements, notices of eviction, inspection reports, notices of rent increases, etc.; supervising employees or contractors hired or engaged by the owner; and making telephone calls, doing telemarketing, or performing other activities to solicit business on behalf of the licensee. Despite these prohibitions, an unlicensed assistant may perform certain tasks, such as: showing the rental real estate to prospective tenants; receiving rental applications from prospective tenants for presentation to the licensee; regularly inspecting a property for signs of a grow op, as required by many municipalities; collecting money in relation to the rental real estate, including money collected as rent, security deposits or pet damage deposits, provided that, on receipt, the exempt caretaker or manager promptly delivers the money to the brokerage; performing bookkeeping or office functions, including recording and depositing rents and security deposits; ordering items of routine repair; calling tradespersons for repair quotations as directed by the licensee; answering the telephone, taking messages and responding, as directed by the licensee, to emergencies by calling a restoration company or other tradesperson; placing routine telephone calls with respect to late rental payments; performing maintenance work and answering questions about such work; and supervising employees or contractors hired by the brokerage. As a Rental Property Manager... In one disciplinary case, an associate broker permitted her mother, an unlicensed assistant, to perform rental property management services such as drafting tenancy agreements, conducting inspections of rental property and providing advice to clients. Consequently, the licensee was disciplined for professional misconduct, as she had allowed real estate services to be provided without a licence and had failed to adequately monitor her assistant. The licensee was ordered to pay a fine of $1,000 and was required to complete a remedial education course. (2013 CanLII (BC REC)) THE LICENSING BODY THE REAL ESTATE COUNCIL Powers and Duties Section 73 of RESA sets out the objectives of the Council as: administering, subject to the oversight and direction of the Superintendent, RESA, the Regulations, the Rules and the Bylaws; maintaining and advancing the knowledge, skill and competency of its licensees; and upholding and protecting the public interest in relation to the conduct and integrity of its licensees.

9 6 Rental Property Management Licensing Course Manual The Council has stated that strengthening consumer protection to ensure that members of the public can have confidence in the standards of practice provided by licensed real estate professionals is always their first priority. The Council is responsible for issuing and renewing all licences under RESA. The Council administers the educational and experience requirements as set out in the Rules, assesses all applications, and may conduct an investigation or hold a hearing before a licence is issued or renewed. The Council may refuse to issue a licence or may issue a licence with conditions. The Council is responsible for ensuring compliance with the requirements of RESA, the Regulations, Rules and Bylaws. The Council can carry out investigations into complaints regarding the conduct of licensees and may hold a hearing (via its discipline committee) to consider the complaint against the licensee. As stated earlier, the Council has created Bylaws that deal with the conduct of its business and affairs and licensing fees and assessments. The Bylaws can be found on the Council s website. Finally, the Council must prepare an annual report which includes audited financial statements and any other information that the Council considers relevant or necessary. Composition The Council consists of 16 individuals, who are to be appointed by the Lieutenant Governor in Council. The Chair and Vice Chair of the Council are also appointed by the Lieutenant Governor in Council. The Council must appoint an executive officer, who is to be the chief administrative officer of the Council. The executive officer cannot be a licensee. The Council maintains an office in Vancouver. Staff members other than the full-time executive officer include legal, accounting and audit, compliance, licensing, communication and education staff. THE OFFICE OF THE SUPERINTENDENT OF REAL ESTATE As mentioned above, legislative changes in 2016 greatly enhanced the Superintendent s role in overseeing the real estate industry. The Superintendent now has three primary roles. Firstly, the Superintendent oversees and directs the operations and activities of the Council, including requiring that the Council do one or more of the following: investigate a particular matter; issue a notice of discipline hearing to a licensee believed to have committed professional misconduct or conduct unbecoming a licensee; establish committees for certain purposes; make a new bylaw or amend or repeal an existing bylaw; require certain information be included in discipline orders and other communications by the Council; provide reports to the Superintendent to provide assessments of the operations and activities of the Council; and engage independent third parties on the operations and activities of the Council. Secondly, the Superintendent determines whether a person who does not hold a licence has engaged in any activity for which a licence under RESA is required. Thirdly, the Superintendent determines whether a licensee has, in any way that is seriously detrimental to the public interest: contravened RESA, the Regulations or the Rules; breached a restriction or condition of his or her licence; or done anything that constitutes wrongful taking or deceptive dealing. With respect to the third investigatory function mentioned above, the Superintendent could only act if the Council has not issued a notice of discipline hearing or urgent order (both of which will be discussed shortly). Following an investigation, the Superintendent can issue a notice of hearing and conduct a hearing. If the unlicensed person or licensee is found to be guilty, the Superintendent has the same disciplinary powers as the Council, with a few exceptions (e.g., the Superintendent cannot discipline a licensee by way of a reprimand, require the licensee to complete a specific course of study or training, or prohibit the licensee

10 The Real Estate Services Act 7 from applying for a licence for a period of time). The Superintendent can also make an urgent order or an order freezing property if the circumstances warrant (discussed later in this chapter). Additionally, the Superintendent may serve as a member of Council hearing committees (other than a discipline committee). Furthermore, RESA empowers the Superintendent to make rules that he or she considers necessary or advisable respecting licensees or regulating licensees in relation to the provision of real estate services. The Superintendent may make rules relating to the following: licences and the issuing of licences; conditions and restrictions applicable to licences; relationships between and among brokerages and their related licensees; continuing education requirements for licensees; standard of conduct and business practice standards for licensees; and disclosure and reporting by licensees to the Council and related record-keeping. The Superintendent also has a wide degree of rule-making power for other more specific issues, subject to the Regulations. Prior to September 30, 2016, the Council possessed the rule-making authority. Now, the Superintendent has this power, and the Rules of the Council (made prior to September 30, 2016) are deemed to be Rules of the Superintendent (section 137.3(2)). REAL ESTATE FOUNDATION, ERRORS AND OMISSIONS INSURANCE CORPORATION AND COMPENSATION FUND CORPORATION In addition to creating the Council and Superintendent, RESA continues the Real Estate Foundation, and the Real Estate Errors and Omissions Insurance Corporation. RESA also establishes the Real Estate Compensation Fund Corporation. Real Estate Foundation of British Columbia The Real Estate Foundation of BC was established by a 1985 amendment to the Real Estate Act, and it has been continued under RESA as the Real Estate Foundation of British Columbia. The Foundation is a non-profit corporation consisting of, and administered by, the five members comprising its Board of Governors. The British Columbia Real Estate Association, the Council, and the Real Estate Institute of British Columbia each appoint one governor, while the Minister of Finance generally appoints two governors. Each governor, other than the Minister (if he or she appoints him or herself ), is appointed for a three-year term and may not serve for more than six consecutive years. Although the Foundation is a corporation, it is not currently subject to the Business Corporations Act, by virtue of section 90(4) of RESA. The Foundation receives the interest payable on all brokerage trust accounts, except separate trust accounts maintained by brokerages for specific clients, and deposits it, together with any other money received by the Foundation, in an account or accounts controlled by the Foundation (referred to in RESA as the Foundation Fund). In short, the Foundation receives trust account revenue, invests it and uses it to fund the Foundation s business: both its own operations and the real estate related initiatives of non-profit organizations. Section 93(1) of RESA outlines the purposes of the Foundation as being: (a) to undertake and carry out real estate public and professional education, real estate law reform, real estate research and other projects intended for the public or professional good in relation to real estate activities; and (b) on written directions of the Minister of Finance, to undertake and carry out projects and activities the minister designates as being in the public interest. In 1988, the Foundation launched its grants program, whereby the Foundation receives applications for funding, which are evaluated based on certain criteria. In 2011, the Board of Governors approved three grants program focus areas: Built Environment, Fresh Water Sustainability and Sustainable Food Systems. In 2012, the Foundation established a new mission statement, which expresses the Foundation s goal: to transform land use attitudes and practices through innovation, stewardship, and learning.

11 8 Rental Property Management Licensing Course Manual As of November 2012, the Real Estate Foundation has approved over $62 million in grants to non-profit organizations in over 100 communities throughout British Columbia. For additional up-to-date information on the Foundation, visit Real Estate Errors and Omissions Insurance Corporation In 1988, by amendment to the Real Estate Act, the Real Estate Errors and Omissions Insurance Corporation was created. RESA continues the Real Estate Errors and Omissions Insurance Corporation (the E&O Insurance Corporation ). The E&O Insurance Corporation was created as an affordable method of protecting licensees from financial loss due to errors and omissions. The compulsory program provides protection to the public as it reduces the chance that someone will be left with an empty judgment after having successfully sued a licensee. The E&O Insurance Corporation has seven directors, four appointed by the Council and three appointed by the British Columbia Real Estate Association. The board of directors is responsible for administering the E&O Insurance Corporation. The E&O Insurance Corporation is empowered to either make arrangements for insurance or to establish its own indemnity plan to indemnify licensees against their liability arising out of negligently performing, or negligently failing to perform, their duties in relation to the provision of real estate services. The E&O Insurance Corporation may levy premium assessments on licensees, and may levy different assessments on different classes of licensees. RESA provides that the failure to pay the assessment when due will result in immediate suspension of a license. The premiums, which are actually collected by the Council on behalf of the E&O Insurance Corporation, constitute a fund known as the Real Estate Errors & Omissions Insurance Fund. This fund is the property of the E&O Insurance Corporation and is not subject to any process of seizure or attachment by a creditor of the E&O Insurance Corporation. The E&O Insurance Corporation indemnity plan came into effect on March 1, It is now a condition of licensing that each real estate licensee in the province be insured against errors and omissions under the indemnity plan, which provides a limit per licence of $1 million. The coverage is on a claims made basis, which means that a claim must be reported during the policy term in order to be covered. This differs from an occurrence type policy, under which claims arising during the term of the policy are covered regardless of when they are reported. In practice, many real estate firms have arranged excess insurance, which is not available through the E&O Insurance Corporation, but which provides them with both higher limits and prior acts coverage. Figure 2.1 summarizes the main features of the indemnity plan. FIGURE 2.1: Errors and Omissions Indemnity Plan Features 1. Limits of Liability: Subject to the terms and conditions of the Indemnity Plan, the E&O Insurance Corporation will pay all sums, up to a limit of $1 million, which a licensee becomes legally obligated to pay as the result of an error, omission, or negligent act in the provision of real estate services under the Real Estate Services ActRESA. 2. Defense Costs: The E&O Insurance Corporation will pay the licensee s defense costs, but has the right to settle a claim without the consent of the licensee. Defense costs are included within the $1 million limit. 3. Deductible: Where damages are paid, a $2,000 deductible is payable by each licensee. For example, in a situation where a licensee and his or her brokerage employer were sued successfully, each would pay a deductible of $2,000 for a total of $4,000. The Indemnity Plan features first dollar defense costs, which means that there is no deductible payable if defense costs are incurred by the E&O Insurance Corporation but no indemnification is paid to the claimant. Therefore, if a claim was dismissed at trial, the licensee would not pay a deductible even though the E&O Insurance Corporation had incurred legal costs in defending the matter. 4. Premium: The annual premium is $350 per licensee, or $700 for the two year licensing period. In the event the licensee surrenders his or her licence during the first year of the two year period, the second year s premium is refundable. 5. Policy Territory: This coverage applies to claims arising anywhere, provided the claims are first made and proceedings are instituted in Canada. As with all insurance plans, there are exclusions to coverage. With respect to errors and omissions coverage, some of the more important exclusions are listed below:

12 The Real Estate Services Act 9 1. Claims arising from acts or omissions that occurred prior to March 1, 1988; 2. Acting as an insurance agent or broker, builder, contractor, property developer, mortgagee, notary public or property appraiser, or court appointed administrator; 3. Claims arising from providing real estate services in a transaction where an insured has or may acquire an ownership interest; 4. Disputes concerning commissions or fees; 5. Bodily injury to, or sickness, disease or death of, any person; 6. Dishonesty, fraudulent, criminal or malicious acts or omissions; 7. Claims for discrimination arising from complaints of breaches of the Human Rights Code; 8. Claims pursuant to the Residential Tenancy Act. This is a brief summary and does not in any way amend the terms and conditions of the Indemnity Plan s actual wording, which should be referred to whenever there is any question as to coverage. Real Estate Compensation Fund Corporation RESA establishes the Real Estate Compensation Fund Corporation ( Compensation Fund Corporation ) as a corporation. The board of directors of the Compensation Fund Corporation is to be made up of three directors appointed by the Council and two directors appointed by the British Columbia Real Estate Association. The board of directors is responsible for administering the Compensation Fund Corporation. RESA requires the Compensation Fund Corporation to establish a fund to be known as the Real Estate Special Compensation Fund (the Special Compensation Fund ). The Special Compensation Fund is intended to provide compensation to persons in relation to a real estate transaction for funds that were misappropriated, or intentionally not paid or accounted for by a licensee, officers or directors of a brokerage, or employees or independent contractors of the brokerage. The initial funding for the Special Compensation Fund will come from a grant from the Council and/ or a grant or loan from the Real Estate Foundation. The Special Compensation Fund will also be funded by assessments from licensees. Licensees who do not pay the assessment within the time provided are suspended on the day following the day the assessment was due. The Special Compensation Fund replaces the requirements under the Real Estate Act that licensees be bonded. Now, instead of a brokerage paying funds to a company that provided security in the event that trust funds were misappropriated, each licensee will pay an assessment to the Compensation Fund Corporation. Persons who have suffered a loss as a result of money held or received by a licensee, an officer, director, controlling shareholder or partner of the responsible brokerage, or an employee or person in an independent contractor relationship with a licensee or brokerage, may apply for compensation. The loss must have occurred as a result of the misappropriation of funds, the intentional failure to pay over or account for funds, or because the funds were obtained by fraud. Persons who have suffered a loss must apply to the Council in writing providing the particulars of the loss, including a Court decision if one is available. The Council will then refer the claim to a Compensation Committee if there is reason to believe that the person suffered a loss. RESA provides time limits in which claims for compensation must be made. The Compensation Committee of the Council may conduct a hearing, or decline to make an assessment on the basis that it considers that a court would more effectively deal with the matter. If the Compensation Committee determines that a loss has occurred and has assessed the amount of the loss, it will issue a certificate specifying the amount of the compensable loss. If the matter of the claim is also the subject of a court proceeding and the court has made a final order that has found that the claimant has suffered a compensable loss and assesses the loss, the court decision is binding on the Compensation Committee. Similarly, if a disciplinary order has been issued by a discipline committee or the Superintendent, and the order finds that the licensee has misappropriated or wrongfully converted money received in relation to real estate services or has intentionally failed to account for or pay over money that belongs to principals in relation to real estate services, such a decision is also binding on the Compensation Committee.

13 10 Rental Property Management Licensing Course Manual A licensee who receives notice of a court proceeding, or a notice of a discipline hearing that could result in a decision in which the court finds that the person making the claim has suffered a compensable loss, or in which the discipline committee finds that the licensee committed a wrongful taking, must immediately provide written notice to the Council and the Compensation Fund Corporation. RESA provides that the maximum amounts that will be paid out for a claim will be specified in the Regulations. OTHER REAL ESTATE RELATED ORGANIZATIONS Condominium Home Owners Association of British Columbia The Condominium Home Owners Associations of BC (CHOA), incorporated in 1976, is a voluntary association comprising a membership of over 1,000 strata corporations from all parts of British Columbia. CHOA promotes the understanding of strata property living and the interests of strata property owners by providing advisory services, education, advocacy, resources, and support for its members. Additional information on CHOA is available at Professional Association of Managing Agents The Professional Association of Managing Agents (PAMA) is a non-profit organization founded in 1970 to promote professional and ethical residential and strata titled property management. PAMA requires its members to be licenced and provides a forum for its members to interact and promote the advancement of the industry while also representing its industry members in its dealings with legislative and governmental bodies. Additional information about PAMA is available at Institute of Real Estate Management The Institute of Real Estate Management (IREM) is an association of property and asset managers that requires members to meet strict criteria in the areas of education, experience and ethics. Founded in 1933, IREM s mission is to educate real estate managers, certify their competence and professionalism, serve as an advocate on issues affecting the real estate management industry, and enhance its members professional competence so they can better identify and meet the needs of those who use their service. In cooperation with the Real Estate Institute of Canada, IREM offers a number of designations which include those dedicated to strata and property management. Additional information about IREM is available at British Columbia Real Estate Association Although the British Columbia Real Estate Association ( BCREA ) is not created by RESA, it is an organization actively involved in the real estate industry and is one of which licensees should be aware. The members of BCREA are the local real estate boards/associations that represent 11 geographic areas of the province. BCREA represents the interests of the real estate boards/associations on provincial matters. BCREA is the primary professional association of licensees. BCREA promotes the interests of real estate professionals in a variety of ways, including advocating for the profession and promoting real estate related issues. BCREA is responsible for providing the Residential Trading Services Applied Practice Course, and the Commercial Trading Services Applied Practice Course, one of which is required for each new trading services licensee to complete his or her initial licensing education. BCREA also develops and provides a variety of Continuing Professional Education courses for its members. Each licensee has an option to become a member of a real estate board/association. The real estate boards/associations manage the listings through the Multiple Listing Service7 (MLS7). Although membership in a real estate board/association is not a mandatory requirement of licensing, membership is necessary in order to access the MLS7 system. Additional information on BCREA and its member boards is available at Real Estate Institute of British Columbia The Real Estate Institute of British Columbia (REIBC) is an organization made up of members from a variety of sectors of the real estate industry. REIBC is focussed on advancing the standards of education and

14 The Real Estate Services Act 11 professional development of its members. REIBC offers a professional designation ( the RI ), indicating professional members who meet the educational and experience standards set by the REIBC, and appoints one of the Governors of the Real Estate Foundation. Additional information on REIBC is available at LICENSING SYSTEM Issue of Licences This part of the chapter is concerned with the levels of licences and the way in which licences are issued, maintained, and renewed. The suspension and cancellation of licences are considered later in this chapter under the heading Discipline and Enforcement. Before considering the qualifications necessary to obtain a licence, it is useful to consider the different levels of licences that the Council can issue. Levels of Licences RESA prescribes four levels of licensing: brokerage, managing broker, associate broker and representative. An individual may be licensed at any level; however, a partnership or corporation may only be licensed as a brokerage. Brokerage: Under RESA, a brokerage is a licensee on behalf of which other licensees must provide real estate services. In other words, the real estate services of the brokerage must be provided by its managing broker, and any associate brokers or representatives who are licensed to and engaged by the brokerage. A brokerage must have a managing broker. The brokerage may only provide real estate services that are permitted by the licence of a managing broker who is licensed to the brokerage. All branch offices of a brokerage must have a brokerage licence and each branch office must have a managing broker. A brokerage may engage more than one managing broker. Generally, a managing broker may only be licensed in relation to one brokerage; however, an exception may be made pursuant to the Rules to permit a managing broker to be licensed to brokerages that are affiliated. The restrictions or conditions imposed on a brokerage licence apply to the licences of all individuals licensed to and engaged by the brokerage. Partnerships or corporations that apply for a brokerage licence must identify the person proposed to act as the managing broker. An individual may also obtain a licence as a brokerage. If the individual is also qualified as a managing broker the individual is deemed to be the managing broker for that brokerage. Alternatively, the application for the brokerage may indicate that the applicant will not be acting in that capacity and name another person to act as the managing broker for the brokerage. Managing Broker: Individuals who meet the education and experience requirements established by the Rules may apply for a licence as a managing broker. A managing broker is employed by or contracts with a brokerage. The managing broker is responsible for exercising the rights conferred on the brokerage and for performing the duties imposed on the brokerage by its licence. The managing broker is also responsible for the control and conduct of the brokerage s real estate business including supervision of the associate brokers and representatives who are licensed in relation to that brokerage (section 6). The real estate services that a managing broker is permitted to provide determine the real estate services that the brokerage that employs the managing broker may provide. brokerage a licensee (often corporate) on behalf of which other licensees must provide real estate services managing broker the licensee responsible for a brokerage, and who is responsible for exercising the rights conferred on the brokerage as well as for the performance of the duties imposed on the brokerage by its licence. In addition, the managing broker is responsible for the control and conduct of the brokerage s real estate business, including the supervision of its related licensees

15 12 Rental Property Management Licensing Course Manual associate broker a licensee who meets the educational and experience requirements to be a managing broker, but who is providing real estate services under the supervision of a managing broker (formerly known as an Agent 9.15 under the now repealed Real Estate Act) representative a licensee providing real estate services under the supervision of a managing broker Associate Broker: A licensee who meets the educational and experience requirements to be a managing broker but is providing real estate services under the supervision of a managing broker is referred to as an associate broker. In order to be licensed as an associate broker, the licensee must be licensed to and engaged by a brokerage, and must not provide real estate services except on behalf of that brokerage (section 7). Representative: A representative is a licensee providing real estate services under the supervision of a managing broker. The vast majority of individuals licensed under RESA are licensed as representatives. In order to obtain a licence as a representative, the individual must be licensed to and engaged by a brokerage, and must not provide real estate services except on behalf of that brokerage (section 7). Personal Real Estate Corporations: Under Part 10 of the Regulations, a PREC can be licensed as a managing broker, associate broker or representative. The primary objective for Part 10 is to allow a licensee to take advantage of incorporation, which may permit better planning of income and tax streams. A PREC can only have one director, one shareholder and one president, all of which must be fulfilled by the controlling individual (i.e., the licensee operating through the PREC). A detailed discussion of PRECs is outside of the scope of this course; however, it is important to note that the use of a PREC does not shield the controlling individual from liability from third parties (which is generally the case in other corporations). Furthermore, if a PREC commits professional misconduct or conduct unbecoming a licensee, the controlling individual will be subject to discipline proceedings as if the controlling individual had committed the conduct, and vice versa if it is the controlling individual who initially commits the professional misconduct or conduct unbecoming a licensee. Categories of Licence RESA provides that different categories of licences will be created under the Rules. RESA provides that within each level of licence, a person may be licensed within a category of licence (section 5(5)). The categories are based on the real estate services that can be provided under the licence. In other words, the services that the licensee is permitted or chooses to provide will determine the category of licence. In the past, categories of licences were based on whether the licensee provided rental property management services, trading services, or both types of services. Section 2-1 of the Rules has been amended so that a third category B strata management services B is added effective January 2006, with licence categories encompassing all possible combinations. Interrelationship of Categories and Levels Each level of licence may be issued in each category. For example: one category of licence is strata management services, and licences in all four levels may be issued in that category. A brokerage licence for rental property management services could therefore be issued which limits the activities of that brokerage to the offering of rental property management services. The managing broker for the brokerage must be qualified to offer rental property management services and all associate brokers and representatives must also be qualified in that category. RESA provides that the Council may make Rules relating to the transition between categories of licences established under the former Real Estate Act and the categories of licences created under RESA. Applying for a Licence In order to obtain a licence, an application must be submitted to the Council. The Bylaws establish the application form used by the Council. An application for a managing broker, associate broker, or representative licence must identify the brokerage to which the applicant intends to be licensed. Generally, a managing broker, associate broker or representative may only be licensed in relation to one brokerage and may only provide real estate services on behalf of the brokerage to which they are licensed. However, if permitted by the Rules, a managing broker

16 The Real Estate Services Act 13 may be licensed to more than one brokerage if they are affiliated. The information and documents that must be provided in order to apply for a licence are set out in the Bylaws. When evaluating an application, RESA permits the Council to conduct an investigation or require that applicants provide additional information. This investigation may, in some cases, be initiated after a licence has been issued. If, during the course of a licence application investigation, it is discovered that the application contains inaccurate, misleading or incomplete information, the Council may convene a hearing, which could result in a licence refusal, suspension or cancellation. Qualifications for a Licence: A licensee is required to meet the educational and experience requirements appropriate for the level of licence for which the application is made. Applicants for a representative licence meet the educational qualification by completing the licensing courses and passing the appropriate examinations. Furthermore, trading services licensees are required to complete one of two post licensing courses, the Residential Trading Services Applied Practice Course or the Commercial Trading Services Applied Practice Course, within a specified time after obtaining a licence. Generally, applicants for a licence as an associate broker or as a managing broker must meet the educational requirements for a representative licence before they are able to undertake the educational requirements for a licence as an associate or managing broker. Additionally, in order to be licensed for the first time as a managing broker or associate broker, the licensee must have been providing real estate services as a licensee in a Canadian province or Yukon for at least two years during the five years before the date of the application. For individuals who were licensed to provide real estate services outside Canada, the Council may, in some cases, waive some portion of the general requirements regarding education and experience in BC or another Canadian jurisdiction. In addition to meeting the educational requirements, and, for associate brokers and managing brokers, obtaining the relevant experience, RESA sets out the following requirements that an applicant must meet (section 10): The applicant must be of good reputation and suitable to be licensed at the level and in the category for which the applicant is applying; Individuals must be at least 19 years of age and meet the educational and experience requirements established by the Rules; For partnerships or corporations, the partners of the partnership or directors and officers of the corporation must be of good reputation. RESA also provides that other qualifications may be established by the Rules. When reviewing an application for a licence, the Council will carry out a number of checks to ensure that licensees are of good reputation. The application form has various questions to be answered by the applicant in order to obtain this information. The Council will consider the following, if they have occurred, to determine whether they reveal that the applicant is unfit to be a licensee: whether the applicant has been refused a real estate, insurance, mortgage broker or securities licence in any jurisdiction or had such a licence suspended or cancelled; whether the applicant has been disciplined by a professional body; and whether the applicant has been convicted of an offence. In addition, a check is made through the police to ascertain if the applicant has had any criminal convictions. The Council requires potential licensees to submit an original criminal record check from the police agency responsible for the area in which they reside. The record check must be an original copy and must be dated within 90 days of the date the Council receives a potential licensee s application. If the record check reveals that an applicant has a criminal conviction, the Council will consider whether that applicant is unfit to be licensed. The Council will consider the circumstances of each case (e.g., when the offence was committed, the nature of the crime, the length of the sentence, and so on). Under RESA, the Council has the authority to investigate and require that an applicant for licensing provide additional information to the Council in order for the Council to evaluate the application. Every license applicant must make full and complete disclosure with respect to criminal charges or convictions, bankruptcy or other legal proceeding in the licence application. If applicants conceal adverse information by providing false or incomplete information in their applications, the presumption as to

17 14 Rental Property Management Licensing Course Manual their good reputation is compromised. The most common criminal charges involve offenses such as impaired driving. Old convictions may be problematic for the applicant to recall with precise detail; however, inaccurate disclosure or missing detail can cause lengthy delays in the application process. There are a number of Canadian pardon services that may resolve the issue of a criminal record. When issuing a licence, the Council can impose conditions or restrictions on the licence.! ALERT A representative s licence was suspended for 14 days for failing to truthfully answer the questions on the application for licence. The applicant had answered No to the question, Are you presently subject to a charge or indictment under any law? The applicant failed to advise the Council that at that time he was subject to two charges under the Criminal Code. In addition to the suspension, the representative was required to pay costs of $400 (see June 2004 Report from Council). Term of Licence: The term of a licence as set out in the Rules is two years. RESA also permits the Council to issue a temporary licence. Such a licence will require the licensee to meet specific conditions within a specified period of time. If the conditions are not met within the time frame provided for on the temporary licence, the temporary licence is automatically cancelled. Renewal of a Licence: Prior to the expiry of a licence, each licensee is required to apply to the Council for renewal. RESA provides that if a licensee has applied to renew a licence prior to the end of the licence term, the licence will continue in effect beyond the end of its term until the Council notifies the licensee of its decision with respect to the application. Refusal to Issue or Renew a Licence The Council can refuse to issue or renew a licence (section 13). If the Council determines that the licensee is not suitable to be licensed, has not met the appropriate education and experience requirements, or, as a result of a criminal conviction, or other disciplinary action, the Council determines that the individual is unfit to be a licensee, the Council can refuse to issue the licence. The Council may refuse to issue a brokerage licence if the Council considers that the applicant has a legal name or trade name that is likely to confuse or mislead the public. Before refusing to issue or renew the licence, the Council must advise the applicant and allow the applicant an opportunity to be heard. If, after hearing the applicant the Council refuses to issue the licence, it must provide written reasons for the refusal and it must advise the applicant of the right to appeal to the Financial Services Tribunal. Inoperative Licence Under RESA, a licence may automatically become inoperative (section 19). If a managing broker, associate broker, or representative ceases to be engaged by a brokerage, that person s licence automatically becomes inoperative. The licence can be reinstated if the person is re engaged by the same brokerage, or engaged by another brokerage. A brokerage licence will automatically become inoperative if the licence of the managing broker becomes inoperative, or is suspended or cancelled. If the brokerage licence becomes inoperative or is suspended or cancelled, the licences of the managing broker, associate brokers, and representatives will automatically become inoperative at the time the brokerage licence becomes inoperative or suspended or cancelled. If the brokerage licence is reinstated, the related licensees who are licensed to and engaged by the brokerage at the time of reinstatement are automatically reinstated. Employee vs. Independent Contractor Under RESA, licensees may be engaged by a brokerage either as an employee or as an independent contractor. Generally, an employee is a person receiving or entitled to wages for work performed for another, or a person an employer allows, directly or indirectly, to perform work normally performed by an employee. Employers will deduct income tax, employment insurance, and CPP contributions from their employees income. On

18 The Real Estate Services Act 15 the other hand, a person who is an independent contractor is considered to be self employed; amounts paid to the independent contractor will not be subject to income tax, employment insurance and CPP deductions. Various tests, beyond the scope of this course, have been developed by the courts to decide whether a person is an employee or independent contractor. For the purposes of this course, it is important to know that, whether a licensee is an employee or an independent contractor, the duties and obligations of the licensee do not change. In other words, the obligations of a representative apply to every licensee licensed as a representative or associate broker, regardless of the manner in which they are engaged by the brokerage. The significance of the difference between an employee and an independent contractor is perhaps limited to its tax implications, and to the applicability of employment legislation such as the Employment Standards Act and the Workers Compensation Act, for which a licensee should consult a professional. LICENSEE CONDUCT Brokerage As indicated above, all real estate transactions are performed through the brokerage. The brokerage is permitted to offer only the real estate services that the managing broker is permitted to offer. The managing broker is responsible for exercising all of the rights of the brokerage, performing the duties imposed on the brokerage and controlling the brokerage s real estate business, which includes supervising associate brokers and representatives who are licensed in relation to the brokerage (section 6). Furthermore, a recent amendment to RESA makes it clear that the training and supervision of managing brokers, associate brokers and representatives, with respect to real estate services or the provision of real estate services, cannot be performed by anyone within the brokerage (including owners, partners, directors and officers) unless the individual providing the training or supervision is a licensee of the brokerage (section 7.1). The Rules describe the specific obligations of the brokerage, and the responsibilities of the managing broker. One of the duties imposed on a brokerage is the requirement to maintain proper books, accounts and other records in accordance with the Rules. Section 7-7 states that the brokerage must, within 120 days after the end of each fiscal year of the brokerage, file with the Council: (a) financial statements for that fiscal year, (b) an accountant=s report respecting that fiscal year, completed in accordance with the Bylaws, and (c) a brokerage activity report respecting that fiscal year, completed in accordance with the Bylaws. Both the accountant s report and activity report must be submitted in the form approved by the Council, and samples of the forms are available on the Council s website. Bylaw 4-9 specifies what must be in the accountant s report, and this includes an indication that the brokerage has maintained proper books, accounts and other records as required by RESA, Regulations and Rules. Section 25 of RESA requires the brokerage to maintain one or more interest bearing trust accounts in British Columbia, and the accountant s report must also specify that the brokerage has properly maintained its trust account balances (sufficient to discharge its gross liabilities) and monthly trust reconciliations for all month ends during the reporting period. Failure to comply strictly with these sections could result in an investigation by the Council.! ALERT In a number of cases, the Council has suspended licensees for acting as an agent without obtaining an agent s licence. In one case, the licensee was suspended for 30 days for conducting property management services independently of his agent. The licensee failed to report the property management services to the agent. In addition the licensee was ordered to complete Chapter 2 of the Licensing Course and the course Professionalism It Pays! Be Safe or Be Sued. (See October 2003, Report from Council. Also see April 2004 and December 2003 Reports from Council.) NOTE: These cases were heard under the old Real Estate Act. Licensees should expect that the Council would impose similar penalties for licensees who act independently of the brokerage (formerly agent ) to which they are licensed, or provide services beyond the licensing categories for which a brokerage is licensed.

19 16 Rental Property Management Licensing Course Manual Bylaw 4-10 sets out the requirements for the brokerage activity report, which is submitted annually to Council by the brokerage along with the accountant s report and financial statements for the applicable fiscal year of the brokerage. The activity report contains information about the brokerage including the number of related licensees, a percentage estimate of the brokerage s activities in the various real estate sectors (i.e., residential sales, industrial, commercial and investment sales, leases, appraisal, consulting, rental property management and strata management services), and other information about the brokerage s activities. Managing Brokers, Associate Brokers and Representatives Managing brokers, associate brokers and representatives must only provide real estate services through the brokerage to which they are licensed. Associate brokers and representatives provide the services under the supervision of a managing broker (section 7). All licensees engaged by a brokerage, including managing brokers, associate brokers and representatives must promptly deliver to the brokerage all money received for or on behalf of a principal, and all money held or received on account of remuneration for real estate services including a share of remuneration received from another brokerage, whether or not the remuneration has already been earned. Property Management Procedures Under the Real Estate Services Act It was explained earlier that RESA imposes standards on all licensees in providing real estate services. The Council is responsible for administering and enforcing the provisions of RESA and this includes various provisions specifically dealing with rental property management procedures. The following sections deal with specific provisions in RESA or the Rules related to property management services: the management contract, or service agreement ; disclosure of any additional benefits in relation to the property management services; brokerage and property management records (books, records and accounts); trust accounts; and remuneration. For each procedure, the relevant provisions of RESA and/or Rules are listed. The Management Contract or Service Agreement Rules, Part 5, Division 1 Members of the public should always know the terms upon which their real estate services will be provided. For this reason, section 5-1(1) sets out the requirement that unless waived by the prospective client, a brokerage must have a written service agreement where the brokerage is to provide property management services to a client B commonly called the management contract. The service agreement must be entered into before the brokerage provides any of the services to the client (section 5-1(2)(c)), and a copy must be delivered to the client immediately upon execution of the agreement (section 5-2). Section 5-1(4) also establishes that, where a written service agreement is required by RESA, it must include at a minimum, the following: the name of the client and the licensee name of the brokerage; the address of the real estate or strata corporation in relation to which services are provided under the agreement; the date on which the agreement is effective; the duration of the agreement; a general description of services to be provided by the brokerage; the remuneration to be paid under the agreement and the circumstances in which it will be payable; and provision respecting the use and disclosure of personal information.

20 The Real Estate Services Act 17 Section 5-1(5) relates specifically to rental property management services, and provides that a service agreement respecting the provision of rental management services must also include the following: an indication of when the agreement may be terminated by either the client or the brokerage; the scope of authority of the brokerage or a related licensee when acting on behalf of the owner, including any authority to: (i) sign cheques or make disbursements on behalf of the owner, and (ii) enter into contracts on behalf of the owner; the timing frequency and nature of accounting statements and other records to be provided by the brokerage to the owner; how security deposits, pet deposits and other deposits are to be dealt with; and a description of the records to be kept by the brokerage on behalf of the owner; The service agreement must be signed by the client and by an authorized signatory of the brokerage. Any amendment or addition to the terms of the agreement must be in writing and be signed by the client and an authorized signatory of the brokerage, as defined in the Rules. Disclosure of Interest in Trade (Personal Dealings by Licensees) Rules, section 5 9 The main function of a licensee devoted to real estate services is to act on behalf of others who wish to deal in property. Therefore, it is particularly important that when licensees buy, sell or rent real estate for themselves, there should be no reason to suspect that they may have taken advantage of their position. For this reason, the Rules impose disclosure requirements on licensees when they (or certain related parties) personally deal with real estate. These requirements protect the public by ensuring that licensees reveal potential advantages in knowledge, and allow members of the public to make informed decisions as to whether or not they wish to enter into a contract with a licensee (or a related party). A licensee must make a disclosure of interest in trade to the other party (buyer, seller, renter or landlord) in the transaction, before the agreement is entered into, in the following two cases: 1. The licensee or an associate of the licensee is directly or indirectly acquiring real estate. 2. The licensee or an associate of the licensee is disposing of real estate. An example of an indirect acquisition would be a situation where a third party purchases real estate with the intention of reselling the real estate to the licensee or the licensee s associate (section 5 9(2)). The definition of associate in the Rules is quite broad, and in the case of an individual licensee, includes a licensee s spouse or family partner (someone who is cohabiting with the licensee in a marriage like relationship); a trust or estate in which the licensee has a substantial beneficial interest; and, a corporation, partnership, etc., in which the licensee or his or her spouse or family partner holds a 5% or greater interest (for the full definition, see section 5 7). In the case of associates, the disclosure is only required where the licensee is providing real estate services to the associate. An exemption from disclosure is contained in section 5 9(2.1), which says that disclosure is not required if: the real estate being acquired is rental real estate; the rental real estate is being acquired by the licensee, or the licensee s spouse or family partner, with the intention that it will be used for personal residential purposes; the lease is for a term not exceeding one year (and any provisions for renewal do not extend the total lease period beyond one year); and the lease or agreement does not contain an option to purchase or a right of first refusal. As mentioned above, disclosure must be made before any agreement for the acquisition or disposition of real estate is entered into. Furthermore, disclosure must be made by providing the other party with the Council s Disclosure of Interest in Trade form, which contains the following: the name of the person to whom the disclosure is made; the legal description and street address of the subject real estate; an indication that the licensee is licensed under RESA and, as applicable, that the licensee or an associate of the licensee is acquiring or disposing of the real estate;

21 18 Rental Property Management Licensing Course Manual the name of the associate (if applicable) and the nature of the licensee s relationship with the associate; the signatures of the licensee making the disclosure, a witness, and the recipient of the disclosure; and in the case of acquisition of real estate by the licensee or associate: whether the real estate will be held for personal, rental or other use, or whether it will be resold or sublet; the terms under which the real estate is to be resold or sublet (if applicable); the amount of remuneration or other money that is anticipated to be received by the licensee, associate, or another buyer/tenant; in the case of a disposition of real estate by the licensee or associate, an indication of whether the licensee or the associate is disposing of the real estate as an owner or as a tenant of the real estate. As a Rental Property Manager... Strict compliance with the disclosure of interest in trade rules is important; otherwise, the transaction itself might be voidable by the other party in the transaction and the licensee may face disciplinary proceedings. The Transaction may be Voidable by the Other Party In Compar Services Inc. v. Foss, 1983 CanLII 626 (BC SC), a company, represented by a real estate agent, contracted to buy two lots from a seller. However, the agent failed to provide disclosure in writing prior to the offer being presented regarding his position as an officer of the company, as well as his ownership interest in the company. As a result, the court allowed the seller to treat the contract as void. You May Face Disciplinary Proceedings The Council requires strict compliance with the disclosure of interest in trade rules. The following are examples of the disciplinary proceedings that can result from a breach of the rules. In one case (2013 CanLII (BC REC)), a licensee acted as a dual agent (an agent for both the buyer and the seller) in the sale of property held by a company. However, the licensee failed to provide proper disclosure to the buyer regarding his position as the owner of the company. This constituted a breach of disclosure requirements, as the Rules mandate disclosure where the licensee is providing real estate services to a corporation in which the licensee holds a 5% or greater interest. Consequently, the Council suspended the licensee for 90 days and required him to pay expenses of $1,000. In another case (2012 CanLII (BC REC)), a licensee was disciplined for providing the buyer/seller with a Disclosure of Interest in Trade form after the Contract of Purchase and Sale was signed by the buyer/seller. This case highlights the fact that the Disclosure of Interest in Trade form should not be treated as one of many documents accompanying a Contract of Purchase and Sale B it must be completed and delivered to the other party before the sale agreement is entered into. The Council recommends that licensees who provide a Disclosure of Interest in Trade form should include the following clause in the Contract of Purchase and Sale: Buyer s/seller s Acknowledgement of Licensee s Interest in Trade Clause The Buyer/Seller acknowledges having received and signed a disclosure of the licensee s interest in the transaction before the making/receipt of this offer. The above is only a brief summary of a rather technical section of the Rules. Should any questions arise in practice, reference should be made to section 5 9 itself, to the official form, to the brokerage s managing broker, and to the Council. Finally, it should be noted that the common law places disclosure obligations on individuals when acting in certain scenarios, and that simply fulfilling the requirements of section 5 9 may not be enough to satisfy these common law requirements. Disclosure of Benefits in Relation to Rental Property Management Services Rules, sections 5-11 and 5-12 It is particularly important that licensees do not take advantage of their position as representative for the client. For this reason, RESA imposes conditions on licensees that require the disclosure of any remuneration or benefits which are in addition to that paid by the client, that might be received by the licensee as a result of the property management services provided.

22 The Real Estate Services Act 19 Section 5-11 applies to all categories of licensee and establishes disclosure requirements where a licensee receives or anticipates receiving remuneration: as a result of providing real estate services to or on behalf of a client, other than the remuneration to be paid directly by the client; or as a result of recommending any person providing real estate related products or services to a client (i.e., home inspector, mortgage broker, notary public, lawyer, savings institution, landscape contractor, etc.); or, as a result of recommending a client to a product or service provider. In such circumstances, the licensee must promptly disclose to the client and to the licensee s related brokerage the source and amount of the remuneration and any other relevant factors relating to the remuneration. Where the amount is unknown, the licensee must disclose the likely amount or the method for calculating the amount of the remuneration. Property managers and strata managers are under an additional requirement, imposed by section 5-12, which requires that where a licensee anticipates receiving a benefit from expenditures made by or on behalf of a principal to or on behalf of whom rental property management services or strata management services are or may be provided, the licensee must disclose to the client and to the licensee s related brokerage the nature and extent of the benefit before the benefit is accepted. Benefits in this context include benefits that might be received by an associate of the licensee (5-12 (b)). General Brokerage Records RESA, section 25; Rules, Part 8, Division 1 Section 25 of RESA specifies that the brokerage must maintain proper books, accounts and other records and must keep these records in British Columbia. Section 8-1 of the Rules specifies that the brokerage must keep such financial records in connection with its business as are necessary to ensure the appropriate and timely accounting of all transactions relating to real estate services provided by the brokerage and its related licensees. The brokerage must be able to show and distinguish between the money it receives or pays out on behalf of others, and the money it receives and pays out on its own behalf. These records must show the amount of money held on behalf of each person, including an indication of whether it was held or received on behalf of the person as a principal or as a licensee, and they must be kept up to date. The failure to do this has resulted in the suspension of licences. In addition, section 8-4 requires a brokerage to keep the following records: (a) copies of all written disclosures required by the Rules and any written acknowledgments; (b) copies of all significant correspondence sent or received by the brokerage or a related licensee respecting the provision of real estate services by the brokerage or a related licensee; (c) a copy of all annual financial reports; and (d) a list, maintained separately for each fiscal year of the brokerage, of (i) all trades in real estate in which the brokerage is or was involved during that year, (ii) all rental properties that are or were managed by the brokerage during that year, and (iii) all strata corporations that are or were managed by the brokerage during that year. Rental Property Management Records Rules, section 8-6 Section 8-6 requires a brokerage to keep accounts and other records in respect of each client to or on behalf of whom the brokerage provides rental management services. In addition, for each client the brokerage must keep copies of the following specified records: (a) the tenancy agreements or other contracts for the rental of the real estate; (b) any accounting statements or invoices for expenditures that are provided to clients; (c) any written service agreements (section 8-4(1)(b)); (d) a record of (i) the current tenants at each rental property managed by the brokerage, and (ii) the security deposits, pet deposits and other deposits paid by each tenant.

23 20 Rental Property Management Licensing Course Manual Transfer of Rental Property Management Records Rules, sections and 8-6(3) In order to avoid loss of information or other uncertainty in instances where management arrangements are transferred by a client from one manager to another, the Rules set out requirements to ensure the maintenance of the client s records. Section requires that after the termination of a rental property management service agreement, the brokerage must continue to prepare all required financial records that relate to the services that were provided by the brokerage to the client. Section 8-6(3) also requires the brokerage to provide, upon request, copies of various records, including the reconciled trust account records, that relate to the services that were provided. Trust Account RESA, section 26; section 7-9 of the Rules trust account an account where money is deposited by one for the benefit of another. The money is devoted to a particular purpose and cannot or should not be diverted for other purposes A brokerage must have at least one account in a bank, trust company or credit union designated as a trust account (section 26). All money received for or on behalf of a client must be put into this account as soon as the brokerage receives it, including referral fees (section 27). Section 27 also allows licensees and brokerages to hold cheques, drafts, or money orders payable to third parties without paying them into a trust account so long as the licensee or brokerage delivers the money to the person to whom it is payable. Once money is in the trust account, a brokerage is permitted to withdraw it from the account if it is: money paid into the trust account by mistake; interest paid to the Real Estate Foundation pursuant to section 29; money intended as remuneration for a licensee (section 31) and that has been earned in accordance with the Rules (section 5-15 of the Rules); unclaimed money transferred under section 32; money paid into court under section 33, where a dispute has arisen between the parties over the right to it; and money paid to or in accordance with the instructions of the principal to whose credit the money was deposited. Additional Rules for Rental Property Management Trust Accounts. There are additional Rules under RESA that apply specifically to trust accounts maintained for rental property clients. Section 8-3(a)(ii) requires that a brokerage must keep a separate trust ledger for each principal, showing all amounts received and disbursed and including any unexpended balance in relation to that principal. The Council may conduct an investigation of the records of a licensee or former licensee to ensure that the above requirements have been met (section 37), and the Rules state that a brokerage must allow the Council to review, inspect and audit the brokerage s accounts, financial records and any other records relating to the dealings of the brokerage (Rule 7-6). Where the Council does so, it can require the brokerage to pay the cost of the audit if all is not in order. Remuneration RESA, Section 7; sections 5-1 and 6 of the Rules There are many provisions dealing with remuneration, with the first already having been discussed: the written service agreement must contain a term outlining the remuneration to be paid and the circumstances in which it will be payable (section 5-1(4)). Licensees are not prevented from agreeing to charge a rate that is lower than that prevailing in the community. Any attempt (for example, by a local real estate board or group of real estate firms) to fix the rate of remuneration is contrary to the provisions of the Competition Act and is subject to very severe penalties. The following paragraphs outline some specific provisions regarding remuneration. The success of RESA depends on the effectiveness of the licensing system. Accordingly, RESA forbids licensees from paying any remuneration to an unlicensed person who acts or tries to act in a capacity that requires a licence (section 6-1). This prohibition covers both indirect and direct payments. If remuneration is paid to someone who is not licensed, both the person who receives the money and the licensee making the payment are guilty of an offence under RESA. For this reason, it would be impossible for an unlicensed person to recover any unpaid remuneration in the courts.

24 The Real Estate Services Act 21 There are other rules designed to deny any unlicensed person the protection of acting with a licensed person. A brokerage must not act on behalf of any unlicensed person unless the brokerage is acting for them in their capacity as a principal in relation to real estate services, or unless the person is licensed in a jurisdiction outside the province to provide equivalent real estate services (section 6-2). It was explained earlier in the chapter that a licensee must not act for any brokerage other than the brokerage to which they are licensed according to the Council s records (section 7). It is an offence for a licensee to receive any remuneration for the provision of real estate services except from the brokerage registered as his or her employer. To increase the effectiveness of this rule, brokerages are forbidden from employing licensees of other brokerages or to pay remuneration to them. Therefore, if a licensee acts for a brokerage other than his or her registered employer, both the licensee and the brokerage will have committed a breach of RESA (section 7(5)). Although there may be no intention to break any statutory rules, failure to comply with the procedure laid down may well lead licensees into a breach of section 7. For example, such a situation could occur if a licensee transferred from one brokerage to another, but the Council was not notified of the change. For the purpose of section 7, the records of the Council are conclusive, and if a licensee is acting for and receiving commission from a brokerage other than his or her registered employer, there is a breach of RESA. In the case described, the licensee s new employer would not appear as such in the Council s records. To ensure that no accidental breach of this kind occurs, a licensee changing employer should see to it that the brokerages involved promptly give the Council the information required by RESA.! ALERT The following actions were taken as a result of a disciplinary hearing conducted by the Council. A licensee was suspended for 268 days for: (i) misappropriating rental monies received by him in his capacity as a licensee; and (ii) acting without a valid licence in that he was operating as a property manager independent of his brokerage. The nominee (managing broker) in this case, unlicensed at the time of the hearing, was suspended until he completed the agent s (broker s) pre-licensing course and examination because he was found to be incompetent within the meaning of the Regulations by permitting the licensee to operate as a property manager independent of the brokerage and by failing to supervise the licensee s property management transactions. See Real Estate Council of British Columbia, Chairman s Report, April 1992 ADDITIONAL RESPONSIBILITIES OF A BROKERAGE Vicarious Liability A licensee may be personally liable for any wrongs done in the course of his or her business as a real estate licensee. The brokerage, however, is under an additional liability implied by the law. Under common law principles, as the employer of a licensee (regardless of the terms of the contract between them), a brokerage is responsible for his or her licensee s actions performed in the course of employment. Consequently, if a licensee is negligent in the provision of real estate services to a principal during the course of employment and causes the client damage, the client can sue not only the licensee, but also the brokerage, as the employer. This type of liability of an employer for acts committed by employees is called vicarious liability. However, if the licensee s actions fall outside of the scope of his or her employment, the brokerage may not be vicariously liable. DISCIPLINE AND ENFORCEMENT Categories of Complaints RESA sets out two broad categories of improper conduct by licensees, namely, professional misconduct and conduct unbecoming a licensee (section 35).