Copyright 2017 by the UBC Real Estate Division

Transcription

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 CHAPTER 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 Explain 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 Discuss how RESA provides protection to the public 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

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4 Chapter 2 The Real Estate Services Act 2.1 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; however, in this Manual, you may still see reference to the Rules as Council Rules. Real Estate Council Bylaws (the Bylaws ): Under section 84 of RESA, the Real Estate 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 Real Estate Council s website at

5 2.2 Real Estate Trading Services 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.

6 Chapter 2 The Real Estate Services Act 2.3 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 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;

7 2.4 Real Estate Trading Services Licensing Course Manual (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; (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 rental property management services include caretakers or managers employed by the owners of different residential real estate properties, caretakers or managers employed by a brokerage if they only perform a number of limited tasks, 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 savings institutions and mortgage brokers acting in accordance with an assignment of rents. 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. Those exempted from having a license with respect to trading services fall into the following eight categories: employees of developers; notaries; accountants in relation to purchase and sale of a business; appraisers and property inspectors; auctioneers; individuals who provide information of a general nature to assist owners to sell or otherwise dispose of their own real estate or who publish information contained in an advertisement of specific real estate; individuals who refer others to a licensee or exempt party; and agents of expropriating authorities. 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. Sections 9-1 and 9-2 provide exemptions for licensees who provide rental property management services on their own behalf in relation to their own real estate or a family member s behalf in relation to his or her real estate, but only if the licensee satisfies certain requirements. 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.

8 Chapter 2 The Real Estate Services Act 2.5 A licensee should always refer to the exact wording of RESA, the 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. Unlicensed Assistants Licensees may employ unlicensed assistants, but must be diligent in ensuring that an assistant is not performing any tasks that fall within the definition of trading services. Detailed guidelines for the employment of assistants are published by the Council in the Professional Standards Manual (which can be found online at Activities that an unlicensed assistant may not perform include: hosting an open house or soliciting sellers or buyers in any manner; providing advice or guidance to a consumer with regard to any real estate contract; obtaining or renewing listing contracts, property management contracts, or rental contracts on behalf of the agent; presenting or negotiating an offer; or communicating with consumers about any real estate transaction. Many of these activities are now specifically listed as activities under the term trading services. However, an unlicensed assistant may: unlock a property in order to let prospective buyers and their representative enter; perform office filing and bookkeeping; draft documents and correspondence for approval and signature by the licensee; place or remove signs; witness signatures; or arrange for repairs on a rental property. 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. 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.

9 2.6 Real Estate Trading Services Licensing Course Manual 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 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.

10 Chapter 2 The Real Estate Services Act 2.7 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. 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

11 2.8 Real Estate Trading Services Licensing Course Manual 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 RESA. 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: 1. claims arising from acts or omissions which 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; and 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.

12 Chapter 2 The Real Estate Services Act 2.9 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. 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 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 that represent 11 geographic areas of the province. BCREA represents the interests of its 11 member real estate boards and their more than 20,000 REALTORS on all provincial issues, providing an extensive communications network, required licensing and continuing education courses, standard forms and government relations. To demonstrate the profession s commitment to improving Quality of Life in BC communities, BCREA supports growth that encourages economic vitality,

13 2.10 Real Estate Trading Services Licensing Course Manual provides housing opportunities, respects the environment and builds communities with good schools and safe neighbourhoods. 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 licensee to complete his or her initial licensing education. BCREA also develops and provides a variety of Continuing Professional Education (CPE) courses to help all REALTORS stay on top of the latest developments in the areas of residential and commercial real estate, ethics, property management, legal issues, office management and professional skills. BCREA has developed the Professional Development Program (PDP), a continuing education program required for membership in a real estate board. In addition to its educational initiatives, BCREA provides many services to its member boards and to REALTORS, including: BCREA publishes several newsletters (Legally Speaking, The Bulletin, and Connections) to keep REALTORS informed; Economics information is published in monthly news releases on residential MLS sales, quarterly mortgage rates forecasts, twice-yearly forecasts outlining what the provincial and real estate board residential markets are expected to deliver, monthly market-at-a-glance charts that illustrate yearover-year comparisons by real estate board area and quarterly market trends graphs for the province and each real estate board area; The Government Relations Committee, comprised of REALTORS from across the province, identifies emerging issues and recommends actions to address them. In addition to year round public affairs activities, the Association holds an annual lobby event in Victoria to discuss the profession s top priorities with MLAs, where REALTORS from across the province speak with one voice on issues that matter most to the entire profession. Each licensee has an option to become a member of a real estate board. The real estate boards manage the listings through the Multiple Listing Service (MLS ). Although membership in a real estate board is not a mandatory requirement of licensing, membership is necessary in order to access the MLS 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 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 licence 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. Under the former Real Estate Act, a brokerage was referred to as the agent, the managing broker was a nominee, and the representative was called a salesperson. An associate broker was a person who was qualified as a nominee, but who was not acting in the capacity of a nominee.

14 Chapter 2 The Real Estate Services Act 2.11 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. 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 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 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 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 personal real estate corporation ( 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

15 2.12 Real Estate Trading Services Licensing Course Manual the conduct, and vice versa if it is the controlling individual who initially commits the professional misconduct or conduct unbecoming a licensee. 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 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 B.C. or another Canadian jurisdiction. In addition to meeting the educational requirements for licensing, 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.

16 Chapter 2 The Real Estate Services Act 2.13 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 licence applicant must make full and complete disclosure with respect to criminal charges or convictions, bankruptcy or other legal proceedings in the licence application. If applicants conceal adverse information by providing false or incomplete information in their applications, the presumption as to 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.

17 2.14 Real Estate Trading Services Licensing Course Manual 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 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. 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 added a third category, strata management services, effective January 1, 2006, with licence categories encompassing all possible combinations. Interrelationship of Categories and Levels Each level of licence will be available to be issued in each category. For example: if a category of licence is rental property management services, 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.! 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.

18 Chapter 2 The Real Estate Services Act 2.15 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, the 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. 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 services under the supervision of a managing broker (sections 5 and 6). Section 3-1 of the Rules sets out the responsibilities of managing brokers: Supervision: Managing brokers have a duty to be actively engaged in the management of the brokerage, ensure that the business of the brokerage is carried out competently and in accordance with RESA and Rules, and ensure that that all licensees and employees of the brokerage have adequate supervision. Knowledge of improper conduct: If the managing broker has knowledge of conduct that may constitute professional misconduct or improper or negligent conduct by a licensee or other employee of the brokerage, the managing broker must take reasonable steps to deal with the matter. Accounts and records: A managing broker must ensure the trust accounts and records of the brokerage are maintained in accordance with RESA and Rules and ensure proper management and control of documents and other records related to licensing and regulatory requirements. Notice to parties respecting deposits: A managing broker must ensure that all parties involved in a real estate transaction are immediately notified if a deposit has not been received or a deposit cheque has not been honoured by a financial institution. This notice must be given or confirmed in writing.

19 2.16 Real Estate Trading Services Licensing Course Manual Section 3-2 of the Rules sets out the responsibilities of associate brokers and representatives: Records: An associate broker or representative has a duty to provide the managing broker with a copy of all records referred to in sections 8-4 and 8-5 of the Rules that were prepared by or on behalf of the associate broker or representative, or received from or on behalf of a principal. Records referred to in sections 8-4 and 8-5 include disclosures, service agreements, accounting statements and contracts for real estate transactions. Keeping managing broker informed: An associate broker or representative must keep the managing broker informed of the business activities being performed by the associate broker or representative on behalf of the brokerage, and must immediately notify the managing broker if a deposit has not been received. Response to managing broker: An associate broker or representative must promptly respond to any inquiry that is addressed to the licensee by the managing broker. Supervision of employees: An associate broker or representative must ensure that there is an adequate level of supervision for his or her employees and others who perform duties on the associate broker or representative s behalf. Knowledge of improper conduct: An associate broker or representative has a duty to promptly notify his or her managing broker of improper conduct. This includes the licensee s own misconduct as well as misconduct of the licensee s employees and other licensees and employees of the brokerage.! ALERT Under Section 3-2 of the Rules, associate brokers and representatives have a duty to report misconduct by other licensees within their brokerage. This duty is crucial to the protection of the public interest. Serious matters that must be reported include deceptive dealing, misappropriation of funds, unauthorized signing of documents and secret commissions. However, less serious examples of misconduct should also be reported, as investigations by the Council into trivial misconduct have often revealed more severe instances of misconduct by licensees. To report misconduct, a licensee should contact his or her managing broker to discuss the situation. The managing broker will then contact the accused licensee or employee directly. If the managing broker believes the misconduct is serious enough, he or she will make a report to the Council. The Council will then open an investigation to review the evidence. It is not always clear whether someone s actions constitute misconduct. The Council has published the following list of questions to help licensees determine if another licensee s behavior ought to be reported to their managing broker: Have the clients interests been harmed by the licensee s actions? Does it seem likely that the clients interests may be harmed in the future by the licensee s actions? Does the licensee seem unaware or unwilling to correct his/her actions? If the answer to any of the above questions is yes, licensees are encouraged to report the alleged misconduct to their managing broker. Licensees may also make an anonymous report to the Council, as long as the report contains enough information for the Council to begin an investigation. Sales 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 covering sales procedures. The following sections cover the sales or trading services procedures in the order they would occur in a typical real estate transaction, namely: disclosure of agency representation; the listing contract, or service agreement ; advertising; fair dealing with the parties; personal dealings by licensees; contract assignments;

20 Chapter 2 The Real Estate Services Act 2.17 acceptance of the offer and the contract of purchase and sale; financial records (books, records and accounts); and commission issues. For each procedure, the relevant provisions of RESA and/or Rules are listed. Disclosure of Agency Representation and Relationship in Trading Services Rules, section 5-10 Because of the high cost of houses in comparison to the average person s resources, the protection of buyers against high pressure methods of selling is seen as a very important goal. The Rules contain a number of provisions to ensure that licensees deal fairly with all parties to the transaction. The licensee must not enter into an agency relationship unless he or she can render a skilled and conscientious service to the principal. The licensee must make clear for which party he or she is acting and not receive compensation from more than one party except with the full knowledge and consent of all parties to the transaction. Section 5-10 provides that before providing trading services to or on behalf of a party to a trade in real estate, a licensee must disclose to the party: (a) the nature of the representation that the licensee will provide to the party; (b) whether the licensee is or expects to be providing trading services to or on behalf of any other person, in any capacity, in relation to the same trade in real estate; (c) whether the licensee is or expects to be receiving remuneration relating to the transaction from any other person; and (d) the nature of the licensee s relationship with any person referred to in (b) or (c) above. If during the course of a real estate transaction in which a licensee is assisting any person, there is a substantive change in the information that the licensee is required to disclose to that person, then the licensee must immediately disclose the change to that person. The Listing Contract or Service Agreement Rules, Part 5, Division 1 (also covered in Chapters 11 and 12) Members of the public should always know the terms on which their property is being offered for sale. For this reason, section 5-1 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 trading services to an owner of real estate in relation to the offering of the real estate for sale, commonly called the listing contract. The service agreement must be entered into before the brokerage represents the client in offering the real estate for sale (section 5-1(a)), and a copy must be delivered to the client immediately upon execution of the agreement (section 5-2). In addition, copies of any exclusive listing agreement must be delivered to each party immediately after it is signed. 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 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. 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.

21 2.18 Real Estate Trading Services Licensing Course Manual Advertising Rules, Part 4, Division 3 The Rules prohibit licensees from knowingly publishing real estate advertising containing any false statement or misrepresentation concerning real estate, a trade in real estate or the provision of real estate services. In addition, a licensee is prohibited from publishing real estate advertising indicating that specific real estate is being offered for sale or other disposition unless the owner of the real estate, or an authorized agent of the owner, has consented to the advertising. These provisions extend to pamphlets, letters and electronic communications, and would also cover press releases about real estate deals and even references in letters to matters pertaining to properties. If photographs are used in advertising materials, licensees must use caution not to alter or enhance them in any way that would misrepresent aspects of the property. When a licensee advertises real estate, section 4-6 requires: the licensee name of the brokerage must be displayed in a prominent and easily readable way; if the advertising identifies a managing broker, associate broker or representative, it must be done using the licensee name of the individual; and, if an office address for the licensee is included, it must be the address of the related brokerage office. This information is not required if the licensee is advertising real estate owned by himself or herself, as long as the name, address, and phone number of the licensee s brokerage or place of business is not used. Licensees are permitted to maintain personal offices (as opposed to their related brokerage office) from which they provide real estate services. Personal offices include an office that is in the residence of the licensee or of any other person. However, the following restrictions apply to personal offices (section 4-3): no sign may be placed outside the office or the building in which the office is located, or from where it is visible from outside the office or building, that indicates real estate services are provided from the office; the phone for the office must not be answered in the name of the related brokerage of the licensee; and the licensee must not indicate the office address on any real estate advertising or on any other records relating to the provision of real estate services. Representations as to Sale, Resale, Purchase, etc. Rules, section 5-6 A limitation is placed on a licensee who makes a promise in order to induce anyone to purchase, sell or exchange real estate or a related interest or benefit. Section 5-6 prohibits licensees from making a promise: to acquire, or resell or otherwise dispose of, the real estate or any other real estate; to procure a lease or an extension of a lease; to procure financing or an extension of financing; or to buy or sell rights under financing. unless at the time the licensee makes the promise, he or she gives a signed statement containing the details of the promise to the person to whom it is made, and including the signature of any other party involved in the promise. It should be emphasized that there is nothing wrong with making such promises if they are put in writing and signed. It is therefore wrong for a salesperson to tell a prospective buyer that he or she can sell the buyer s house for $74,000 within three weeks without giving the buyer a signed statement or letter containing that promise, and also telling the buyer the terms on which he or she would act in the sale. In making such promises, the licensee must disclose all important facts. Any intentional misrepresentation or intentional omission of such a fact would be misconduct, negligence, or incompetence, and could result in the suspension of his or her licence. When considering both representations and advertising (discussed previously), it is important to note that the federal Competition Act has significant penalties for false or misleading representations, including criminal charges resulting in fines and imprisonment, or civil infractions resulting in financial penalties.

22 Chapter 2 The Real Estate Services Act 2.19! ALERT A licensee was suspended for 6 months as a result of his breach of section 35 of the Real Estate Act (section 35 was effectively the same as section 5-6 of the Rules). The licensee had induced the complainant to purchase a property through his brokerage by guaranteeing to purchase the complainant s existing property. The licensee failed to provide a written disclosure as required by the Act and should have known that he would be unable to purchase the property if asked to do so. Source: In the matter of a Hearing before the Real Estate Council held March 19, Inducing Breach of Contract Prohibited Rules, section 5-5 It is an offence to induce any party to a real estate contract to break that contract in order to contract with someone else (section 5-5). Therefore, if Smith has agreed to buy a house from Jones, it is wrong for a licensee to persuade Smith to break that contract so that Smith can buy another house which the licensee is trying to sell. This rule also means a licensee must take care if a prospective buyer is dealing with other brokers. In case of doubt, it is always wiser to approach the other firms who might be involved, rather than approaching the buyer directly. 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 Real Estate Council s Disclosure of Interest in Trade form, which contains the following:

23 2.20 Real Estate Trading Services Licensing Course Manual 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; 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: o whether the real estate will be held for personal, rental or other use, or whether it will be resold or sublet; o the terms under which the real estate is to be resold or sublet (if applicable); o 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. 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 Real Estate 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. As a Licensee... 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 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.

24 Chapter 2 The Real Estate Services Act 2.21 Contract Assignment Requirements The Regulations, section 8.2 A contract assignment occurs when one of the parties to an enforceable contract transfers his or her rights in the contract to a third party. In the real estate sales context, an assignment occurs when a buyer under a contract of purchase and sale, before the completion date, enters into an agreement with a third party to transfer the buyer s right to purchase the property from the seller. Once the assignment occurs, the third party can demand that the seller transfer the property directly to him or her; however, the original buyer remains liable (to pay the purchase price) to the seller if the third party does not complete the sale. Buyers assign their contracts for a variety of reasons, including changes in their circumstances (job transfer, marriage, divorce, birth of a child, etc.) and the opportunity to make a profit if the property has increased in value since the buyer initially entered into the contract. On May 16, 2016, the provincial government enacted section 8.2 of the Regulations. Section 8.2 requires that standard terms be included by default in any offer to purchase real estate, unless the buyer instructs otherwise. These requirements are intended to protect sellers interests and deter potential licensee misconduct in relation to contract assignments. The provincial government s rationale was to provide notification and protection to sellers in situations where a buyer purchases a property only to assign the contract to a new buyer at a higher price, without the seller s knowledge. Section 8.2 governs the conduct of real estate licensees involved in the sale of both residential and commercial real estate; however, sales of development units by a developer (under REDMA) are exempt. Section 8.2 states that, unless instructed in writing by the party to whom or on whose behalf the licensee is providing trading services, a licensee must include the following terms in the offer presented to the other party for consideration (the Standard Assignment Terms ): 1. this contract must not be assigned without the written consent of the seller; and 2. the seller is entitled to any profit resulting from an assignment of the contract by the buyer or any subsequent assignee. Furthermore, section 8.2 requires that a licensee acting for a buyer must provide notice if the offer does not contain the Standard Assignment Terms. A licensee who intends to acquire the property, directly or indirectly, must also provide notice if the offer does not contain the Standard Assignment Terms. To fulfill this requirement, licensees must use the Notice to Seller Regarding Assignment Terms form (the Notice Form ) provided by the Council. Furthermore, the Notice Form must be provided at the same time the offer is presented to either the seller s licensee or the seller (if the seller has not engaged a licensee). While section 8.2 does not require the seller to sign the Notice Form, it contains a section for the seller s signature. The Council states that the licensee delivering the Notice Form should use best efforts to obtain the seller s signature because the signature provides proof that the licensee has complied with section 8.2. Finally, the Council advises that the licensees on both sides of the transaction provide a copy of the Notice Form to their brokerages. The Notice Form contains a space for the licensees brokerages to acknowledge receipt of the form. When acting for a seller, if an offer is made without the Standard Assignment Terms, the seller s licensee must always have a discussion with the seller about whether the offer allows for the buyer to assign the contract and if so, on what terms (i.e., conditions to assignment and whether the seller has any right to the profit resulting from the assignment). Furthermore, if the seller s licensee receives a Notice Form from the buyer s licensee, he or she must forward it on to the seller.

25 2.22 Real Estate Trading Services Licensing Course Manual As a Licensee... The following is a summary of your obligations under section 8.2 of the Regulations: When acting for a buyer or when making an offer to directly or indirectly acquire real estate: The offer that you prepare must contain the Standard Assignment Terms, unless instructed otherwise in writing by the buyer; and If the prepared offer omits the Standard Assignment Terms, you must deliver the Notice Form to the seller s licensee or seller (if the seller is unrepresented). When acting for a seller: If an offer to your client does not contain the Standard Assignment Terms, you must: Deliver the Notice Form prepared by the buyer s licensee, if applicable; and Discuss the terms in the contract relating to assignments with your client. Acceptance of Offer Rules, section 5-4 As soon as a licensee has obtained a signed acceptance of an offer to acquire or dispose of real estate, he or she must promptly deliver a copy of this signed acceptance to each of the parties to the trade in real estate, as well as to the related brokerage of the licensee. In British Columbia, this agreement if for the purchase of real estate, is referred to as the contract of purchase and sale. In most cases, the contract of purchase and sale starts as the buyer s signed offer prepared by the licensee. This offer will be accepted if the seller signs the contract without changing it and while the offer is still open for acceptance. At this point, it becomes the duty of the licensee to deliver a copy of the signed acceptance to all of the parties, including the seller.! ALERT A licensee was suspended for 7 days and he was ordered to complete the disciplinary education course provided by UBC as a result of his: failure to obtain the seller s and buyer s initials to amendments to the contract of purchase and sale; failure to advise the buyer that the fridge and stove in the premises being purchased belonged to a tenant; and incompetence in the wording of a mortgage commitment clause in the contract of purchase and sale. Contract of purchase and sale forms usually contain multiple copies so that the delivery of copies of the acceptance will be easier. In some situations, it is possible that what is commonly done in practice does not meet the requirements of RESA. For example, what if A sells to B and C who are purchasing as co-owners? When A accepts the offer by signing the contract of purchase and sale, it would be usual practice for a signed copy of the acceptance to be delivered to either B or C (but not to both). RESA, however, uses the words each of the parties to the transaction, and B and C are separate parties. Therefore, B and C each require an individual copy of the signed acceptance. In the example given above, it was assumed that the person accepting the offer was the seller. This is not always so. It is quite common for the seller to make an offer or counter offer to the buyer. If so, the buyer s signature on the document constitutes the acceptance and the above procedure would still be followed. Financial Records RESA, section 25, Rules, Part 8, Division 1. Information Required. 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 specifies that the brokerage must keep such financial records in connection with its business as are necessary to ensure the appropri-