A real estate agent is obligated to disclose his professional status, even in a personal transaction

Source: ACAIQ

Real estate brokers and agents who have a stake in a real estate transaction have an obligation to disclose in writing their capacity as real estate professionals. The Superior Court recently confirmed the unconditional nature of this provision by ordering a broker to reimburse $200,000 to his co-contracting party (1). In this case, the seller, who held a valid real estate broker certificate although he hadn’t practiced in several years, wished to sell his family residence. In December 2000, the buyer, a friend of his ex-spouse, presented a promise to purchase for $1,850,000 and offered to pay a $100,000 deposit. The act of sale was to be signed in June 2001. The seller made a counter-proposal asking for a $200,000 deposit. The buyer accepted the counter-proposal, understanding that she would lose her deposit if the transaction did not take place. However, she didn’t show up at the notary’s to sign the act of sale on the scheduled date and, several months later, demanded reimbursement of her $200,000 citing, on the one hand, the abusive nature of the deposit agreement and, on the other, her right of withdrawal without penalty provided under section 22 of the Real Estate Brokerage Act when a real estate broker or agent fails to disclose his status. According to the court, the deposit paid by the buyer did not constitute abuse given the value of the property, the long period of time preceding the sale and the fact that it was legitimate for the seller to want to ensure the seriousness of the buyer’s commitment. Therefore, it was not an abusive clause that could be struck down by a tribunal. In addition, the judge had to determine whether the buyer could invoke section 22 (2) of the Real Estate Brokerage Act to withdraw her promise to purchase. An analysis of this provision prompted the judge to conclude that:

• the Real Estate Brokerage Act exists to ensure better protection of the public and, consequently, section 22 must receive a broad and liberal interpretation;

• the goal is to ensure that the consumer knows with whom he is dealing;

• in the absence of written disclosure on the part of the agent, the co-contracting party who withdraws is exempt from any penalty, including the payment of a deposit.

Since the act of sale had not been signed, the buyer was allowed to withdraw her promise to purchase at any time and under any circumstance, and ask that her deposit be refunded. Consequently, the court ordered the seller to pay back the $200,000. The judge also noted that section 22 of the Act creates a strict and imperative obligation. It is not enough therefore for the buyer to have known about the seller’s professional status – the seller should have disclosed it following proper procedures, i.e. in writing and in accordance with the terms of section 81 of the By-Law of the ACAIQ. Moreover, the fact that the buyer accepted to pay a deposit and only exercised her right of withdrawal after the scheduled date of signing changes nothing to her right to be reimbursed for the amounts paid. On this point, the court stated: ''the requirement of a payment such as that demanded by the seller is precisely that from which the legislator wanted to protect co-contracting parties''.

A standard disclosure form

Section 22 of the Real Estate Brokerage Act was enacted to force all real estate brokers and agents to disclose their interest in a transaction, even if not carried out in their professional capacity, i.e. when they are acting on their own behalf or for their personal affairs. In the absence of a written disclosure in accordance with the By-Law of the ACAIQ, the co-contracting party may at any time withdraw from his obligations without penalty and without having to prove prejudice or error. This disclosure obligation also applies to transactions regarding any immovable in which the broker or agent has only an indirect interest. In rendering this decision, the court reminded real estate brokers and agents that they cannot evade the strict obligations imposed by the law regarding their capacity as real estate professionals. The ACAIQ would like to remind its members that a standard form entitled ''Notice of disclosure – Complete before any commitment'', consistent with the requirements of section 81 of the By-Law of the ACAIQ.

• Bibeau v. Salette, S.C. 540-05-006600-021, June 4, 2004.

• 22. Every broker or agent, whether in the course of his duties or not, who holds or intends to acquire, directly or indirectly, an interest in immovable property that is being purchased, sold or exchanged must, without delay and in writing, disclose his quality as broker or agent to the prospective contracting party, in the manner prescribed in the By-law of the Association. In case of failure to do so, the person entitled to such information may, as long as the contract evidencing the transaction has not been signed by the parties, withdraw, without penalty, from any offer or promise, whether accepted or not, concerning the immovable property, by sending or giving a written notice to the other party.