Published on: January 07, 2015
Updated on: June 28, 2019
Article number: 200771

REAL ESTATE BROKERS

Selling a property in which you have an interest - think carefully

The FARCIQ professional liability insurance policy provides a guarantee to brokers and real estate agencies for claims relating to compensatory damages awarded for an error committed in the performance of professional duties.

Of course, the scope of the guarantee is affected by the nature of the insurance contract. In order to be covered, the professional services must be provided to third parties. You will note that this obligation is also included in the Real Estate Brokerage Act. Article 1 of the Law defines the field of practice of real estate agencies and brokers in the following way:

"1. This Act applies to any person or partnership that, for others and in return for remuneration, engages in a brokerage transaction relating to:
[…] "

Consequently, the FARCIQ policy is not applicable when the insured is one of the parties in the brokerage transaction. The insured is no longer an intermediary as defined in the policy and the Act. He becomes one of the parties to the transaction or to the contract under consideration. Consequently, potential claims against him in this sort of situation will not be accepted by the Insurance Fund. It is better to think twice before putting your own home on the market.

This rule is not limited to properties which the insured owns in whole. It extends to other types of brokerage transactions. Exclusion 2.03 m) of the policy reads as follows:

"2.03 - EXCLUSIONS : The following are excluded from the guarantee:
[…]

m) Claims arising from a real estate brokerage transaction in respect of a property or a right in which an Insured has an interest:

1) as the owner of more than a 10% interest; or
2) if such property or right is held by a Corporation, as a shareholder holding more than 10% of the voting shares; or
3) as a creditor having a real right in such property or right.

This exclusion cannot however be set up against any Insured who does not hold such an interest."

The above elements are the only limitations of the insurance policy with regard to the sale by brokers of real properties in which they hold an interest. This means that claims from the following brokerage transactions are covered by the guarantee:

  • the sale of a spouse’s property, to the extent that the insured holds no interest in it;
  • the sale of a property belonging to a relative, no matter the family connection.

Determination of insurance coverage in a given context depends essentially on the facts of each file. Consequently, grey zones remain, for which analysis must be more finely made. Examples include the application of rules relating to family patrimony, and the settling of estates.

In case of doubt about applicable insurance coverage, it is best for the insured to contact FARCIQ to present the nature of the transaction under consideration. He can then obtain the necessary information, which will eliminate many problems.

HYPOTHESES

SALE OF A PROPERTY AS OWNER
The prohibition contained in the policy applies to the sale of a property or a right in which an insured has an interest as owner of more than 10%. This means the exclusion applies to situations in which the insured is one of the co-owners of the property, to the extent that the interest in the property is greater than the percentage established by the policy. This includes the case of assets held as coproprieties.

SALE OF A PROPERTY BY A CORPORATION
What is forbidden to be done directly cannot be done indirectly. The prohibition contained in the policy applies to the sale of a good or a right held by a corporation where the broker or agency holds more than 10% of the voting shares of the business.

CERTAIN DEBTS
In order to preserve the complete independence of real estate agencies and brokers, the policy extends the prohibition to transactions related to a property or a right in which the insured party holds an interest as a creditor. In particular, this is the case of the sale of a property encumbered by a mortgage held by the real estate agency or broker.

IN SUMMARY

SCENARIO INSURANCE PROTECTION

BROKER WITH A 100% INTEREST IN THE PROPERTY
Broker
Agency
Insurance protection applies
X
No protection under Article 1 of the Act
X
No protection due to exclusion 2.03 m)

BROKER WITH MORE THAN 10% INTEREST IN THE PROPERTY
Broker
Agency
Insurance protection applies
X
No protection under Article 1 of the Act
No protection due to exclusion 2.03 m)
X


If you have any questions or comments regarding your professional liability insurance, write to the FARCIQ at assurance@farciq.com.

www.farciq.com
450 656-5959 | 1-866-956-5959