Sub-franchising and "loaned" brokers

It is common for franchised real estate agencies to have a sub-franchised agency and to allow some of their brokers to act on behalf of this sub-franchised agency, including to carry out brokerage contracts or to present promises to purchase. These brokers are then said to be on "loan". The OACIQ would like to remind everyone that this practice is not in accordance with the provisions of the Real Estate Brokerage Act, which states that a real estate broker may not act on behalf of more than one agency. Thus a "loaned" broker cannot sign a brokerage contract on behalf of the sub-franchised agency or draft a promise to purchase and indicate that it is done through this agency, as this constitutes false and misleading representation, leading to confusion.

In fact, as the concept of "sub-franchise" is not indicated in the Real Estate Brokerage Act, laws and regulations consider it as a separate and independent agency. Therefore, only those brokers authorized to act on behalf of this sub-franchised agency may do so. Under the regulations, a sub-franchised agency must maintain separate records, books and registers from those of the franchised agency, including when co-listing a property. Moreover, a sub-franchised agency cannot compensate a "loaned" broker, whether directly or indirectly. And finally, the practice of “loaned” brokers could lead to problems in terms of professional liability insurance.

A simple solution

One of two ways to regularize this situation is for the franchised and the sub-franchised agencies to take up brokerage contracts as co-listers, where each is a party to the contract. Both agencies and their respective brokers are then free to exercise all the rights under the contract, both having to uphold their civil and ethical duties and being bound by all obligations outlined in the Act and the contract. However, the simplest solution – and the most satisfactory – is for sub-franchised agencies to have their own brokers authorized to act on their behalf, in accordance with the Real Estate Brokerage Act.

For more information, we encourage you to read the following article: Best practices for teamwork.