Ch.11 CONTRACTS FOR REAL ESTATE TRANSACTIONS

For consistency, discussion in this chapter will focus on the standard forms.

THE REQUIREMENT OF WRITING

-section 43 of the Real Estate Services Rules (the “Rules”), for example, unless waived by a prospective client, a brokerage must have a written service agreement to provide trading services to an owner of real estate

-section 59 of the Law and Equity Act which affects contracts dealing with land or the transfer of land. In short, it says that, in most cases, contracts dealing with real estate must be in writing in order to be enforceable.

→ does not apply to leases or agreements to lease for a term of three years or less

Two exceptions to the writing requirement for contracts involving land (other than leases for three years or less)

1. The party seeking to enforce the contract can prove that the party denying it has acted in a way which indicates the existence of a contract
   → the party denying the contract has done some act that indicates the contract was made
   → the party denying the contract has agreed to an act by the other party which indicates the contract was made
   -Such actions can include the payment of a deposit or part of the price by the purchaser, or the acceptance of such amounts by the vendor → “estoppel”, where one party is prevented by law, or “estopped”, from denying or speaking against their own deed.

2. The party seeking to enforce the contract has reasonably relied on the existence of a contract and in doing so has “changed their position”, usually by spending money

Incomplete Contracts

-A contract will not fail to satisfy the writing requirement merely for being incomplete.

-The written document may leave out a term or state a term incorrectly, but the contract may still be enforced by the court.

-all offers, acceptances, counter-offers and amendments should be in writing to ensure that there is no dispute over their enforceability.

-you should ensure that all contract signatures requiring witnesses are witnessed appropriately

LISTING CONTRACTS

-a contract between an owner (seller) and a real estate brokerage whereby the brokerage agrees to try to find a purchaser for the listed property in return for the vendor paying a stipulated amount of commission should the brokerage be successful

-Under Designated Agency, while the contracting party is still the brokerage, the vendor agrees that the brokerage will appoint one or more specific licensees to act as the vendor’s sole agent.

-A purchaser may offer exactly the price and terms of the listing, but the vendor does not have to accept the offer.

-However, because a purchaser has been found who met the terms of the listing, the real estate licensee has discharged their obligation under the listing agreement and in most cases would be entitled to a commission.

-To trigger the vendor’s obligation to pay the commission, the licensee must produce a purchaser whose offer strictly complies with the terms of the listing agreement.

Disclosing Environmental Information to Prospective Buyers

-licensees have a positive duty to be reasonably aware of historic or geographic factors which should alert them to specific problems

-licensees should consider the following protective measures to both become familiar with possible contamination and to verify any statements made by a seller:

• become familiar with industrial areas associated with contamination and with known contaminated sites in one’s area of business;

• keep information current with regular monitoring of sources such as the site registry;

• establish an office procedure for attempting to verify whether contamination exists for each listing independent of seller-originated disclosure.

The Role of the Competition Act - Criminal Provisions - Agreements in Restraint of Trade

-a breach of section 45 of the Act would include agreements among licensees, real estate boards and others to:
• fix specific or minimum commission rates on real property transactions;

• allocate territories, markets or customers;
• restrict the types of services offered by licensees such as:

◦ for-sale-by-owner advertising or consulting services; and

◦ owner home marketing services;
• prohibit the advertising of commission rates or otherwise attempt to control advertising activity;

• prohibit certain types of inducements to obtain listings or other forms of business;

• control the entry of licensees or firms into the real estate market; and
• set common fees for specific services.

-local real estate boards must make no effort to set commission rates or splits.

-Each firm must be free to set rates and splits independently.

-illegal for individual representatives or managing brokers of different real estate firms to get together to agree upon rates or splits, except where discussions involve the commission split on a particular sale.

The Role of the Competition Act - Criminal Provisions - Misleading Advertising/Deceptive Practices

-In determining whether the representation is “false or misleading in a material respect” the courts will employ a two-step test:

1. the court will consider both the literal meaning and the “general impression” that is conveyed to consumers by the representation; the court will consider the nature of the intended audience, the medium of communication used, and any disclaimers that are present.

2. the court will determine whether this impression is misleading in a material respect; the court will consider whether the representation would have a real effect upon an ordinary consumer’s buying decision

-The general impression test is particularly important where the oral or written statements in the representation are literally true but the visual portion may create a false impression (e.g., a picture depicting a different model of the advertised product)

The Role of the Competition Act - Civil Provisions - Agreements Between Competitors

-Some agreements between competitors may not be violations of the criminal provisions in section 45, but may nevertheless substantially lessen or prevent competition in a market

-no penalties of fines or imprisonment

-Rather, the Tribunal has broad discretion to make orders to remedy the offensive conduct

-the Competition Tribunal under section 90.1 requires proof that the agreement substantially lessens or prevents competition in the marketplace, or is likely to do so → will not likely be initiated unless the parties to the agreement hold a considerable amount of market power.

The Role of the Competition Act - Civil Provisions - Misleading Advertising/Deceptive Practices

-Under section 74.01, the representation must be misleading in a material respect, but there is no requirement to prove that the deceptive practices were made knowingly or recklessly.

- the court may order a person to stop the activity, publish a notice, and/or pay an administrative monetary penalty.

-On the first occurrence, individuals are liable to a maximum penalty of $750,000 and corporations are liable to a maximum penalty of $10,000,000

-Courts may also make restitutionary orders, whereby they order offenders to compensate consumers who suffered losses because of the deceptive practices.

The Role of the Competition Act - Civil Provisions - Price Maintenance

-Section 76 of the Competition Act makes it a civil offence to discourage the reduction of prices, place upward pressure on prices, or discriminate against someone because of their low pricing policy, by means of threat, promise or agreement

-the creation or maintenance of market power is an important consideration when determining whether the conduct has had an adverse effect on competition.

-section 76 of the Act would be applicable in the real estate industry would include, but are not limited to, the following circumstances:

• one or more brokerages “directly or indirectly” seeking to either have a rival brokerage raise its commission rates or not reduce them below a certain level;

• a real estate board refusing to accept listings in its MLS® operation because a brokerage’s commission rate is below a certain level;

• a media outlet refusing to accept certain advertisements because a brokerage’s commission rate is below a certain level; and

• a real estate board imposing regulations on its members designed to limit price competition.

The Role of the Competition Act - Civil Provisions - Sale Above Advertised Price

-Section 74.05 provides that the sale or rental of a product or service above the price at which it has been advertised during the period and in the market to which the advertisement relates is reviewable conduct.

-exempts those licensees in the real estate industry who advertise the sale of a house on behalf of its owner → eliminated a conflict with provincial real estate legislation and Board rules which require representatives and brokers to get the best price they can for their vendors’ property.

Describing Existing Financing on the Listing Contract

-a mortgage registered against the vendor’s title can be assumed by the purchaser. Mortgage assumptions are attractive when:

• current interest rates are higher than the interest rate on the vendor’s mortgage, so the purchaser would benefit by taking over the existing mortgage; and/or

• there is a substantial pay-out penalty, so the vendor may prefer to have the mortgage assumed rather than pay it out.

-At the time the listing is taken, important to confirm the details of the existing mortgage with the lending institution, including outstanding balance, interest rate, payment, term, date, pay-out penalty, and assumability

-the licensee will not be entitled to a commission because a court will find that the contract is either void for uncertainty or that the financial details of the transaction have been misrepresented to the purchaser.

Protection of Personal Information

The privacy legislation requires organizations to:

• collect, use and disclose the personal information of their clients and customers according to specific rules;

• ensure adequate policies and procedures are in place to protect personal information as the law requires; and

• create internal processes to handle inquiries, complaints and requests from people for access to their own information.

A breach of these requirements can lead to penalties of up to $100,000, as well as damages.

Summary of the 10 privacy principles detail how to collect and use personal information in the Act

1. Identify the purposes for which the personal information is needed and collected. Ask: is the purpose reasonable?

2. Limit the collection of personal information. Ask: is the information necessary for the stated purpose?

3. Disclose the purposes for the collection and get consent. Consent may be written, oral or implicit.

4. Limit the use and relate the disclosure to the identified purposes. For new uses, get new consent.