Legally Speaking - October 2009 (433)
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Legally Speaking (433, October 2009)

 

Number 433, October 2009

Passing Information Accurately

In a real estate deal, a client depends on the licensee to accurately relay information between the parties. This is especially critical where the licensee is a limited dual agent.

A recent Real Estate Council of British Columbia disciplinary decision makes the point.1

Beginning in 2005, the licensee acted as the owner’s property manager for a small strip mall with six commercial tenants.

In February 2006, the owner listed the premises for lease until July 16 under an Authority to Lease. At that point, the licensee also became the leasing agent whose obligation it was to look for tenants.

Then, in April 2006, the owner listed the property for sale until May 21. A few weeks later, the owner entered a contract of purchase and sale with the buyer with an August 31 completion date.

The licensee, as limited dual agent, drafted the contract. It required the seller, pending completion, to search for tenants to fill vacancies and to inform the buyer about offers to lease.

By early July 2006, there was only one tenant in the property. The seller felt pressured by the licensee to drastically reduce rents, apparently to better attract tenants. During the licensee’s entire term as leasing agent, he only developed two potential tenants, according to the seller. Neither candidate was creditworthy. In one case, when the seller discovered that the applicant used only a mailbox address, the seller told the licensee that potential tenants must provide a credit report, financial statement, references and a concrete address. The licensee then recommended that the seller reject that proposed tenant, which the seller did.

The Council found that within four days, and without telling the seller, the licensee (who had recommended rejection of the tenant) then wrote to the buyer, claiming that the seller was attempting to frustrate the buyer's purchase by not closing acceptable lease offers. The licensee wrote that this could be viewed as a breach on the seller's part. The licensee also advised that the seller did not want to proceed with the deal, preferring now to keep the property for a new business venture.

To pressure the seller to accept tenants proposed by the licensee, and to complete the deal with the buyer (all of which would presumably generate commission), the licensee, again without telling the seller, also wrote to the buyer's lawyer. In that letter, the licensee claimed that the seller had wasted an opportunity to lease the premises, and that the licensee was prevented from showing the premises to several potential tenants.

In response, the buyer threatened the seller with legal action to enforce the deal. Yet, the Council found that the licensee never brought the owner any viable, creditworthy tenants for consideration. When the seller's lawyer replied explaining the situation, things changed. It became clear the buyer was not getting the whole story from the licensee. The buyer realized that if he bought the property filled with the tenants urged by the licensee, the buyer could end up with poor leases.

Ultimately, the seller and buyer resolved any differences and the deal collapsed.

The Council requires a licensee to act in the best interests of the client.2 After a hearing, the Council found that the licensee committed professional misconduct contrary to the Real Estate Services Act, in part, by breaching this requirement. The licensee failed to honestly, impartially (as limited dual agent) and in his clients’ best interests convey information between his clients.

For instance, when the licensee wrote to the buyer characterizing the seller's rejection of potential tenants as attempts to frustrate the deal, the licensee was inaccurate and inflammatory. Contrary to both clients’ best interests, the misinformation created an unnecessarily adversarial relationship. The Council also found that the licensee continued to perpetuate untruths to further his personal cause for commission, even when his clients were later in the process of resolving their dispute.

For these and other breaches, the Council suspended the licensee for one year with educational requirements and an order to pay $6,128 in enforcement expenses.

Mike Mangan
B.A., LL.B.

  1. Hassanali (Re), 2008 CanLII 75207 (B.C.R.E.C.) — 2008-11-27.
  2. Real Estate Council of British Columbia, Rule 3-3(1)(a).
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