In the December 2018 Risk Report, we published a list of the top 10 E&O claim types at that time. Since then, several things have changed while plenty has stayed the same. 

The end result? Six claim types are still part of this year’s Top 10, though their positions in the list have changed. This has opened the door to four new claim types climbing up to make the list including:

• Encroachments
• Misrepresentation re title
• Taxes/GST
• Tenant occupied properties

Without even a drumroll, here are the current Top 10 E&O open claim types along with the number of each claim type:

1. Subject clause claims (22)

Subject clause claims are varied and include allegations of failing to warn of risks in making a subject-free offer, negligently drafting subject clauses, or failing to recommend appropriate subject clauses. Licensees drafting difficult or complex clauses should consult their managing broker for help or recommend that their client have their lawyer prepare the wording.

Key resources:

• No seal, no deal: poorly worded subjects may void a contract by B. Piva
• Deal or no deal: The cold hard truth about subject conditions by J. Chow
• The pitfalls of the poorly drafted contract by S. Twining
• Subject clauses. Simple, right? by S. Cordell

2. Illegal suite claims (18)

Illegal suite claims are for misrepresenting a suite as being legal or failing to discover and disclose that a suite is illegal. Before advertising a property as containing a legal or authorized suite, make sure you verify this is accurate. You can reduce your risk by taking steps to verify information directly with the municipality (keeping a written record of any information provided) and checking to ensure that the zoning allows for secondary suites. 

Key resources:

• Recipe for Misrepresentation by C. Johnston
• Three common claims to watch out for
• Oh, so suite…” BCREA’s Legally Speaking article by J. Chow

3. Drainage/water ingress claims (17)

Drainage/water ingress claims are usually an allegation that the licensee failed to discover or disclose water damage or mould issues. It may also be alleged that a licensee misrepresented the cause, extent or cost to repair these deficiencies.

As a buyer’s agent, you can reduce your risk by recommending your client contract a qualified home inspector to inspect the property. Warn them, in writing, of the risks of failing to do so. BCREA has created the standard form “Buyer’s Acknowledgement of Information – Recommended Conditions” to assist its members in pointing out recommended clauses and a reminder of the risks in failing to include them in a transaction.

Licensees should avoid making statements or promises that are outside your area of expertise. If you’re passing on information provided by another party, such as the sellers, be clear that you are only a conduit of information, state the source of the information and recommend steps are taken to verify if important.

Key resources:

• Making referrals: keep your clients in good hands by B. Piva

4. Encroachment claims (16)

Encroachment claims usually involve an allegation that a licensee failed to discover or disclose an encroachment onto or off the subject property. Examples include decks or structures built over the property line, backyards with landscaping or fences on adjacent property, the neighbour’s retaining wall built on the subject property or road allowances on the subject property.

Licensees who are aware of encroachments should make sure to disclose them to their clients, in writing. If there are “red flags” indicating potential encroachments, point these out to clients and where appropriate, recommend they engage experts such as surveyors to determine precise boundary lines or consider purchasing title insurance. In some instances, seller’s agents may be required to disclose known encroachments to the buyer if it falls within the disclosure requirements in Rule 59.

5. Misrepresentation re title claims (14)

These claims often stem from a licensee’s failure to know what or who is on the title of the subject property. Examples of these claims include failing to:

• ensure that you’re dealing with the owner of the property or with the person properly authorized to act on behalf of the owner
• point out a right-of-way and disclose its significance
• point out a by-law infraction registered on title
• give accurate information about the terms of the contract and what will or will not remain on title at completion

Key resources:

• Seriously, what’s your deal? by J. Chow
• Pitfalls in transactions involving corporate parties by O. Hyatt
• Knowing your client by S. Twining and L. Nilsson

6. No permits claims (14)

No permits claims usually occur when a buyer discovers that additions or renovations were done without a required building permit and alleges that the licensee was negligent in failing to discover and disclose this.

Remember that Rule 59 requires seller’s agents to disclose in writing (prior to an agreement being entered into) known material latent defects. Pursuant to Rule 59 (1) (d), “A lack of appropriate municipal building and other permits respecting the real estate” is a material latent defect requiring disclosure, if known.

7. Taxes/GST claims (12)

Mistakes made in advising or failing to advise clients about taxes related to the property being sold or bought are common and easy to avoid. Taxes are a complex area and often require referring the client to a professional with the right expertise.

Key resources:

• GST may bite you by C. Johnston
• Three common claims to watch out for
• Duty of Disclosure – it may be broader than you think by S. Twining discusses the recent Shave case where a licensee was found at fault for failing to inform his clients about the existence of the foreign buyer’s tax. In that case, although the licensee’s duty didn’t extend to providing tax advice or confirming whether the plaintiffs would be subject to the tax, it did extend to at least informing them of the existence of the tax, a piece of information relevant to their deliberations.

8. Parking/storage locker claims (11)

These claims are usually made against strata managers or licensees involved in the purchase and sale of strata lots, and tend to be for misrepresenting the number, location or designation of parking stalls or storage lockers.

When listing strata lots, you should verify information about parking stalls/storage lockers at the time of listing, so that you can ensure your marketing material contains accurate representations. All licensees involved in the sale of strata lots should understand the different designations that may apply to parking stalls/storage lockers.

Key resources:

• BCFSA’s Practice Resources on Parking Stalls and Storage Lockers
• Don’t get stung by this “B”: Form B and parking/storage allocations for strata managers by J. Chow

9. Valuations claims (11)

Depending on the market, these claims might be made by sellers who feel they have undersold or by buyers who feel they have overpaid. Licensees preparing a comparative market analysis or advising on value should always carefully document their opinion and how they reached their conclusions. Keep copies of those documents in your files.

Key resources:

• Market changes = remorse, Tips for protecting yourself from seller/buyer remorse claims by K. Murray

10. Tenant occupied properties (11)

Both property managers and trading licensees face this type of claim, often related to providing a tenant an incorrect Notice to Vacate, resulting in the tenant obtaining an order for 12 months’ rent from the landlord pursuant to the Residential Tenancy Act. There have been several successful lawsuits by tenants against their landlords reported in the news recently. If the licensee prepared the Notice improperly or without the landlord’s instructions, the landlord may look to the licensee to reimburse them for the penalties paid to the tenant. Licensees may also face claims for failing to explain the risks in agreeing to provide vacant possession of a tenant occupied property.

Key resources:

• Residential property transactions involving a tenancy by C. Spratt
• Hot tips for property and strata managers by C. Johnston
• Serving it right – following the rules when ending tenancies for landlord’s own use by C. Spratt

Special mention topics

Two additional topics that didn’t make the Top 10 list but deserve special mention – and attention! – include:

Building size claims

Building size claims typically occur when a buyer discovers a home is smaller than represented in MLS material, feature sheets or verbally and may sue both the buyer’s and seller’s agents for misrepresentation. 

Key resources:

• Disclaimers – why you need them in your marketing materials by S. Hamilton
• Take care in measuring properties by C. Spratt
• Client wish lists: what do you need to know by O. Hyatt

Homebuyer’s Rescission Period

As the legislation implementing a Home Buyer Rescission Period (“HRP”) for residential real estate transactions only came into force in early 2023, it’s still early days for claims of this type. Despite this, claims have already been filed and, as anticipated, they’re for miscalculating the rescission period, providing incorrect notice to rescind the contract or misrepresenting how the HRP works. Licensees have also been alleged to have forgotten entirely about the HRP resulting in their seller clients entering into binding contracts to purchase before the HRP expired for the buyer of their home (and that buyer then exercises their rescission rights).

This is a good example of claims that can easily be avoided by licensees by staying current with changes in legislation and taking the time to educate themselves about the changes. 

Key resources:

• Notice of Rescission – Residential Real Property Toolkit by BCREA (for BCREA members, login required)
• FAQ’s on the HRP by BC Financial Services Authority