As someone who has been happily married for many years now, I still enjoy the dangerous practice of reminding my wife at the worst possible time “See, I was right.”
Three years ago, I wrote an Oct. 2020 article for BCREA’s Legally Speaking describing when to recommend clients get legal advice. In that piece, I reminded licensees that the answer to many of their clients’ questions – and certainly for those that are beyond the expertise of a licensee – is to recommend professional advice. That professional advice can come from surveyors, accountants, inspectors, engineers, lawyers or a host of other professionals.
At the time I wrote that article, there were BC Real Estate Council (now BCFSA) disciplinary decisions on the topic, but not a lot of B.C. Supreme Court cases considering licensees who failed to recommend legal advice. Was this not a thing the courts wrestled with in real estate litigation? Was I wrong in seeing this as a larger problem?
Three recent decisions of the court have proven me right… again (much to the chagrin of my wife).
Stanley: Licensee breaches standard of care by failing to recommend legal advice
The B.C. Court of Appeal in 2023 in the case of Stanley[i] decided an appeal from the Trial Judge’s dismissal of a negligence case against a licensee. The licensee was the agent for the seller. The allegations were that the licensee failed to:
- properly advise on the list price
- properly advise on limitations in redeveloping the property, including that permission from the adjoining strata was required
- recommend legal advice.
The Trial Judge found that the licensee was negligent in failing to recommend legal advice:
In my view, it is obvious that the standard of care required of [the licensee] included that he should have either: recommended that Mr. Stanley seek legal advice despite Mr. Stanley’s personal opinion… or, seek that legal advice himself … [the licensee] knew Mr. Stanley was not a lawyer. He said he got the “impression” that Mr. Stanley had this “covered” because he had retained Farris. Given the importance of this information, in my view, an impression is not sufficient.
Bottom line: Although the Trial Judge concluded that the licensee breached the standard of care by failing to obtain and recommend legal advice, the case was dismissed because this breach did not cause his client damages. The Court of Appeal agreed, upholding the earlier judgment, which was a good result for the licensee. However, it’s an even better reminder of the dangers of putting yourself under the court’s microscope by failing to recommend legal advice on matters where a client requires that advice.
Morden: Licensee fails to warn clients about the nature and extent of the risks they faced
The B.C. Court of Appeal in 2023 in Morden[ii] considered a failed real estate transaction where the licensee did not recommend legal advice concerning breach of contract and issues of repudiation.
The Trial Judge found that the licensee “displayed significant failure” and that:
“… a reasonable realtor receiving instructions from a client to collapse the contract unilaterally would have provided basic advice concerning the impact of that decision on their legal rights and would have informed a client to immediately seek independent legal advice”.
Although the Trial Judge was ultimately satisfied that the licensee and her brokerage advised their client to obtain independent legal advice about the strategy he could follow and the consequences stemming from his decision to collapse the transaction, he found that the licensee “did not clearly warn the Mordens in a timely way about the nature and extent of [the] risks [they faced] before communicating to the plaintiffs’ agent.”
Despite the licensee’s failure, the Trial Judge found that once the buyers had made the decision not to complete the deal, they weren’t going to change their mind regardless of any advice they received and the licensee’s negligence caused no loss to the buyers. The client’s appeal of the trial judgment was dismissed.
Bottom line: Although this was another good result for the licensee, it’s also another example of how their conduct was placed under the microscope of the court, and it could’ve gone poorly given a different set of facts.
Davis: Licensee advises client in several ways to obtain legal advice
An example where the licensee’s conduct found more favor with the Court is Davis[iii]. In that case, the licensee was successful in defending a misrepresentation claim concerning zoning and the permitted use of the property. The Court wrote:
The form of offer used by the realtors advised the buyers to seek professional advice in the purchase of a business. Ms. H told the plaintiffs to seek legal advice, which they did not do.
It was up to the plaintiffs to conduct their own reasonable investigations to ensure that their plans for the property were compliant with the applicable zoning. I find the plaintiffs have not established that any of the applicable zoning laws and regulations were undisclosed in relation to the property. The plaintiffs simply chose not to obtain the advice they ought to have obtained to understand the risks they were taking on in the purchase of this property. The plaintiffs in this action assert an unreasonable reliance on the realtors to provide them with legal advice on the meaning and implication of the zoning laws which the realtors properly provided to them.
Bottom line: This final case demonstrates the importance of recommending legal advice in a timely fashion for matters beyond your expertise. This success was in part because the Court was satisfied that the consumer had specifically been told verbally, in writing and as a condition in the contract to get legal advice as part of their due diligence efforts.
Key to all of this is remembering clearly that the Real Estate Services Rules provide that licensees should “advise the client to seek independent professional advice on matters outside of the expertise of the licensee”[iv].
Far better than putting yourself through a trial and rolling the dice while waiting to see if you were right – like me!
[i] Stanley v. Grech, 2023 BCCA 348 (CanLll)
[ii] Morden v. Pasternak, 2023 BCCA 252 (CanLll)
