While it may seem straightforward that an agent ought to confirm the identity and the interests of her client, the increasing complexity of real estate transactions in a global marketplace means that “knowing your client” and anticipating the risk of something going awry have become more challenging.
As lawyers who defend real estate licensees both in civil litigation and disciplinary hearings before the Real Estate Council, we’ve seen many well-intentioned licensees run into difficulty when the pressure to get the deal done leads them to overlook potential pitfalls.
The question “Who is my client?” is a useful cue to consider not only the identity of the person instructing you and whether they are truly the person who should be giving the instructions, but also whether there are other unrepresented parties with an interest in the transaction who should be consulted.
Problems can arise, for instance, when you’re listing a property owned by two or more joint tenants, or acting on behalf of a corporation with multiple directors, and you find yourself taking instructions from one person as spokesperson for all. Even when you’re dealing with a single registered owner, there’s the potential that other unrepresented persons may have an interest in the transaction, such as the client’s spouse or creditors.
When dealing with the elderly or persons suffering from an illness or a handicap, there may be issues of competency, duress or undue influence to consider. Often, a third party will act as an intermediary in the transaction and instruct you on behalf of the client. Such circumstances are fraught with liability risk, even where the intentions of the third party are bona fide.
All of this means that you, as the licensee, need to be alert and ensure that the proper parties have been consulted and have authorized you to act.
You are required under the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations to identify individuals and confirm the existence of corporations, trusts, partnerships and other unincorporated entities at the outset of the agency relationship.
When dealing with a corporation, always conduct a search of the Corporate Registry and obtain a copy of the BC Company Summary. It will include the proper legal name of the company, the location of its registered office, whether it is up to date with its filings and remains in good standing, and the identities of the directors and officers of the company.
Depending on the complexity of the corporate structure, you may need to request further documentation, such as the Incorporation Application, Incorporation Agreement setting out the share structure, and the Articles of Incorporation. If there are multiple directors but there is only one person instructing you on behalf of the company, we recommend that you obtain some form of authorization, such as a Directors’ Resolution, confirming that the person instructing you is authorized to do so on behalf of all the directors.
There are special considerations when you are representing a corporation.
We’ve encountered situations where the company shown as the registered owner on the Certificate of Title at the Land Title Office is not the person or company who has signed the representation (agency) agreement or the contract of purchase and sale. It’s not uncommon, for example, for developers to act through several different corporate entities and for the entity signing the contract to be different from the entity appearing on title.
In such cases, there may be a trust agreement between the contracting party and the legal owner which obliges the legal owner to honour the terms of the contract of purchase and sale, but you should be aware of the risks associated with such arrangements.
The Professional Standards Manual instructs you to include language in the contract recognizing the trust arrangement (e.g. “Company A in trust for Company B”) where someone other than the registered owner is the signing party. Because trust arrangements can be complex, we recommend that you consult a lawyer to assist with the drafting of the contract documents. As well, both buyer and seller should be encouraged to obtain legal advice to ensure that all legal issues are properly addressed, and that the contract contains the necessary language to protect the rights of the parties.
In cases where the seller of property is a company, we recommend that you check the BC Corporate Summary to ensure that the company has not been struck from the Registry for a failure to file corporate records or some other reason.
If a company has been struck from the Registry, any real property that it owns may have become the property of the Provincial Crown by operation of the Escheat Act. Under the Act, land owned by a company becomes the property of the Crown if the company remains struck from the Register of Companies for more than two years. Because an “escheat” of land to the Crown is not recorded on the title search document, it often goes undiscovered until an application to transfer land is submitted to a Land Title Office and rejected.
Again, if the corporate registry results indicate that the corporate owner has been struck from the Registry, you should consult with a lawyer (or encourage the client to do so) to ensure that the seller still has title to the property.
Witnesses and signing parties
It’s an essential part of your professional responsibilities to ensure that all proper parties have signed the transaction records. The Professional Standards Manual directs licensees to ensure that all contracts and addendums are in writing, signed by the parties to the contract, and properly witnessed by a person over the age of 19 who is present to witness that the parties signed in their presence.
It’s never proper practice to sign a document as a witness when you weren’t present to witness the client’s signature, for example, where the client signs a contract and faxes it to you for your signature.
We have seen cases where someone other than the client signs the contract document in the client’s name. This can give rise to serious legal consequences and even findings of fraud.
The Professional Standards Manual advises that before signing a contract on behalf of a client, you must first obtain written authorization from the client or an authorized agent of the client and ensure that the authorization is genuine (for example, do not rely on an email as authorization unless you are certain that the email was written and sent by the person who appears to have sent it).
It’s also advisable to ensure that there’s a written record setting out the client’s specific instructions to you, the specifics of how they would like you to proceed, and the limits of your authority to act on their behalf.
It’s never appropriate to sign a document so that your signature imitates the client’s signature.
If you are authorized to sign for someone else, sign the document with your own signature and indicate that you are signing “as agent for” the client.
Sometimes a family member will sign a contract on behalf of another family member who is unavailable, perhaps because they are out of the country. If you’re aware that this is happening, ensure that the family member is authorized to sign the document on behalf of the absentee client. There should be a reliable written record confirming the authorization. The family member must sign in their own name as agent for the absentee client and must not forge the client’s signature.
The emergence of Docusign and other secured forms of electronic signature have removed the need for third-party signatures when the client is out of the country or otherwise unavailable. The critical consideration with e-signatures is not the form of the signature but establishing the requisites of consent. Password control provides a high level of assurance that the party signing is in fact the party authorized to do so, but it’s always advisable to have some other record to confirm consent.
When you’re acting for a seller, it’s important to verify your client’s marital status before listing the property for sale. While your client may be the only registered owner appearing on the Certificate of Title, it may be that a former spouse (either by marriage or common-law) from whom your client is now permanently separated has a beneficial interest in the property, if there is no agreement to the contrary. If any such agreement exists, obtain a written copy.
Otherwise, you should be aware that pursuant to the Family Law Act, the family home and all other assets accumulated during the marriage are to be divided equally between spouses when they separate. There are no legal implications in the event one spouse has moved out of the property; their rights under the Family Law Act remain intact.
Additionally, in British Columbia a spouse who is not listed on title to a property but who has contributed financially or in kind to the acquisition of that property is entitled to an equitable interest in the property by way of a constructive trust. If the factors necessary for a constructive trust are present, the spouse may be entitled to a trust amounting to an equal share of the property, even if he or she is not registered as a legal owner on title.
If you’re involved in transactions where the interests of a beneficial owner must be considered, you should seek the services of a lawyer to assist with the drafting of the contract documents. Both the client and the former spouse should also be advised to seek independent legal advice regarding the transaction, as their interests will likely not be the same.
Powers of Attorney
You will often encounter Powers of Attorney; treat them with caution.
A Power of Attorney is a document that authorizes one person to make legal and financial decisions on behalf of another. A regular Power of Attorney is usually used for a specific transaction or time frame, while an enduring Power of Attorney has no end date and will continue to be in effect once the representee is no longer able to manage his own affairs.
You should be aware that pursuant to section 56 of the Land Title Act, a Power of Attorney for land title purposes is only valid for three years, unless it is an enduring Power of Attorney or it expressly excludes the application of section 56 of the Land Title Act.
You should take steps to establish the validity of a Power of Attorney that’s being used for the purposes of a real estate transaction. Consulting with a lawyer will assist you in:
- ascertaining the true identity of the parties involved;
- making inquiries to ensure that the Power of Attorney has not been revoked;
- ensuring the original Power of Attorney is filed with the Land Title Office;
- ensuring the Power of Attorney is properly witnessed by an officer of the Land Title Office in accordance with section 42(3) of the Land Title Act;
- ensuring the Power of Attorney gives the attorney sufficient powers to transfer land;
- being careful that the name that appears on the Power of Attorney matches the name registered on title (otherwise the transfer form will be rejected by the Land Title Office); and
- making sure the attorney is at least 19 years of age.
Finally, the Real Estate Council of British Columbia recommends that you refrain from acting as your client’s Power of Attorney, suggesting that the role be filled by a family member or close friend instead.
Capacity to enter into a contract
If you have concerns about a client’s mental capacity to give instructions, it’s highly recommended that you consult legal counsel.
A person’s mental capacity can be affected by many things, including age, illness or injury. The law requires that an individual have the capacity to contract in order to enter into transactions on their own behalf.
That means the individual must have the ability to not only understand the nature of the contract, but also the effect of the contract on the individual’s own circumstances. Similarly, if the property transaction is a gift, the client must be able to understand both the nature of the gift as well as appreciating the effect that giving the gift has on the client’s own circumstances.
Because there can be significant interplay between incapacity and undue influence, should you have reason to believe that a proposed real estate transaction is actually the result of undue influence, you should consult legal counsel to assist with determining whether the transaction is of the client’s own volition or whether coercion is involved.
This article has touched on a number of potential pitfalls that can arise when you fail to make appropriate inquiries regarding your client’s identity, family status and legal interests. Each relationship is unique, and it’s not possible to come up with a simple checklist to cover every material factor that may apply in any given case.
In an increasingly global marketplace, relationships between individuals and corporations may span borders and legal jurisdictions, giving rise to even more potential pitfalls.
While it’s not possible to immunize yourself or your client from all potential risk factors, remembering who you are acting for, appreciating when the details of the transaction are testing the limits of your expertise, and recognizing when your client will benefit from the advice of another professional such as a lawyer, tax advisor or accountant, will reduce not only the chances of something going awry but also lessen your exposure to liability in the event (which is inevitable) that something does.