Three common claims to watch out for

Claims against licensees are many and varied. In this article, we highlight three potential problem areas for you to watch out for.

Is it a “legal suite”?

E&O has handled many claims against licensees respecting secondary suites, often for representing a suite as “legal” when it is not.

Unless you know for certain that a secondary suite has been authorized by the local municipality, you are taking unnecessary risks for yourself and your client if you represent it as “legal” or “authorized.” Before making such a representation, a prudent seller’s agent should verify this directly with the responsible municipality and keep notes of the information obtained, including the date of inquiry, name of person providing information and, if possible, written confirmation from the municipality.

Failure to do so may result in a claim for damages or a complaint to the Real Estate Council (REC). In a recent small claims case, a licensee was found to have breached a duty to his clients when he failed to advise them that a property described as having a legal suite was only “suite-ready” and required further steps before it could be made legal.

In Thompson (Re), 2011, CanLII 28094, the REC found that a licensee failed to use reasonable care and skill when he incorrectly represented a property as having two legal living accommodations. Pursuant to a Consent Order, the licensee was suspended for seven days, ordered to take remedial courses and to pay enforcement expenses.

Licensees should keep in mind that complaints to the REC are not covered by the Indemnity Plan, so any legal fees you incur in dealing with REC complaints or any fines, sanctions, or penalties imposed on you by the REC are at your own expense.

Lockboxes add risk

E&O has seen several claims against licensees who are using lockboxes incorrectly. For example, claims have been made against licensees using lockboxes to access a strata complex that has bylaws or rules forbidding the use of lockboxes. These licensees may be held responsible for the cost of rekeying a building or for other losses incurred if the lockbox is stolen and access is gained to the building.

When listing property in a strata complex, ensure that the strata corporation allows the use of lockboxes and that you follow any guidelines or restrictions. Your seller should also be asked to provide you with written authorization allowing the use of lockboxes. Consider using a lockbox waiver form from the seller that contains an indemnity. If you are dealing with a tenanted property, you must obtain permission from the tenants before installing a lockbox.

The use of lockboxes adds another element of risk to showing a property. The safest approach would be to avoid the use of lockboxes entirely, and show the property yourself.

GST is complicated!

Claims against licensees for making misrepresentations about the applicability of GST, or for negligence in failing to advise that GST may be applicable, are not uncommon. Although you are not expected to be experts on GST or other tax matters, you should have a general understanding of the types of transactions that might require payment of taxes.

GST applies to all real estate transactions unless there is a specific exemption. The most common exemption is where the property is “used” residential housing, but it is not always that simple. Factors that may affect GST include if the property has been substantially renovated, if it is a resale of an unoccupied unit, or the seller’s status and use of the property (such as if the property has been used for a commercial activity, or if the seller has claimed GST input tax credits).

When GST is payable on a transaction, it is the buyer’s obligation to pay the tax and the seller’s obligation to collect the tax and remit it to the government. You can avoid claims involving GST if you recommend to your clients that they seek advice from a tax expert specializing in GST before committing to the purchase. Surprises can be avoided when the parties to the contract have received expert advice as to whether GST is applicable, and they are then able to negotiate with full knowledge.

If GST does apply, the agreement should indicate if GST is included in the purchase price or is in addition to the purchase price.