REAL ESTATE TRANSACTIONS

Fall 2008 GREG UMBACH Amanda Coen

I. INTRODUCTION

A. OUTLINE

1. TRANSACTION

(i) AGENTS

(ii) VENDOR & PURCHASER

  • Listing agreement b/w vendor and listing agent
  • Listing agreement specifies:
  • The listing agent’s duties under the listing agreement:
  • At the point where you reach a meeting of the minds a contract of purchase and sale is signed.
  • Completion of the purchase/sale: Land Transfer Form (Form A), Statement of Adjustments
  • Closing Process:
  • Obligations:
  • Purchaser has to create transfer documentation
  • Vendor has to provide registerable transfer
  • Financing:
  • Vendor has mortgage on property….undertakings

2. FINANCING AND REAL ESTATE TRANSACTION

(i) MORTGAGES

(ii) FINANCING

  • The vendor probably needs money in order to discharge the mortgage from title (need to give the purchaser clear title)
  • Lawyer undertakings allow the vendor to receive money from the purchaser prior to giving clear title to the purchaser.

B. BACKGROUND

Title certificate in BC

  • Parcel Identifier-PID (not for Crown land)
  • Legal description, ex. Lot 1 Block 5 Plan 123, New Westminster District (completely unique)
  • Registered owner: owner in fee simple, meaning their ownership cannot be debated

VITAL ORGANS OF LTA

Indefeasability

  • s.20 LTA - HEART
  • Except against the person making it, an instrument doesn’t pass title unless it’s registered
  • Not enforceable (in law or equity) against the new title owner (20(3) exception: lease of 3yrs or less)
  • but any unregistered K is enforceable btwn the contracting parties

Exceptions To Indefeasability

  • s. 23 LTA – AORTA
  • (2) “An indefeasible title…is conclusive evidence at law…subject to the following[10 execptions, see statute]:” (d) “a lease or agreement for lease for a term not exceeding 3 years if there is actual occupation under the lease or agreement.” (i) “the right of a person to show fraud…in which the registered owner…has participated.”
  • Ways to obtain title
  • Crown grant [Crown land not under jurisdiction of Land Title Act… its just the resource industry that buys Crown land]
  • Transfer of title [titled land was at some point granted by Crown to private parties]
  • Old ways to obtain title
  • S. 23 and 24 do away with these, such as squatting or getting an easement by long habit of cutting across land
  • s. 26 LTA: LUNGS (registration of a charge)
  • (1) “A registered owner of a charge is deemed to be entitled to that interest when it is registered…” (2) “Registration of a charge does not constitute a determination that the…charge is enforceable.”
  • So just b/c the registrar registers it, they’re not saying it’s an enforceable charge, only that it’s properly registered (can’t go to court and say: “enforceable bc registered”)

Encumbrances

  • s.27 LTA: SUPPORTS THE HEART
  • “The registration of a charge gives notice, from the date and time the application…was received…to every person dealing with the title…”
  • Whenever an estate or interest is registered, it gives “notice to the world” –i.e., since the docs are public, deems you to have knowledge
  • s.28 LTA: LUNGS (priority of charges)
  • “If 2 or more charges appear entered on the register…priority according to the date and time the respective applications…were received by the registrar…”
  • Caveat: subject to contrary intention in the docs (happens lots with mortgages)
  • EXAM: dates on registry doesn’t tell you everything; look for priority / subordination agreements
  • s.29 LTA
  • (2) “Except in the case of fraud in which he or she has participated…a person dealing with a registered owner is not…affected by notice, express, implied, or constructive, of an unregistered interest affecting the land…”
  • If you don’t register your interest (as agreed between you and registered owner), then the next person dealing with the registered owner is not affected
  • Exceptions:
  • An interest that has been submitted buy not showing up on title yet (pending registration period)
  • Lease of 3 years or less when actual occuption
  • s. 33 LTA (LTA only deals with legal interests)
  • “An equitable mortgage or lien created by the deposit of a duplicate indefeasible title or other instrument, whether or not accompanied by a memorandum deposit, is not registrable.”

II. MARKETING THE PROPERTY

In BC almost all marketing is done by real estate brokers / agents (in Kamloops some lawyers do too)

  • 1st step: Vendor enters into agreement with a broker (the “vendor’s agent / listing agent”)
  • Then: another broker brings in buyer (the “selling agent”)

A. LISTING AGREEMENTS (K btwn vendor & broker)

1. GENERAL - TYPES

  • 4 types of listing agreements:
  • General/Open Agreement: vendor agrees to pay commission upon the agent completing the sale, but has the option of also listing w/ other agents.
  • Exclusive Booking Agreement: vendor agrees to list solely with a particular agent to the exclusion of anyone else. (Common for commercial vendors, bc may have biz secrets)
  • Exclusive Right to Sell Agreement: even if the agent to the K isn’t the one to sell, they are entitled to commission
  • Multiple Listing Agreement: global agreement that all licensed agents are a part of, whereby agents share certain powers & obligations (and all agents who made sale happen, whether act for vendor or purchaser, share the commission
  • The MLS system is most common for residential properties—gives vendor’s listing exposure to many agents (broader marketing)
  • Vendor might still have an “exclusive” agent, but MLS agreement means this “exclusive” agent has a sub-contract with all the other agents in the system (agents are contractually bound to each other)

2. AGENTS UNDER AGREEMENTS

NTD: Greg lays out a fact pattern where purchaser’s agent forgets to deliver acceptance to seller’s agent, during which time seller’s agent has accepted another offer; purchaser sues seller to enforce the K; seller is pissed bc getting sued so refuses to pay its agent commission; so seller’s agent sues seller as well. Also, seller’s agent has mistakenly let its real estate license lapse. [s.4 RESA – he was licensed when K of sale was made so he can enforce his commission, even though license lapsed later] [breach of REC rule 5-4: must promptly deliver to parties; also negligence]

Real Estate Services Act – details how agents are governed

  • S. 2 RESA – Act has very broad application: anything you do to assist the owner of real estate (dirt or an interest in

dirt) or assist in the disposition or acquisition of real estate; in expectation for renumeration (broadly understood: whether its you or someone else who will receive the renumeration);is caught

  • “The Act applies to every person who provides “real estate services” to, or on behalf of, another in expectation of renumeration”
  • “real estate services” defined to include:
  • rental property management services – services provided to or on behalf of an owner of real estate (any rental property manager who collects money or does repairs for a landlord MUST be licensed)
  • strata management services – services provided to or on behalf of a strata corp (company that manages a condo for a strata corporation must be licensed)
  • trading services – services provided to or on behalf of a party to a trade in real estate (statute lists examples) (if you rep someone in any transaction about acquiring or disposing of land, even if there’s a proposed transaction, that’s still a trade in real estate and you have to be licensed)
  • S. 3 RESA – the operative section
  • Cannot provide real estate services with expectation of a reward if not licensed under the Act
  • Exceptions include:
  • a practicing lawyer, in respect of real estate services provided in the course of that person’s practice (Note: firms in Kamloops rely on this exemption!! But lots of debate about what that phrase “in the course of your practice” means; does it mean that if you have client that wants to sell their land, you can draw up their contract AND act as their agent (and collect commission etc.)? E.g., aren’t educated as brokers!)
  • a trustee in bankruptcy; receiver; liquidator
  • executor or administrator of an estate
  • trustee in respect of real estate services provided under terms of a will
  • S. 4 RESA
  • Can’t sue for remuneration unless you are licensed at the time the real estate services were provided
  • S. 5 RESA - Several categories of licenses (highest to lowest)
  • Brokerage: license gives ability to set up office, advertise, on behalf of which other licensees provide services
  • Managing broker: senior guy responsible for answering for actions of the brokerage house (s.6 – every office must have one)
  • Associate broker: same education as managing broker; provide real estate services under supervision of managing broker
  • Representative: provide real estate services under supervision of managing broker (this is who you prolly see when go view a house)
  • [other employees in brokerage don’t need licence]
  • S. 7 RESA
  • Above listed licencees can only work for the one brokerage in relation to which they are licensed

[Brokerage can take the purchaser deposit money into their trust account] Greg: applies to law firms too

  • S.28 RESA – if brokerage holds the money in brokerage trust account then it must be held unless or until (a) the parties agree in writing; or (b) circumstances established by the regulations apply
  • S. 31 RESA – payment of licencee remuneration
  • the commission owed to licencee can be withdrawn from this account “when it is earned” “in accordance with the rules [see REC Rule 5-15: generally, on the date when docs effecting the transfer are submitted to LTO; or if its not a registerable interest, on the date the deal closes]—or, given s.28, when all parties agree in writing…
  • …so, see below section on Agent Renumeration: agent may argue that the listing K provided that they should get their commission even if deal doesn’t close (e.g., “exclusive right to sell” listing K)
  • S. 33 RESA – payment of trust funds into court
  • If there are adverse claims or one of the entitled persons is unknown or incapacitated, brokerage can apply to BCSC to have all the deposit / fund paid into court then court decides who money goes to
  • S. 73 RESA - establishes Real Estate Council of BC
  • Objects: administer the Act; advance knowledge & maintain integrity of licensees; uphold & protect public interest
  • Real Estate Council only has power over licensed agents (not lawyers)
  • Powers of the council:
  • Can investigate, hold hearings, subpoena people to the hearings
  • Issue reprimands, force education, suspension or termination of license
  • Make rules, such as:

Part 5 – governs licencee’s relationships with principal (who hires the licencee) and other parties

  • Come as response to Carmichael

Rule 5-1 – unless client waives, need a written service agreement, entered into before services given (must be signed by principal, state all the terms of the K, incl. effective date; must incl. general description of services to be provided & renumeration; and must incl. a provision wrt the use & disclosure of personal information

Rule 5-2 – must deliver a copy of any such K to client immediately upon execution of the K

Rule 5-3 – before signing any K on behalf of client, must have obtained written authorization from client (or from an authorized agent of client)

Rule 5-5 – must not induce any party to a RE K to breach the K for purpose of entering into another K

Rule 5-3.1 – licensee who receives a signed offer must promptly communicate the offer to the relevant party

Rule 5-4 - licensee who has obtained a signed acceptance must promptly deliver it to each of the parties and to the licencee’s brokerage

Rule 5-6 – re: making inducement reps: can make them, but they have to be accurate

Rule 5-8 – [requisite disclosures must be in writing, except for 5-10]

Rule 5-9 – disclosure of (even indirect) interest in trade—do it

Rule 5-11 – disclose who is paying them remuneration, and the amount

Rule 5-13(2) - disclose any material latent defect to all other parties

Rule 5-15 – re: renumeration out of trust account

Agency & Delegation

  • Agency:
  • Agent acts for a principal, on express or implied authority
  • An agent is unable to delegate his power to anyone without express or implied authority of the principal.
  • Criterion for authority to delegate:
  • Was there express delegation
  • Was there an implied delegation – indicia:
  • What is the practice of the industry – is there usually a delegation [e.g., MLS agreement says that anything main agent does can also be performed by other agents, and principal is familiar with the MLS] [note: usually its delegation / sub-agency for more narrow purposes, like showing property, communicating & accepting offers for vendor agent]
  • Does the principal know from outset that there may be a delegation
  • The actual conduct of the parties in the circumstances – does it look like principal knew (eg, direct dealings or advice?)
  • Emergency – actual emergency – not a business issue
  • The type of authority given to the agent in the first place would require delegation
  • Agent needs an environmental study done – need to delegate some authority to an environmental agent.
  • Usually power that is delegated is administrative only [eg, communicating & accepting offers], but could be broad [eg, incl. negotiate the K…then all the duties that an agent has to principal (incl. fid.) would seem to be taken on by sub-agent]

Note: Winners: simple fact that vendor lists under the MLS does not mean that all agents under MLS are (full) sub-agents of vendor’s agent—need “precise proof” that the relationship was created, either expressly or by implication

  • Knock Estate suggests that even without delegation by the vendor, under the MLS system there is very limited implied delegation for other agents to bring forward offers to vendor & corresponding duty of no active lying.
Carmichael v. Bank of Montreal(1972, Man. QB)

Apply this to Carmichael: purchaser agent was considered the sub-agent of vendor, for discrete purposes [show prop, communicating & accepting offers]

-BMO manager was essentially the vendor (admin of estate); vendor knew how MLS system worked; used it many times; understood sub-agent idea that was STANDARD PRACTICE in the MLS.

-E.g. conduct: BMO manager acquiesced in allowing Tilly (purchaser (Carmichael’s) agent) to show the property to Carmichael – rather than insisting that BMO agent (Cuthbert) show property to Carmichael

-Court concluded that Tilly had same authority as Cuthbert (for these discrete purposes)—Tilly was Cuthbert’s sub-agent and thus had power to receive acceptance of the offer

Held: and thus there was effective communication of acceptance of the BMO counter-offer when Tilly got the acceptance at 5:45pm [offer open until 6pm]

-specific performance: force BMO to carry out the sale to Carmichael

Note: Umbach thinks that even if they didn’t decide Tilly had valid delegated authority, probably still would’ve sided with Carmichael because of equitable reasons.

  • BMO manager & Cuthbert had made themselves entirely unavailable until 6:01pm (and Tilly did everything he could—met his obligation to do all can to promptly deliver acceptance of offer)

B. AGENTS - duties

Summary:

  1. Contractual duties (to principal; under MLS, to other agents & maybe other parties)
  2. Duties under statute & rules & regulations (to principal and some to other parties)

2. Agent owes strict fiduciary duty to principal (honesty, disclosure, confidentiality, no conflict, no secret

profits)

3. May be seen as fiduciaries of another party (even one that they do not have

privity of contract with)

  1. An agent must exercise reasonable care & skill in keeping with the standards of the profession (do a little research).

Duties to Principal:

- Statutory: RESA (be licensed), REC rules

- CL: fiduciary; care

Duties to 3rd party:

- Statutory: REC rules

- CL: care, and maybe fiduciary (when meet criteria)

FIDUCIARY RELATION

LAC Minerals v. International Corona Resources Ltd.(1989, SCC)
  • 3 criteria to find a fiduciary relationship:
  • Is there a scope to exercise discretion/power over another? (power to make choices for another)
  • Can the (unilateral) exercise of that discretion affect the beneficiary? (bad choice can harm them)
  • Is the beneficiary particularly vulnerable? (rely)

Fiduciary relationship is founded on trust and confidence [rely not to hurt]

  • Gives rise to obligation to act in the interest of the beneficiary, not for one’s own personal interest; confidentiality & honesty
Knoch Estate v. Jon Picken Ltd.(1991, OCA) – purchaser’s agent may owe fid. duty to vendor

Facts: Picken (purchaser agent) introduces Mantella to Knock Estate property; Picken also works for Caterpillar (who would have paid a higher price for the property); Picken then brokers a deal between Mantella & Caterpillar;

  • Knock Estate sues Picken, alleging that he should have introduced Caterpillar to them so they could get higher price [note that Picken is purchaser’s agent, not vendor / Knock Estate’s]

Court:

(1)No significant delegation of agency powers by vendor agent to Picken such that Picken is sub-agent of vendor / Knock Estate

  • was an MLS system, but no direct dealings or advice; no evidence of implied delegation by vendor
  • merely an authority to bring forward offers, and so duty to be honest about those offers brought forward (no active lying) [MLS permits this delegation of discrete authority, but all agents are not automatically sub-agents] (Winners also)
  • don’t owe the unlimited agent duties (which as fid. would incl. no omission / full disclosure)
  • distinguish from Carmichael – more evidence of full delegation

(2)No fiduciaryrelation between Picken (purchaser agent) & Knock Estate (vendor)

  • no trust & confidence for Picken not to hurt; no power for Picken to make choices for Knock that might hurt it
  • again, don’t owe the fid duty of no omission / full disclosure
  • [note tho that statutory provisions now require disclosure of certain things to all parties, eg: 5-13 latent defects; 5-9 disclose if you are acquiring real estate and also providing services to one of the parties to that TX]
  • Note: it makes sense that purchaser’s agent shouldn’t owe fid duty to vendor as a manner of course… bc they have fid duty to purchaser (which includes disclosure, confidentiality) and conflict of interest issues would arise.

Winners v. Goddard & Smith (1992, BCSC) – another MLS listing K

Facts: purchaser’s agent wanted to say they were sub-agent of vendor’s agent to get some commission when vendor later sold to a different purchaser