PROFESSIONAL LIABILITY OF THE REAL ESTATE AGENTS IN ONTARIO, CANADA
Real estate agents owe contractual and fiduciary duties to their clients, hence, agents must exercise diligence in the performance of their work, else would be liable to pay damages. Lawsuits against real estate agents may be based on a number of different claims which includes allegations of misrepresentation, negligence, lack of disclosure, secret profits, conflict of interest, etc.
Defining Fiduciary relationship:
Real estate agents are generally considered to be fiduciaries of their clients. A person is in a fiduciary relationship with another when he or she has rights and powers which he is bound to exercise for the benefit of that other [person]. The existence of such relationship is presumed between agents and their clients and recognised by the Courts.
The test for fiduciary relationship is mentioned below:
- The fiduciary has scope for the exercise of some power which can be discretionary as well.
- Power can be exercised unilaterally by the fiduciary.
- The beneficiary shall be peculiarly vulnerable to or at the mercy of the fiduciary.
In specific, a fiduciary must not act in a way which would cause his duty to a client to go against with his own self-interest. An agent should not permit his personal interests or the interests of third parties to interfere with their client’s interests until and unless the client provides for.
Breach of fiduciary duty:
(i) Conflict of interest:
A conflict of interest will arise whenever an agent seeks to buy a client’s properties regardless of whether the property is purchased directly or indirectly or for commercial or personal use.
A real estate agent who purchases any property shall make sure that the vendor had full knowledge of agent’s actions and also have the potential to earn profit from the sale.
Real estate agents should disclose when they are representing both sides of the transaction and obtain the informed consent of each party to the dual agency.
(ii) Duty not to engage in secret profits
When acting as a fiduciary, a real estate agent can’t make secret profits or receive compensation from anyone but their client, unless provided by client: It includes:
- Payments from the other party
- Payments from a third party
Real estate agents owe their clients a duty of care to act in a manner that fulfils the standard of care expected of real estate professionals for which they should use their reasonable skill, competence and care, failure of which makes the agent liable for any damages.
(i) Duty of care
The duty of care to a client covers everything that needs to be done by the real estate agent.
(ii) Standard of care
Standard of care, the agent’s conduct is measured against the conduct of a reasonably careful person in the same profession. The reasonability may decided by the court in certain circumstances.
(iii) Requirement to independently investigate
Real estate agents have an obligation to independently verify any information that their clients will rely upon when determining whether to buy a property otherwise will be held liable.
In this case a purchaser was concerned about whether a property had enough parking to support his dental practice for which he made inquiry to the vendor’s agent and received an affirmative response. Later, he subsequently discovered that the vendor had entered into a Boulevard Parking Agreement with the City of London that allowed him to park four vehicles on the west side of the property which encroached on City owned land. The Court held that both the purchaser’s agent and the vendor’s agent acted negligently and were liable to the purchaser.
Liability to the other party:
In the duration of real estate transactions, agents are frequently in contact with the opposing party. While being in this, they should keep in their mind that they owe a duty of care not only to their client but to the other party as well.
(i) Duty of care
The duty of care owed by a real estate agent to the other party in a real estate transaction is more limited than the duty owed to a client.
(ii) Seller Property Information Sheet (SPIS)
If a property has visible defects, the vendor’s agent is required to be particularly careful while relying on their client’s assessment of the property and advising the purchaser.
Krawchuck v. Scherbak
The concerned property in this case had some visible defects, and the vendor’s agent, on the advice of the vendor, relayed to the purchaser that the house had been repaired and is without any problem for last 17 years. It was then SPIS confirmed. Later, the purchaser discovered that there was ongoing settling that threatened the integrity of the entire house.
The Court held that the agent must have considered whether the vendor was mistaken in his impression that the property had been repaired. It further recommended that the purchaser obtain a home inspection. It is also important to note that the SPIS is not required in Ontario.