By Brian Madigan LL.B.

If a tree falls in the forest, no one cares, except perhaps the termites. But, if your neighbour’s tree falls on your house, then there is a little problem.

First of all, is your neighbour liable? Let’s say your neighbour has a 35 foot pine tree and one day it simply blows over in the wind and damages your eaves trough. Can you recover the cost? You inspect the damage and find out that the eaves trough will cost $215.00 to repair. But, much to your surprise, it will cost over $ 900.00 to remove the tree.

Naturally, you call your insurance broker, only to discover that you have a $ 1,000.00 deductible. This means that your insurance company will only pay you $115.00, if you present a claim. Why not keep and claims free record and absorb this expense?

So, what about the neighbour! In order to have a claim against the neighbour for the damage, you have to prove negligence. This means that the neighbour failed to do something that was reasonable. Was the tree old and diseased? Was it hanging precariously over your property? If this was simply a surprise to everyone, then your neighbour may not have been negligent. This was a simple accident. And in law, the courts see no particular purpose transferring the cost of the damage from one innocent party to another. OK, this means that you will have to repair the eaves trough yourself without proof of negligence.

Generally, this is the story you will hear from your own insurer and your neighbour’s insurer. In fact, at times like these they often like to speak quite philosophically about religion, acts of God and forces of nature. However, the bottom line is that they don’t want to provide you with compensation, just condolences.

What about the cost of removing the tree? That’s almost $1,000.00 on its own (when you include taxes). That is a completely different story.

Your neighbour is responsible in nuisance for the cost of removal of his tree from your house. It’s a matter of strict liability. There’s no need to prove negligence.

The simple presence of his tree constitutes a continuing nuisance and he is under a legal obligation to remove it. Fault is irrelevant. Ownership is all that matters.

You will have to demonstrate that you provided reasonable notice to your neighbour to remove the tree. You may then remove it yourself and claim the costs in Small Claims Court. Or, you could even bring an application in Superior Court seeking an Order requiring your neighbour to remove the tree. This is a much more costly approach.

In either case, your neighbour’s insurer will be responsible for the claim without the imposition of a deductible. So, when you are speaking with an insurer it’s always better to discuss compensation than religion.

Brian Madigan LL.B., Realtor is an author and commentator on real estate matters, Royal LePage Innovators Realty
905-796-8888
www.OntarioRealEstateSource.com

By Brian Madigan LL.B.

(ORES)

There was indeed an economic turndown in 2008/2009 in real estate in the Greater Toronto Area.

One real estate broker found a rather interesting and novel approach to lower income and steady expenses. He just stole the money. David Seto was the broker of record for a brokerage which he owned. He employed about 125 agents.

The trick was actually rather simple. It was not a sophisticated plan. If money came into his brokerage, he took it, whether it be deposits on real estate transactions or commissions due to his agents.

Just in case, you happen to think that he might have run a little short of cash, let’s look at the rules. Under the Real Estate and Business Brokers Act, Seto was to maintain three separate accounts:

1) a trust account for deposits,

2) a trust account for commissions, and

3) a general account to pay his bills.

So, when a deposit came in, he put it in his general account because he was short of cash. And, when money came in for commissions he put it in his general account because he was short of cash.

On 22 February 2010, Seto pleaded guilty to eight counts of breach of trust during the period July 2007 to April 2008. Actually, did I just say “July 2007”. Hey, there’s something wrong here! That market in the Spring of 2007 was very hot, and the money flows in June and July. So, he should have been flush with cash, unless, of course he just wanted to take people’s money.

Seto’s plea for leniency was based upon:

• The economic downturn
• He re-invested the money in the business
• He didn’t run off to a foreign country with the money
• He had emotional stress since his wife had cancer
• He had emotional stress because he had to place a mortgage on his house
• He was sorry

Seto stole about $500,000 which includes about $135,000 in consumer deposits.

All consumers are entitled to their deposits out of the consumer deposit insurance fund. They have already received their money. The agents are entitled to their commissions out of a similar insurance program, however, many of those claims are still outstanding. It’s easy to prove that Seto stole the money, now that he has made the admission in court, but proving the insurance claim is more difficult.

The Court decided:

• David Seto should be committed to jail for one year, and

• Seto’s company should pay a $200,000 fine

It is important for real estate agents, brokers and sales representatives to deal with a reputable real estate broker. Just remember, this mess has been going on for three years.

Brian Madigan LL.B., Real Estate Broker, is an author and commentator on real estate, finances and the law related to real estate
www.OntarioRealEstateSource.com

By Brian Madigan LL.B.

The interest rate environment in North America has been low. The US Federal Reserve has maintained the discount rate at 0.50% since June 2006.

Now, the rate has now increased to 0.75%. This comes in response to the improvement in financial market conditions. The new rate will take effect 19 February 2010. While only a limited number of transactions are based on the discount rate, it is still very symbolic.

The Bank of Canada has agreed to maintain its rate at 0.25% until 30 June 2010. The US interest rate was double and now it is triple the Bank of Canada rate.

Essentially, that means that there is further pressure to increase rates on the 1st of July. Other countries have already increased their interest rates.

In the short term, this should prompt consumers to lock into longer term preferred rates or purchase properties. In the longer term, this should stabilize the market and remove any “bubble effect” in the GTA real estate market.

Brian Madigan LL.B., Real Estate Broker, is an author and commentator on real estate, finances and the law related to real estate
www.OntarioRealEstateSource.com

By Brian Madigan LL.B.

The latin expression “sine die” means “some uncertain date in the future”.

In terms of legal proceedings the phrase often appears in Court Orders. Frequently, a matter is not ready to proceed before the Judge, but it does appear on the docket, so it must be dealt with in some way. Perhaps it is to be adjourned for a few hours or until tomorrow or to a fixed date in the future. That disposition which is specific will be noted.

However, sometimes the date is unclear. So, the Judge will put the matter over. The case is adjourned “sine die”, that is, to some date in the future. The Court will also order that the matter may be brought back on (onto the court docket) upon 2 days notice by either party (assuming that to be the decision).

In fact, in many cases, that is the end of it. The parties go away and settle the case, and the official court record forever simply indicates that the action was “adjourned sine die”.

This is also a phrase that comes into play in corporate parlance. If an entire Board of Directors resigns or is scheduled to be replaced by another Board elected at a shareholders’ meeting, they will adjourn “sine die”, meaning, of course, that they have absolutely no idea when the new Board will hold the next meeting.

Brian Madigan LL.B., Real Estate Broker, is an author and commentator on real estate, finances and the law related to real estate
www.OntarioRealEstateSource.com

By Brian Madigan LL.B.

Here is the “ORES REAL ESTATE INDEX” which tracks the average resale prices of single family homes and condominiums in the Greater Toronto Area (GTA). It also tracks certain benchmark comparisons such as the price of oil and gold, as well as the Consumer Price Index.

In addition, the stock market indices for Toronto, and the three largest US markets are also compared.

For ease of comparison, everything we look at is worth 100 points on the Index as of 1 January 2005. That time period compares favourably with the five year average used as a standard benchmark comparison in the mutual fund industry.

As of 31 January 2010, here is the Index representing average prices [the last three months] and (the highs):

Real Estate

126.59……[127.48/129.50/131.08] (131.08) GTA single family homes
130.77……[126.87/125.03/126.68] (126.68) All condos in GTA
142.83……[131.14/123.40/132.27] (132.27) Downtown Central Condos
122.82……[135.95/122.12/120.85] (135.95) East condos
118.94……[116.47/121.57/120.72] (130.60) North condos
131.68……[123.00/134.64/129.69] (134.64) West condos

Other market comparisons

252.13……[254.24/274.87/243.13] (274.87) gold (price per ounce)
165.72……[180.60/175.59/175.25] (320.88) oil (price per barrel)
126.59…….[127.44/129.50/131.08] (131.08) ORES Index single family homes
120.54……[127.62/124.37/118.54] (158.90) TSX index
109.02……[109.40/108.83/108.92] (109.40) CPI index
104.12……[110.02/103.99/99.16] (130.99) NASDAQ index
95.97……..[99.41/98.62/92.59] (132.47) Dow Jones index
90.91……..[94.40/92.75/ 87.72] (131.16) S&P Index

Using the Index

Just a quick note on reading the information. Have a look at the ORES Index for Real Estate (single family homes). As of the end of January, the index stood at 126.59. That’s a 26.59% increase in 61 months. That means the increase is 0.436% monthly, or it could also be expressed as 5.23% annually. The performance here is shown without annual compounding for the sake of simplicity.

The same index was 127.48 at the end of December, 129.50 at the end of November and 131.08 at the end of October. The next number, in square brackets is the all-time high since 1 January 2005. That number is 131.08, which was the October figure and is in fact the all time high.

You might recall that as part of real estate’s calendar cycle, there are frequently two peaks annually, one in May and the other in October. So, this was quite normal and very predictable.

The other statistics are reported in a similar fashion for the ease of comparison.

Observations (on the Index)

As we use index, there are several notable comments:

• Commodity prices are just commodity prices

• There is no other “extra return” for commodities

• The same is true for the CPI

• The CPI is a benchmark to see whether you are keeping pace with inflation, that number is 109.02 (It has been modest and appears under control)

• For a realistic performance goal, you should aim for CPI plus 3.5% annually

• Stocks provide dividends in cash or extra stock. This return is additional to that shown in the stock market indices

• The stock market Indexes only measure the survivors. So, this year both GM and Chrysler would have been dropped due to the bankruptcies

• If you held GM and Chrysler, you lost everything, but two new companies moved in to replace them in the Indexes

• Real estate offers a return in terms of occupancy. You can rent out the property and receive income, or occupy the property and enjoy it yourself

• Actually, I should have mentioned that if you held gold bullion, you could sit in a room, count it, and enjoy that experience too. I’m not quite sure how to measure that. You’ll have to ask King Midas or Goldfinger!

Comparative Observations Using the New Index

• Gold was the best performer over the five year period, however it is now off its recent highs and that could mean that investors believe the recession is over

• Oil was the most volatile, (yes it dropped in half over our measurement period)

• Real estate was the most stable, with solid predictable returns at about 5.23% annually

• Downtown condos did extremely well this month. They are substantially off their earlier highs achieved just before the commencement of this Index

• Our own stock market posted reasonable gains, and now slightly trails single family homes over the last five years, however, don’t forget that the TSX is still well off its highs

• Two of the three US stock market indicators show negative numbers, with the NASDAQ now in positive territory

Conclusion

For steady, predictable, measured gains pick real estate. It’s a solid performer with lower risk (less volatility) and generally moving in a positive direction.

And remember, when it comes to real estate, it’s never “wiped out” completely, like GM or Chrysler stock. So, unless you’re sitting on the edge of a tsunami, you’ll still own something when the storm is over.

For a benchmark of success, there’s 1,000 years of history to point to a rate of return in real estate being about the equivalent of 5% per annum, simple interest (non-compounded). That means that real estate doubles in value every 20 years. There are a lot of companies (now bankrupt, including CanWest Global, and many US Banks) that would have been happy with that return.

Brian Madigan LL.B., Real Estate Broker, is an author and commentator on markets, finances and the law related to real estate
www.OntarioRealEstateSource.com

By Brian Madigan LL.B.

There is a simple latin expression “ad hoc” and it means “for this specific purpose”.

When the expression is used in a legal context, it is usually made with reference to a committee, a project or an undertaking.

Commonly, an association, agency, organization or corporation will need a specific project completed. In that regard, if there is no formal arrangement in place, then an “ad hoc” committee might be struck.

Typically, such a committee, will have:

• Limited terms of reference

• Be of short duration

• Have the powers either to complete the project or make a recommendation

• Be dissolved upon completion of its task

An Ad Hoc Committee of the Board of Directors might be struck for the purpose of finding a new President. There would be no general committee of the Board, or standing committee for that matter which would have been charged with this responsibility. This committee would undertake the recruitment, and make a recommendation to the Board. Once the Board has appointed the new President, this ad hoc committee will have fulfilled its legal responsibilities and will be dissolved.

There are other contexts within which the expression is sometimes used. Someone aggrieved by a decision might complain that it was “just an ad hoc committee”, decision, arrangement, or recommendation, intending to convey the impression that it was poorly undertaken, or not taken seriously. Oftentimes, this observation is correct, and the result is frequently of poor quality, and can be subject to criticism.

In that context, the expression has a pejorative connotation. However, that’s “slang” and does not arise if one examines the derivation of the term, which is neither negative nor positive. It is a neutral expression, just intending to convey the meaning that there was a “particular purpose”.

Brian Madigan LL.B., Realtor is an author and commentator on real estate matters, Royal LePage Innovators Realty
905-796-8888
www.OntarioRealEstateSource.com

By Brian Madigan LL.B.

A colleague, Barry Bridges of Weichert Realtors Bridges & Co. serving the Roanoke valley from offices at Smith Mountain Lake and Salem Virginia posed the following question:

“I was very surprised by the answer given by Brian Madigan. I am not versed on Canadian courts so that may be the difference. I can not imagine a US attorney advising that dual agency is ever a good idea as there are alternatives that accomplish the same goal for the client.

With that said Brian has a very well thought out argument.”

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Here is my reply, and for those unfamiliar with the original article, it is reproduced below.

Barry

Thanks for your comments.

First, the law generally in Canada is no different here than it is in many of the States. Besides, the law of agency derived from the marketplace in Persia over 5,000 years ago, long before the beginnings of common law. The intention was to prevent the agent from cheating the principal. Today, the laws in common law jurisdictions and others are very much the same.

To be perfectly frank, I’m quite surprised by my own answer. I wrote and published articles against dual agency several years ago. However, at that time, it was based on theory not experience.

But, as time went by several real life situations developed. I found myself on both sides of the same transaction. No wanted to leave. Both the vendor and the purchaser demanded that I remain involved.

So, after a short stint of me sitting on the sidelines with a good philosophical argument, and with both the vendor and the purchaser now represented by their own agents, I received a phone call. To cut to the chase, both parties met with me over lunch and effectively demanded that I do the deal. The instructions from both, in the presence of each were quite simple: “come up with something that is fair, and we’ll sign it.”

I agreed. There was a condition. I was not the legal agent for either. They would both have a free walk away, if their respective lawyers did not approve the deal. I wrote a long letter to each of their lawyers explaining my role and the very real conflict of interest that it presented. Both parties agreed, and so did their lawyers.

I have acted as an Arbitrator and as a Mediator in many legal cases. Both parties have their own counsel, and agree that I am to come up with a solution. This particular “dual agency” role is really just like non-binding arbitration or a mediated settlement.

Effectively, the vendor’s agent wants “A”. At the opposite end, the purchaser’s agent wants “C”. However, what they really know is that they are going to have to meet somewhere in the middle if they truly want a deal. So, I come up with “B”. I say “B” is fair to both sides. They agree, and sign. Now, they have a two day cooling off period, to take it to their lawyers.

You also wondered about the mediator and negotiator comment. In fact, I agree with you if you aren’t a good negotiator, you won’t be a good mediator either.I suppose, I just don’t come across that many good negotiators. They are relatively few and far between. Yet, in many cases they all seem to think of themselves as “wonderful”. They advertise this “fact”, and then, when the occasion presents itself they bail, become messengers back and forth and ask for double the commission. Now, that’s just plain wrong!

I have a number of transactions where I have effectively worked on both sides of a deal. Just think of union and management negotiations. Sometimes I act for a union, in other cases I act for management, and now quite frequently I am approached by both sides to mediate a dispute. Here, I don’t think there is that much difference compared with dual agency. It’s much the same. Maintain confidences for both sides, don’t reveal the other’s bottom line and come up with a solution. Get both parties to agree.

There are however several interesting problems:

•1) real estate agents are not trained as mediators, and

•2) real estate agents are not trained as arbitrators.

So, if they are not trained and have no experience, the simplest solution to stay out of trouble is “just don’t do it”. Brian Madigan

On the issue of whether dual agency should be permitted at all for real estate agents throughout North America, reproduced below are the original comments:

In Ontario dual agency is permitted with proper disclosure and consent.
Initially, I was opposed to it completely. The reason is that I practised law for 25 years. Then, several dual agency situations (called multiple representation here) occurred, and I found that it worked out. It was difficult, but it worked.
Properly speaking the role of a mediator, arbitrator, or facilitator is quite different from that of a messenger. Besides, I haven’t run into that many great negotiators out there.

There are certainly some problems with dual agency, the most critical of which is the inherent unresolvable conflict of interest. But, even if it cannot be resolved, perhaps a suitable accommodation can be arranged.

Not every agent is a good negotiator, so the mediator role may work to the advantage of some clients. Frequently, both parties want a deal, particularly in a business situation. They want the deal done and here is where an effective mediator will outshine a negotiator any day. The parties are close but often too stubborn to give in, so the deal gets lost. With a good mediator these deals stay alive and get closed. Everyone is happy!

There are two extreme camps when it comes to dual agency:

• Those opposed, in all circumstances
• Those in favour, without serious reservations

Opposed

To those always opposed, I would argue that there are many examples of successful dual agency outcomes. If there weren’t, I wouldn’t be writing this. The best philosophical argument is offered by those who are strongly opposed. They seem to have a better, moral and ethical foundation for their arguments.

The only problem that I have with that view is the simple, practical list of exceptions….a whole series of cases where BOTH clients were better served by having one agent, in fact, the same agent acting for both of them. The test question is client results and client satisfaction; and not the issue of whether the agent was only motivated because there was more money in the deal. I don’t really know that for sure. What I do know, is that BOTH clients were very pleased and happy with the result. There was obviously some merit in the dual agency arrangement. The agent acted as a mediator and got the deal done. The clients wanted RESULTS, not more and more negotiations.

In favour

It’s easy to take on this group. There are many reasons why dual agency won’t work. Often there is a substantial conflict of interest and this will not go away. Again, just the same as the firmly opposed group, the arguments of this group are just self-serving.

RESOLUTION

Somewhere between the two extreme positions is a middle ground, and this is where I think the issue of dual agency should find resolution.

The consumer must be informed. The concept must be explained. And, as most legislation will require, the written informed consent of both parties should be documented.

In practice, it is the explanation that usually falls short of the mark. This is the area which must be fully explained. Both clients should understand and appreciate what they might be losing and what they might be gaining by adopting the dual agency environment.

Unfortunately, if the realtor wants to represent both parties they will often explain it in such a way that the client feels that it is quite a reasonable alternative. Actually, it can be explained appropriately, and the client may very well give the agent a chance to prove that they are an excellent mediator.

All too often, the client is misinformed on several key points because the agent fears the truth behind the explanation.

So, who is the agent? Right now, it is the brokerage. I would prefer the sales representative to be the agent. That would eliminate all the dual agency issues in the offices of a large, dominant, local brokerage. To some extent, these are technical dual agencies. But, the result is the same and the clients are asked to give up some rights. This doesn’t make any sense. The principal-agent relationship should be between the client and the selected sales representative. The firm really has nothing to do with it. This approach would eliminate over 90% of the dual agency situations.

That leaves us with the same agent for both parties. There are two options here:

• Consent and go with dual agency

• Designated agency, and go with an appointed agent

Both of these alternatives represent reasonable options for consideration.

If the same agent acts for the seller and buyer, then the mediator route could work. Naturally, mediation will have to be within the skill set of the agent, and both parties must agree.

However, I do have a problem with two buyers both individually being represented by the same agent. Here we have a multiple offer situation. I think the only reasonable approach is to have one of the two buyers assisted by an agent designated specifically for the purpose of acting for them. This is much too dangerous a situation for the realtor. Simply from a liability perspective, I think the agent should avoid acting for both buyers in competition with one another.

In conclusion, dual agency is a fact of life. There is no firm answer: it is always right or it is always wrong. That is too simplistic!

Each such situation should be considered on its own merits. There should be a bias against dual agency. This acknowledges that there are problems and these problems require resolution.

If a suitable and acceptable accommodation can be made, then it would be appropriate to proceed, with caution. Brian Madigan

Brian Madigan LL.B., Realtor is an author and commentator on real estate matters, Royal LePage Innovators Realty
905-796-8888
www.OntarioRealEstateSource.com

By Brian Madigan LL.B.

So which way is the market headed this year? That’s the question that everyone asks!

Here’s the answer from the Toronto Real Estate Board(February 3, 2010):

“Sales Start Off Strong in 2010″

That was the headline and this is the report:

Greater Toronto REALTORS® reported 4,986 transactions through the Multiple Listing Service (MLS®) in January 2010. This result represented a large increase over the 2,670 sales in January 2009 when the home sales were in a recessionary trough.

Expect strong annual growth rates for existing home sales and average price through the first quarter as we continue to make comparisons to the weak market conditions at the beginning of 2009,” said Jason Mercer, TREB’s Senior Manager of Market Analysis. The rate of sales and price growth will be lower in the second half of 2010.

COMMENT

So, which way is the market headed? You just read the story and I bet that you would say “up”. However, what if I told you that the average prices over the last three months were:

October………..$423,559
November …….$418,460
December .……$411,931

Then, you would have to say that this is the fourth down month in a row. Statistics can be interesting. And, particularly, the ones you don’t want to mention!

Brian Madigan LL.B., Realtor is an author and commentator on real estate matters, Royal LePage Innovators Realty
905-796-8888
www.OntarioRealEstateSource.com

By Brian Madigan LL.B.

This case seems rather straightforward. The owner of a property situate in the Grand River Conservation area lists his property for sale. The agent, Ralph Murphy fails to ascertain the zoning and the development restrictions that apply to the property.

Murphy is approached by a purchaser who wants to build on the site. There is ertainly a nice view of the Grand River. It’s close, in fact, too close “for development” according to the Grand River Conservation Authority.

The listing agreement was somewhat on the faulty side. It said that the present use was “single family dwelling”. Both the vendor and the purchaser knew that the property was vacant. So, you would have thought that the Murphy would have known this too!

Murphy acts for the purchaser and prepares an Offer, but never has the purchaser sign a representation agreement or an acknowledgement that he obtained a copy of the offer.

AGREED STATEMENT OF FACTS

1. John Murphy is a Member of RECO and at all relevant times was registered as a broker trading on behalf of the broker Brokerage ABC Realty.

2. On July 7, 2003, Murphy listed for sale vacant rural property.

3. The Property is approximately 5.8 acres in area. The municipal zoning designations applicable to the Property include in part the designation General Agricultural – A1.

That designation covers a triangular area in a corner of the south-eastern portion of the Property with dimensions of 125 feet more or less by 250 feet more or less.

The majority of the Property is covered by the zoning designation Open Space Conservation – OS2.

4. The Property lies entirely within the floodplain of the Grand River. It is subject to the jurisdiction of the Grand River Conservation Authority which prohibits new development on the Property.

5. At the time he listed the Property, Murphy checked with the Township about the zoning on the Property. Murphy was aware the Property was subject to the jurisdiction of the Conservation Authority.

6. Murphy did not disclose either the zoning designations nor the jurisdiction of the Conservation Authority on the MLS Listing.

On the MLS Listing, Murphy described the property as:

“A Unique Parcel With The Grand River Running Thru. On A Dead End Road Offering Privacy. From City B go West On Road A To Road B Turn Right (North) To Road C, Then Turn Right (East) To Sign on Left (North) Side of Road”.

7. On October 15, 2003, the Robert Jones made an agreement to buy the Property for $25,000.00, with a completion date of January 30, 2004. That transaction was completed.

8. Murphy represented the Jones as well as the sellers with respect to the Agreement of Purchase and Sale and the related transaction. The Agreement of Purchase and Sale includes the following:

“The parties to the transaction acknowledge that the Listing Broker represents the interests of the Seller and Buyer, and there has been, and is, dual agency. The Seller and the Buyer have previously acknowledged and consented to such dual agency”.

Notwithstanding this, Murphy did not enter into a buyer representation agreement with the buyer at the earliest practical opportunity and before an offer to purchase was prepared and submitted.

9. Murphy failed to personally verify, discover and disclose whether new development on the property would be permitted, in circumstances where the Buyer’s intentions were known, the Conservation Authority’s jurisdiction was known, and this information could practically have been obtained.

10. The Agreement of Purchase and Sale inaccurately disclosed the Property’s present use as “Single Family Residence”.

Notwithstanding this, all parties to the Agreement of Purchase and Sale understood that the Property was vacant land.

11. Murphy did not have Jones execute the Acknowledgement section on the Agreement of Purchase and Sale indicating receipt of an executed copy of that Agreement.

12. On February 9, 2004, Jones received from the Municipality documents indicating that the Conservation Authority had previously refused an application to build on the Property because the Property was entirely within the Grand River floodplain.

13. The Conservation Authority later independently confirmed to Jones new development would not be permitted on the Property.

14. Murphy acted unprofessionally, including:

A. By failing to personally verify, discover and disclose whether new development on the property would be permitted, in circumstances where Jones’ intentions were known, the Conservation Authority’s jurisdiction was known, and this information could practically have been obtained.

B. By not disclosing the applicable zoning designations on the MLS Listing. Furthermore, by failing to refer to the issue of the jurisdiction of the Conservation Authority in any way on the MLS Listing.

C. By making or authorizing an Agreement of Purchase and Sale that was inaccurate in representing the present use of the property as Single Family Residence.

D. By not having Jones execute the Acknowledgement section on the Agreement of Purchase and Sale indicating receipt of an executed copy of that Agreement.

Murphy is responsible under the following Rules of RECO Code of Ethics:

Rule 1 – Ethical Behaviour – A member shall:

1) endeavour to protect and promote the best interests of the Member’s client.
4) render services, including giving advice and opinion, based upon the Member’s knowledge, training, qualifications and expertise.

Rule 2 – Primary Duty to Client – A member shall endeavour to protect and promote the best interests of the Member’s Client. This primary obligation does not relieve the Member of the responsibility of dealing fairly, honestly and with integrity with others involved in each transaction.

Rule 4 – Written Representation Agreements – A member shall enter into a written Representation Agreement with a Client at the earliest practical opportunity and in all cases before any Offer to Purchase is submitted.

Rule 11 – Discovery of Facts – A member shall discover and verify the pertinent facts relating to the Property and Transaction relevant to the Member’s Client that a reasonably prudent Member would discover in order to fulfill the obligation to avoid error, misrepresentation or concealment of pertinent facts.

Rule 21 – Advertising – A member shall ensure that all advertising and promotion by or on behalf of the Member, including for Properties and services, is not false, misleading or deceptive.

Decision of the Panel

Having reviewed and considered the Agreed Statement of Facts, the Panel concluded that Murphy breached Rules 1(1), 1(4), 2, 4, 11 and 21 of RECO’s Code of Ethics.

The Panel makes the following order:

Administrative Penalty of $7,000.00 payable to RECO within 30 days.

COMMENT:

You might wonder about this case. The property was rather large 5.8 acres in total, but only a sliver was zoned agricultural and the rest was conservation lands. So, where was the house going to be? Exactly, what was Murphy told? He actually went to the municipality, so he must have been told something, and whatever that was, he chose to ignore it. Or, at least he never passed the information on to anyone.

Perhaps, he was simply optimistic about a successful rezoning application and a release of the lands from the no development zone by the conservation authority. But, how likely was that? Obviously, not very likely, since this was just an outright refusal.

Did he really know about the prior application? If not, why not? Had the vendor ever applied?

Posting “single family” on the listing seems rather silly. There was no building on site. This was an open 5.8 acre field. It is this statement which gives rise to the misrepresentation.

Murphy also knew that Jones wanted to build, that was the reason for the purchase, he wasn’t acquiring a property with access to the grand river for hunting and fishing. He wanted to build a house.

The focus then turned to his representation of Jones. He failed to have an agency agreement signed (now a buyer’s representation agreement). The panel perhaps was somewhat “picky” about the acknowledgement signing, but at this point, they are going to identify all the mistakes, even the small ones.

A much more serious view, might have been the “conflict of interest”, with Murphy acting for both sides. Then again, he really makes a mess of the deal for both parties. The only apparent winner at least in the short term would be Murphy who was entitled to a commission.

Let’s consider that matter. The property sold for $25,000 and the commission might have been $1,250 (5%). Even though he was the broker, he probably had at least $500 in expenses, to net $750, and in all likelihood be subject to income tax of $375 (50% of the net). You will notice that the RECO fine is $7,000 or almost 20 times his profit on this deal, not to mention costs, downtime, bad publicity and the loss of clients, together with the risk of exposure to a lawsuit.

Recommendations:

In a similar case to the present:

• Check the zoning with the Municipality
• Get something in writing
• Check the jurisdiction of the Conservation authority
• Get something in writing
• Obtain copies of all relevant maps, zoning by-laws and restrictions
• Advise the vendor
• Obtain copies of any applications that the vendor has made
• If such is not immediately available, obtain authorization to obtain this from the vendor’s solicitor or the municipality or conservation authority, as the case may be
• Be careful about the listing
• This is the spot where you can misrepresent the property (and incur liability)
• Also, watch any advertising
• Caution the buyer
• Consider referring the buyer to another sales representative, due to the potential conflict of interest
• Document the buyer’s relationship and instructions
• Put a condition in the Offer, depending upon the buyer satisfying himself that the property can be developed
• This transfers the risk to the buyer and the buyer’s solicitor

As a rule, I use fictitious names. The actual case is published on RECO’s website and is available to the public. For educational purposes, the names of the parties really don’t have any bearing. If you need to quote the case, you will have to obtain the proper legal citation.

Brian Madigan LL.B., Realtor is an author and commentator on real estate matters, Royal LePage Innovators Realty
905-796-8888
www.OntarioRealEstateSource.com