How Many Copies Part 2

How Many Copies of an Agreement do you Need?

This is part 2:

Practice and Procedure under the Real Estate and Business Brokers Act, 2002

As mentioned earlier, a clear and definite standard procedure has not developed in Ontario. However, it seems to be clear that agents are using fewer than 6 originals of the agreement. Those days are long since gone.

Let’s have a look at the Act and the Regulations and see what it says concerning agreements.

The Code of Ethics states:

Written and legible agreements

27.  (1) A registrant who represents a client in respect of a trade in real estate shall use the registrant’s best effortsto ensure that,

(a) any agreement that deals with the conveyance of an interest in real estate is in writing; and

(b) any written agreement that deals with the conveyance of an interest in real estate is legible.

Consequently, a real estate agent must produce an agreement which is in writing and is legible. However, have a look at that wording. That was kind of “fuzzy”. It said “best efforts”. Remember that an agreement relating to real property which is not in writing is not enforceable (subject to some limited exceptions). So, this certainly doesn’t sound very professional

The next requirement is the document be “legible”. Again however, it is subject to the “best efforts” limitation. Now, I would have thought that both of these matters be absolute, or at least the “in writing” provision. I suppose, one could always sue over an illegible agreement and see if the Judge could read it. If not, that’s a pretty expensive exercise! And, a complete waste of time if the Judge can’t read it.

The Code goes on to deal with copies of the agreement:

Copies of agreements

28. (1)  If a registrant represents a client who enters into a written agreement that deals with the conveyance of an interest in real estate, the registrant shall use the registrant’s best efforts to ensure that all parties to the agreement receive a copy of the agreement at the earliest practicable opportunity.

(2) Subsection (1) applies, with necessary modifications, if a brokerage and a customer have an agreement that provides for the brokerage to provide services to the customer in respect of any agreement that deals with the conveyance of an interest in real estate.

This may be a strange way of dealing with the matter, but real estate agents (registrants) for both clients and customers must ensure that all parties have copies.

You might recall, that there are two levels of service that a registrant may provide:

1)     client services, this is agency and fiduciary obligations apply, and

2)     customer services, this non-agency without fiduciary obligations.

Under the Code, for a registrant there is a statutory duty to ensure that all parties have copies. And, this obligation applies whether or not the registrant has fiduciary obligations.

So, in this case, you can easily see what is happening. From statutory perspective, there are some additional duties imposed upon the registrant. It doesn’t matter what level of service is being provided to their own client or customer. The statutory duty really arises in favour of the other parties, who may not be represented at all in the transaction (or receiving services) from another registrant.

Just exactly what does that mean? It says “copies”. It didn’t specifically say “originals”. Again, the “best efforts” limitation comes in. That’s certainly “loose practice”. Why not, just say “do it”. A time limit suggests that it should be done “at the earliest practicable opportunity”. Let’s take that requirement on good faith but what about the “best efforts” business? I suppose if you are not representing someone, nor providing services and they have not provided you with a means of communication, then this could be impossible. But, that matter is covered by general laws, we don’t need the “best efforts” fudge factor here.

The term “copy of the agreement” is an undefined expression under the Code. To the extent that there are some alternatives, we have experienced the evolution of a variety of practices. Yet, everyone is working off the same “songbook” here.

We better have a look at the common law duties for agents:

·        Disclosure

·        Obedience

·        Competence

·        Confidentiality

·        Accounting

·        Loyalty

1) Disclosure. The agent is under an obligation to keep the principal informed and to disclose any material and relevant matters to the principal.

2) Obedience. The agent is subservient to the interests of the principal. The agent is to follow the reasonable and lawful directions of the principal, carrying out the principal’s instructions. The agent is to act in the principal’s best interests and not his own.

3) Competence. The agent is under an obligation to be competent in his profession, and to inform the principal that there are matters beyond the agent’s expertise.

4) Confidentiality. The agent is to maintain the privacy of the principal and matters that are of a private nature are to remain in confidence. Information provided to an agent is received in a fiduciary capacity and is not to be disclosed without authorization by the principal.

5) Accounting. The agent is to account for monies received and disbursed. Payments of any kind or nature, direct or indirect are all for the benefit of the principal. Funds are received as a fiduciary, and are to be disclosed and remitted in full to the principal. The agent is the intermediary between the principal and third parties. The agent is not a third party contractor but rather the person who brings the principal and third parties into a contractual relationship.

6) Loyalty. An agent is to offer loyalty to the principal. Once engaged in a fiduciary capacity, the agent must place the interests of the principal above his own, must not entertain the interest of others, including himself above that of his principal.

Each of these duties are separate and distinct obligations and vary somewhat in their application and interpretation depending on the nature of the agent’s profession and the actual agency agreement.

Common agency arrangements today include attorneys, trustees, solicitors, barristers, doctors, accountants, financial agents and real estate agents.

All those in an agency relationship are subject to the common law. These are important matters and should not be discounted.

Statutory obligations are in addition to the fundamental common law duties. Professionals in the real estate industry would be well-advised to adhere to those principles in addition to their statutory requirements.

Now, what does that mean when it comes to an agent’s own client? An agent would be hard pressed to fail to deliver a real or proper copy of the agreement to their own client. Look at the duties of disclosure, obedience, competence, and accounting. How does one come up with a less than proper copy?

So, what’s a proper copy for a client?

In my opinion, it is:

1)     the genuine original,

2)     the duplicate original,

3)     executed copies, and

4)     signed copies.

Since, the agent is the “agent” of the principal, then the very best copy that the agent has in his possession should be delivered to his principal. The common law calls for that. The real estate agent is not a contracting party, but rather is a legal agent for a contracting party. That means the client gets the “best copy”.

In order to meet the duty of competence, whatever copy is the best copy better meet the standard of the best evidence rule and not run the risk of exclusion. If that were the case, then we have an agent who has fallen short when it comes to competence. A principal needs to have documents in his possession which can be introduced properly into evidence in any litigation arising as a result of the contract.

I appreciate that a principal, properly informed, could consent to the agent holding onto the best copy that they have between them.

The next question that arises in the circumstances is the very peculiar obligations owed to those who are customers. For these people, there are no common law duties. Are they simply to be placed in the same category as everyone else under the Act? Perhaps! Let’s come back to “customers”.

The next group are the other parties to the agreement. They are strangers to the registrant. There are no fiduciary duties, or statutory service duties under the Code. So, what kind of copies should they get? The best document goes to the registrant’s principal. I suppose the next question is “what’s left”.

Meeting or exceeding the obligation would be the same documents mentioned above for the client (principal) if there were additional copies.

But, at the very least, the requirement under the Code, would be to provide a “true copy”. Remember that a photocopy is a true copy. That obligation would seem to be met, if the true copy were provided.

What about customers? Should they be elevated to the client level, or dropped down to the statutory stranger level? There are no cases discussing this point. Consequently, it is likely arguable that a registrant may provide a true copy to a customer and still be in compliance with his statutory obligations under the Code. It’s the common law which bumps up the duties for the agent representing a client.

There is one other section under the General Regulation, 567/05 which deals with this issue of copies of agreements:

Copies of Agreements

Copies of agreements

13.  (1) If a broker or salesperson represents a client who enters intoa written agreement that deals with the conveyance of an interest in real estate, the broker or salesperson shall use his or her best efforts to deliver a copy of the agreement at the earliest practicable opportunity to the brokerage that employs the broker or salesperson.

(2)  Subsection (1) applies, with necessary modifications, to a broker or salesperson who has a customer, if the customer and the brokerage that employs the broker or salesperson have an agreement that provides for the brokerage to provide services to the customer in respect of any agreement that deals with the conveyance of an interest in real estate.

This simply means that the sales representative should submit a copy of the agreement to the brokerage. The reason this provision is included is because the brokerage is not a party. Again, you will notice the best efforts’ limitation.

Parties

As we look through the various issues here, we have to determine who is a party and who is not a party. A vendor and if there is more than one vendor, then all vendors are parties. A purchaser, and if there is more than one purchaser, then all purchasers are parties.

A spouse executing a spousal consent under the agreement is a party. The spouse is not conveying an interest in land, but they are agreeing to release their rights, and give up possession of the property on the day of closing. They have executed the agreement under seal, and that makes the agreement enforceable as against them.

What kind of copy should they have? They don’t need an original, a “true copy” should be sufficient. Since they are not represented, there is no need for them to have the “best copy” that the agent has in his possession.

The next question is the registrant, who is personally present, the brokerage which is the agent in law for the parties, and the client’s lawyer who may or may not be identified in the document.

None of these individuals, notwithstanding their interest, and their subsequent duties that may arise following the agreement are “parties”. That means they don’t get copies as “parties”

I’m not saying that they shouldn’t have a copy at all, it’s just when the originals etc. are in short supply, they are not on the list. And, they don’t come in as parties under s. 28 of the Code.

Acceptable Alternatives (with informed consent)

Even though there are common law and statutory obligations, it is possible for a Principal to issue alternate instructions. A principal could say to his agent: “you keep my original document”. In some case, this is preferable because the Principal is moving, does not have a proper office or lacks the ability to maintain the document is safe custody.

In such situations, the principal may say my real estate brokerage (my agent), or my lawyer (also my agent) should hold the original document. Nevertheless, the principal must know, understand and appreciate that they have the right to the original.