Originally featured on REW.ca.

You studied for your licensing exam and learned all the relevant laws that could affect your practice as a real estate agent. It can be all too easy to take for granted the obligations and liabilities involved in being an agent. Below we’ve listed three commonly overlooked obligations, each with a BC court case. Read on and learn what not to do.

Listing Agreement Obligations

It’s important that your listing agreement is clear and unambiguous about the listing period and commission structure. It might sound like common sense, but before you, the real estate agent, can claim any commission owed, there might be a listing agreement that outlines how much commission is payable and any discounts that apply. There might be situations where you cut a deal with a client on the commission – the final agreement has to match with what you agreed on with the client. Make sure that the agreement is signed by the client, or in the case of a company, by someone who authorized.

A Cancelled Listing Agreement

In 2014, the Supreme Court of British Columbia dealt with the issue of unpaid commission in Crest Realty Westside Ltd. v W & W Parker Enterprises Ltd. The defendant, Parker Enterprises Ltd., was singularly owned by Ms. P, who was a director alongside her son, Mr. C. Parker Enterprises entered a multiple listing agreement for a commercial property that was signed by Mr. C, who was authorized since he’s a director.

They cancelled the multiple listing agreement but were still contractually obligated to pay the commission if the property sold within 60 days of cancelling the listing. Lo and behold, the property sold within the 60 days, but Ms. P refused to pay. She argued that Mr. C had not been authorized to enter the agreement, but since he was a director, he was authorized to enter agreements that would bind the company. Emails presented at trial showed that despite playing dumb in her testimony, she was aware of her obligations to pay commission within 60 days of cancellation and that Mr. C’s signature was binding on her and the company.

The moral of the story is to make sure in property transactions that the person signing is authorized to enter a binding agreement on behalf of the company. 

GST Pitfalls

It can be easy to make a mistake when it comes to GST as it is a tax on the buyer. When real property is sold, tax is payable on the earlier date of the day that ownership is transferred or the day that possession of the property is transferred (See: 168(5)(b) of the Excise Tax Act). When in doubt, the Canada Revenue Agency provides helpful info on its website.

GST: Payable on the Deposit

GST is actually payable on the entire assignment amount. A deposit alone is not taxable consideration. However, once that deposit has been applied to the full amount of consideration for the property, it is subject to GST as part of the whole amount (See: 168(9) of the Excise Tax Act).

For example, if a purchaser puts down a $20,000 deposit on a $200,000 property, they will not owe GST at that time. Once that purchaser contributes the remaining $180,000 to be combined with the $20,000 deposit, the deposit becomes part of the consideration for the purchase and is therefore taxable under GST.

Make sure the client knows that they are paying GST on the full amount and not the full amount less the deposit!

Partial GST Payments

For partial payments by way of sale of a property, GST is owed for the full amount on the day that it would normally be payable. Even if the purchaser enters into an agreement that allows for multiple partial payments over a fixed period of time, GST on the entire amount is payable on the earlier date of either: 1. the day that ownership is transferred or 2. the day that possession of the property is transferred (See: 168(5) of the Excise Tax Act).

GST Assignments

Section 5.18 of the Assignment Agreement governs GST payable. If there is also a developer’s assignment agreement to be signed, agents should make sure that the GST section of the developer’s agreement aligns with the assignment agreement without contradiction. The sections on both agreements should clearly state what the parties agreed upon regarding who pays GST. 

Assignments with a Non-Resident Assignor

Depending on who you are representing, as an agent you must ensure that the appropriate party remits GST to the Canada Revenue Agency, as the CRA most likely will chase the buyer for the tax if the seller is a non-resident.

A GST Case Study

In Deep Six Developments Inc. v Latif Kassam and Karima Kassam, the BC Supreme Court dealt with the issue of who was liable for the GST owed on the sale of a property. Mr. Kassam purchased an empty plot of land in Richmond from Deep Six in 1993. The agreement between Deep Six and the Kassams did not mention GST at all. Deep Six, after consulting a lawyer, didn’t think GST was owed on the property, and neither did Mr. Kassam.

Deep Six was later audited by the CRA who flagged the subdivision purchase. Deep Six first tried and failed to object to the GST assessment, then demanded that Mr. Kassam pay the outstanding GST. Mr. Kassam refused, arguing that he would have negotiated differently had he known there was around $25,000 in GST owed on the purchase. Deep Six ended up paying the total amount to the CRA and took Mr. Kassam to court to recover.

The court found that the rules outlined in the Excise Tax Act are clear: the party selling taxable property is responsible indicating to the purchaser the amount of tax and then collecting the tax. The seller can only sue for unpaid GST if they met their obligation to indicate the amount of tax in the proper manner.

Deep Six did not indicate to Mr. Kassam how much GST was owed or even that GST was owed. More than two years had passed since the sale of the property before Deep Six asked Mr. Kassam to pay the GST. As a result, Deep Six had no option but to pay the GST out of their own pocket.

Real Estate Agent’s Duty of Care 

Listing Agent and the Buyer

A claim against a listing agent by a buyer involves establishing that the agent owed a duty of care and establishing that agent was negligent in exercising that duty. 

A listing agent has a duty to disclose all material facts known to them that could affect a reasonable purchaser’s willingness to enter into a contract of purchase and sale. The listing agent’s duty is normally satisfied by making inquiries of the seller and of other sources available to them. The agent isn’t obligated to inspect the actual property or independently verify what they’ve been told unless they have a valid reason to doubt what they’ve been told. 

Damages for negligence claims typically amount to the actual damage suffered as a result of the actions. For example, damages for negligence might be the difference in the property’s value had the defect been disclosed.

How Duty of Care Can Affect You

In 2007, the BC Provincial Court dealt with a case in which a purchaser sued the seller, the selling agent, and their own agent. The purchaser discovered after buying the home that it had draining issues in the crawl space and that the home had been allowed to significantly deteriorate since the last viewing. The purchaser alleged that neither issue was disclosed by the seller or the seller’s agent and that their own agent discouraged them from getting the property inspected.

The buyers, at their agent’s recommendation, removed the inspection clause from the contract and made the purchase contingent on the Property Disclosure Statement. Unfortunately, as the court would find at trial, the seller’s statements on the Property Disclosure Statement were false. 

In the end, the court found that the buyer’s agent was not liable because he met his duty to the buyer by instructing them to seek legal advice before closing the deal. However, the seller and the seller’s agent were found negligent and liable for damages in the amount of the difference in value of the property had the defects been properly disclosed.

Moral of the story: “An agent has an obligation to discover facts pertaining to every property for which the agent accepts an agency which a reasonably prudent agent would discover in order to fulfill the obligation to avoid error, misrepresentation or concealment of facts”.

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