Disclosure of Interest: Who do You Tell?

This would seemingly be a rather straightforward and simple question.

Let’s look at it carefully. A registered real estate practitioner in Ontario is about to put in an Offer, but, it’s for himself and his wife. He wants it and now he needs to direct his mind to the disclosure requirements.

Question:

If a real estate registrant submits an Offer, and he personally, or someone in his family is the Buyer, does he have to disclose this fact?

Answer: Quick and Most Popular Answer

Yes, everytime there is an Offer, full disclosure must be made to everyone in all circumstances.

Answer #2: Less Popular but Correct Answer

Sometimes “yes” and sometimes “no”. It all depends.

COMMENT

While it is frequently thought in the real estate community that this disclosure must be made to anybody and everybody whenever a registrant or someone in their family wishes to buy or sell a property, this just isn’t true.

Scenario #1

Assume that Robert Zimmerman wants to buy Paul Hewson’s house. Paul has listed it through David at ABC Brokerage.

Robert’s wife Wilma works at XYZ Brokerage and will handle the Offer and the negotiations.

So, the question is: does Wilma Zimmerman have to disclose that her husband is the Buyer and that she doesn’t know any facts which would affect the value of the property?

The answer here is “no”. Why would she? Paul Hewson has his own agent, David who should protect him. David has an obligation to look out for Paul’s best interests and make sure that no one, in the whole world, and that would include Robert and Wilma take advantage of him.

Scenario #2

Let’s change the facts somewhat. This time Wilma works for the same Brokerage as does David, ABC Brokerage.

This time, we need disclosure! We need to make sure that David doesn’t favour his friend Wilma and her husband. Working together with Wilma in the future, David has the potential of making some money from Wilma in future deals. Now, he has a conflict of interest. That, must be disclosed.

Scenario # 3

David’s brother, Roy is also interested in the property. Disclosure is required to be delivered to Paul, since there is a conflict of interest and Paul might think that David could favour his brother in the negotiations.

Scenario # 4

David is approached by a sophisticated investor, Rudy. This individual purchases many houses in the area for investment purposes. Rudy will not sign up with David as a Client because he says he knows what he is doing and he works directly with many agents in the area. However, he will sign up with David as a customer.

Code of Ethics

Disclosure of interest

18. (1) A registrant shall, at the earliest practicable opportunity and before any offer is made in respect of the acquisition or disposition of an interest in real estate, disclose in writing the following matters to every client represented by the registrant in respect of the acquisition or disposition:

1. Any property interest that the registrant has in the real estate.

2. Any property interest that a person related to the registrant has in the real estate, if the registrant knows or ought to know of the interest. O. Reg. 580/05, s. 18 (1).

(2) A brokerage shall, at the earliest practicable opportunity and before any offer is made in respect of the acquisition or disposition of an interest in real estate, disclose in writing the matters referred to in paragraphs 1 and 2 of subsection (1) to every customer with whom the brokerage has entered into an agreement in respect of the acquisition or disposition. O. Reg. 580/05, s. 18 (2).

(3) A broker or salesperson shall, at the earliest practicable opportunity and before any offer is made in respect of the acquisition or disposition of an interest in real estate, disclose in writing the matters referred to in paragraphs 1 and 2 of subsection (1) to every customer of the broker or salesperson with whom the brokerage that employs the broker or salesperson has entered into an agreement in respect of the acquisition or disposition. O. Reg. 580/05, s. 18 (3).

(4) A registrant shall disclose in writing to a client, at the earliest practicable opportunity, any direct or indirect financial benefit that the registrant or a person related to the registrant may receive fromanother person in connection with services provided by the registrant to the client, including any commission or other remuneration that may be received from another person. O. Reg. 580/05, s. 18 (4).

(5) A brokerage that has entered into an agreement with a buyer or seller that requires the buyer or seller to pay the brokerage a commission or other remuneration in respect of a trade in real estate shall not charge or collect any commission or other remuneration under another agreement entered into with another person in respect of the same trade unless,

(a) the brokerage discloses at the earliest practicable opportunity tothe other person, in writing, the terms of the agreement with the buyer or seller that require the payment of a commission or other remuneration; and

(b) the brokerage discloses at the earliest practicable opportunity tothe buyer or seller, in writing, the terms of the agreement with the other person that require the payment of a commission or other remuneration. O. Reg. 580/05, s. 18 (5).

Related

(2) A person is related to another person for the purposes of this Regulation if,

(a) one person is associated with the other person within the meaning of subsection 1 (2) of the Act; or

(b) one person is related to the other person by blood, adoption or conjugal relationship. O. Reg. 580/05, s. 1 (2).

(3) For the purposes of this Regulation,

(a) a person is related to another person by blood if,

(i) one is the child or other descendant of the other, or

(ii) one is the brother or sister of the other;

(b) a person is related to another person by adoption if,

(i) neither is related to the other by blood, and

(ii) one would be related to the other by blood if all adopted children were deemed to be the natural children of their adoptive parents; and

(c) a person is related to another person by conjugal relationship if,

(i) one is married to the other or to a person who is related by blood or adoption to the other, or

(ii) one lives in a conjugal relationship outside marriage with the other or with a person who is related by blood or adoption to the other. O. Reg. 580/05, s. 1 (3).

REBBA, 2002

Acquisition or divestiture by registrant

32. (1) Unless the registrant first delivers to all other parties to the agreement the notice described in subsection (2) and the other parties have acknowledged in writing receipt of the notice, no registrant shall, directly or indirectly,

(a) purchase, lease, exchange or otherwise acquire for himself, herself, or itself, any interest in real estate, or make an offer to do so; or

(b) divest himself, herself, or itself of any interest in real estate, or make an offer to do so.  2004, c. 19, s. 18 (21).

Contents of notice

(2) The notice referred to in subsection (1) shall be in writing and shall include,

(a) a statement that the registrant is a brokerage, broker or salesperson, as the case may be;

(b) full disclosure of all facts within the registrant’s knowledge that affect or will affect the value of the real estate; and

(c) in the case of a transaction described in clause (1) (a), the particulars of any negotiation, offer or agreement by or on behalf of the registrant for the subsequent sale, lease, exchange or other disposition of an interest in the real estate to any other person.  2004, c. 19, s. 18 (21).

“real estate” includes leasehold interests and businesses, whether with or without premises, and fixtures, stock-in-trade and goods connected with the operation of a business;

The rules are somewhat confusing. So, many agents simply say” disclose, disclose, disclose”. But, why not just read the rules and figure it out?

Direct or Indirect: Tell the other side in the deal

Related Party: only disclose if there is a conflict of interest, and that disclosure is restricted to your own clients and your own customers. By the way, the other side doesn’t even care.

Brian Madigan LL.B., Broker

www.OntarioRealEstateSource.com