Restrictive Covenants and Multiple Representation

There can be some unexpected responsibilities with multiple representation.

Let’s go through an interesting situation.

Bob Jones is a Listing agent, and he is selling Seller Sam’s property.

Mary Brown is a Buyer’s agent seeking a property for her client, Brenda.

They are both agents working with ABC Brokerage, a very large office with 1,500 agents and 10 branch locations. Bob and Mary have never met.

The Listing

Bob takes the Listing from Sam. He doesn’t ask too many questions. Sam wants to move further out of the city to get a little more elbow room. Sam did not wish to use his previous agent.

The Buyer’s Search

Brenda works downtown Toronto as a doctor and is frequently “on call” meaning that she has to get to the hospital in relatively short order.

This employment arrangement essentially means that she cannot have a cottage, so, next best thing, she wants a house with a pool or at least a large back yard in order to have her own pool.

Multiple Representation

Mary Brown comes across Bob’s listing and concludes this would be quite suitable for Brenda. They visit the house and it appears to be quite suitable. A Confirmation of Cooperation and Representation (CCR) is signed by both parties.

This means that Brenda agrees to submit an Offer on an ABC Brokerage property. And Sam agrees to sell to an ABC Brokerage Buyer. If they don’t agree to that step, then, they cannot proceed. They listen to the explanation and conclude “why not”.

We are now stuck, for better or worse, with the multiple representation rules.

The Property Itself and the Backyard

The backyard is huge. It backs onto a ravine, there’s lots of privacy, lots of room for a pool, a cabana, a deck, a storage shed, a patio and a hot tub. What could be better?

The Problem

There is a restrictive covenant registered on title which prevents pools on this particular lot and a few others. All these lots back onto the ravine. The local Conservation Authority will not agree to pools because of top of bank related issues. This is covered in the bylaw. The set back is 150 ft. Top of bank is not the end of Sam’s property, it’s actually in the middle of Sam’s backyard. If we went to the middle of Sam’s backyard and came back 150 ft. from there, we would be out on Sam’s front step.

So, basically no pools allowed:

  1. A restrictive covenant (notice from the Builder), and
  2. A local city Bylaw, both prevent the pool.

This is great news if you happen to be “wildlife”, but if you are Brenda or Sam, this is not good news.

Sam’s Reasons for Moving

There were a lot of things that motivated Sam to move. The first was that he got a promotion, more income, and he could afford a bigger and better house. Also, he would like a pool, but it came as a surprise to him that he couldn’t install one. He will put one in the new house.

When Does Brenda Find out about the “No Pool” Rule?

This could be interesting. Hopefully, not too late! That would depend upon Mary telling her right away. But, Mary would have to know and ask the right questions.

If Mary puts a clause in the Offer that Brenda wants to put in a pool or it’s a “no go”, Sam won’t sign. He would say simply that “no pools are allowed”.

But, most of the time, there will be no changes. Brenda will have to accept the property as it stands. Yes, there is a restrictive covenant. That would be discovered by her lawyer and hopefully brought to her attention. However, it’s simply too late. Brenda has no rights here. She has to buy this property no matter what. That is provided Sam complied with the restrictive covenant. And, he did, since he didn’t have a pool.

Usually, the deal simply goes through. Mary doesn’t alter the Offer or protect Brenda. Brenda’s lawyer doesn’t warn her about any restrictive covenants or bylaws. The lawyer was not “in the loop” on this issue. A month after closing in the final lawyer’s report there will be a copy of the restrictive covenants.

What Should Have Been Done?

First, ABC Brokerage was in multiple representation. With two individual agents, that meant that BOTH agents were representing BOTH parties.

Bob Jones was representing Sam and Brenda.

Mary Jones was representing Sam and Brenda.

Actually, nothing happened, nothing was said. Everyone simply continued as if there was no multiple representation at all.

The Brokerage should have had some kind of Protocol to protect themselves and their agents.

Mary’s Role

It was Mary’s obligation to alert Bob to the fact that Brenda wanted a pool. She should have told him.

She also should have asked Bob if there was anything that she needed to know. As a follow up, she should have asked whether Bob undertook an investigation and determination of the material facts. There’s an OREA Checklist which covers this. While Bob independently didn’t know anything about the “no pool” issue, this would have been uncovered with the checklist if Bob were doing his job.

Bob’s Role

Now that Bob is also acting for Brenda, Bob should have asked Mary “what is Brenda looking for?” What are her requirements? The answer would have been “a pool”. Bob surely would have had enough sense to ask Sam, but if not, back to the OREA Checklist that he missed, and also, there might be two reasons why a pool cannot be constructed in such a large, beautiful backyard: 1) restrictive covenant, or 2) bylaw, or maybe both.

If Bob and Mary were the same Person

Now, it’s actually rather straightforward and easy. We have one, single agent acting for BOTH sides. They should have all the relevant facts in their head. No need to ask the other person any questions.

Multiple Representation Added Risks

This scenario would not have occurred if Bob and Mary were with two different Brokerages. There would be no additional disclosure requirements.

Brenda would simply sue her own agent, Mary and Mary’s Brokerage, XYZ Brokerage.

Now, Brenda sues Mary, and Bob and ABC Brokerage. There was no exchange of relevant, factual information, and there was no investigation, determination and verification of the material facts.

Brian Madigan LL.B., Broker

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