Topics of interest to AEOs

True or false: brokerage requirements are the same for commercial and residential real estate brokerage.

Technically, the answer is FALSE, but these rules are the same 99% of the time.

The reality of commercial and residential transactions in the field is different, as are the experience and needs of the clients. It is therefore a legitimate question for an agency executive officer or a broker working in these fields of practice to wonder if they can carry out their activities the same way for both.

In the great majority of cases, brokerage requirements are the same for brokers working in residential and commercial real estate, including the rules of ethics and the keeping of records and registers, which are identical.

However, residential brokerage is more regulated and more closely supervised: for example, the Real Estate Brokerage Act contains a specific chapter on contracts pertaining to certain residential immovables (immovables containing less than 5 dwellings and co-ownership properties), and has published mandatory brokerage contract and promise to purchase forms for residential brokerage.

Let us look at what is different between residential and commercial practices and what is the same:

However, the broker has an obligation to always recommend to the owner of the immovable to provide his declarations on the “commercial” immovable (it can concernthe sale of an immovable containing five or more dwellings, a commercial or industrial immovable, an enterprise [see section 7 below], or of a vacant lot).

In addition, in all cases, the broker must obtain minimum declarations from the seller of the immovable. If the broker uses the form Exclusive brokerage contract – Sale – Immovable (BCG), section 8.4 of the form will allow him to fulfill this obligation, either because the DS form will have been completed or because the seller will complete the minimum declarations listed under this clause. In the case of a vacant lot, the declarations 1 to 10 of clause 8.4 must be completed to the best of the seller’s knowledge.

If the broker uses the form Brokerage contract – Sale (exclusive or non-exclusive), he should also use the DS form as these have been designed to be used together. Otherwise, the minimum statements will be missing and the broker will have to reproduce them in the brokerage contract, on the detailed description sheet and in the promises to purchase, leading to a risk of error and a waste of time. Rather than use the forms improperly, it is recommended to use the BCG form.

If the broker uses the form Brokerage contract – Divided co-ownership, he should then use the form Declarations by the seller of the immovable – Divided co-ownership (DSD). Otherwise, the minimum statements will be missing.

Information verification

It is a very bad practice to take up a brokerage contract without obtaining the necessary information or verifying the information provided, on the assumption that all the information will be available for “due diligence” anyway. You could be held professionally liable, and this could have adverse consequences on the transaction and affect the value added by the broker in the transaction.

The role of the broker is to verify, in accordance with generally accepted practice, the information he provides to the public or to other licence holders.

• He must always be able to demonstrate the accuracy of this information.
• He must support the information provided by obtaining documents as soon as the brokerage contract is signed, including information on income and expenses, leases, and renovation or repair invoices.
• These documents must always be kept in the file.

By doing so, the broker will also avoid unpleasant surprises and a potential sizeable drop in the selling price or having the transaction abort following “due diligence”.

Collaboration and confidentiality agreements

Whether in residential or commercial residential estate, in order to carry out a transaction in the client’s best interest, a broker has a duty to collaborate with another broker upon request. All relevant information must be given to a potential collaborator without delay.

In commercial real estate, it is sometimes necessary to take certain precautions before collaborating with the other parties’ brokers, in the client’s interest:

A seller may, with good reason, refuse to disclose financial information regarding his income property or business for fear that the information will fall into the hands of a competitor. In such cases, a confidentiality agreement will have to be used. The signing of this document by a prospective buyer will reassure the seller regarding the potential use of the information given. Signing such an agreement before any information is given does not go against a broker’s ethical obligations. Obviously, such an agreement should be used under special circumstances required by the seller but should not be used systematically.

Information on remuneration sharing

• Whether in commercial or residential brokerage, brokers must collaborate with every other licence holder who so requests, on reasonable terms agreed on beforehand.
• In residential real estate, the mandatory brokerage contract form specifies the remuneration sharing terms for the broker collaborating in the transaction. In commercial real estate, this does not have to be specified in the brokerage contract, but the broker must still inform his client of these terms in writing, along with the consequences of the terms proposed. To inform the client adequately, the use of the following wording:

“The AGENCY or the BROKER shall collaborate with any other agency or broker who so requests, including by sharing its remuneration, according to the following conditions, in order to ensure the successful completion of the transaction referred to in this contract.

In this regard, shared remuneration terms that are unreasonable towards other agencies or brokers could reduce their interest in proposing the IMMOVABLE or enterprise to their clients.

Consequently, in the event where an agency or broker collaborates in the transaction, the AGENCY or the BROKER undertakes to pay, from the sum due to him under this contract: a sum of:           percent (%) of the sale price; or a sum of:_____ dollars ($)."

• When the broker lists a property for sale or lease on Centris^®, he indicates on the detailed description sheet the remuneration sharing terms offered to the broker collaborating in the transaction. This shows in principle that the brokers collaborated together according to mutually agreed terms.
• When the immovable is not listed with a multiple listing service, which is sometimes the case in commercial brokerage, brokers must agree on the remuneration sharing terms beforehand using other means, as this collaboration practice still applies to them.
• Under the Regulation respecting brokerage requirements, professional conduct of brokers and advertising, the broker has the following obligations:

• Disclose without delay and in writing to the party represented the terms of any shared remuneration offered to the other licence holders collaborating in the transaction as well as the consequences the proposed terms entail. (section 38)
• Collaborate with every other licence holder who so requests, on reasonable terms agreed on beforehand. (section 95)
• The broker must not share remuneration in a manner that could compromise the closing of a transaction. (section 95)

Broker who buys, sells or acts as lender

The following rule of ethic applies to all brokers and agencies.

• Regardless of the type of licence or field of practice, a broker who buys, exchanges or sells an immovable or an enterprise or who acts as mortgage lender must disclose his status to the other party. The agency executive officer must do it on behalf of the agency.8
• He must disclose his status whether or not he is in the course of his functions (whether he is acting as intermediary in the transaction or only as a party).
• Two notice of disclosure forms are available on the OACIQ website to fulfil this obligation (“Inspection Forms” section on synbad.com):
  • Notice of disclosure - Purchase – Sale - Exchange
  • Notice of disclosure – Licence holder proposing to act as mortgage lender

Remuneration agreement with the other party to the transaction

When the broker represents the buyer or lessee but enters into a remuneration agreement with the selling owner or lessor:

• In commercial real estate, the practice is for certain owners or lessors to remunerate the broker who brings a buyer or a lessee.
• In this context, the broker may enter into a remuneration agreement with the owner of the immovable prior to and separately from the promise to purchase or lease.

For example, a broker representing a buyer or a lessee should sign a remuneration agreement in advance (and not at the same time) with the owner before presenting a promise to purchase or lease.

In this context, the remuneration agreement does not constitute a brokerage contract since the broker is not representing the owner or lessor, but rather the buyer or lessee. The broker must continue to promote the interests of the buyer or lessee. This remuneration agreement must be disclosed to the buyer or lessee.

Because the broker is not a party to the transaction proposal, the agency’s or the broker’s remuneration must not appear: there is a risk that the remuneration will be negotiated by the broker with the owner or the lessor and that this will cause the proposal to fail. A broker who negotiates his remuneration at the same time as the purchase or lease could find himself in a situation where there is the appearance of conflict of interest.

If a broker represents the owner of the immovable under an exclusive brokerage contract, the broker representing the buyer or lessee must not take any action that is incompatible with this contract and must first ask the broker to agree on the remuneration sharing terms.

However, the best practice remains for the broker to sign a brokerage contract with the buyer or lessee he represents.

• In residential real estate, this practice is not possible when a brokerage contract (purchase, sale or lease) must be used (with a natural person). The broker cannot enter into a remuneration agreement with a party to the transaction. He must sign a brokerage contract and can only do so with the party he represents.
• If the broker signs a brokerage contract with the buyer or lessee, he could base it on the following clause and include a clause as follows:

“The AGENCY or the BROKER undertakes to collect any remuneration due by another agency or broker. The amount of remuneration thus collected by the AGENCY or the BROKER shall be deducted from the remuneration provided for in this contract.

Likewise, if the AGENCY or the BROKER collects remuneration under another brokerage contract to which it is a party, the portion offered as share to another agency or another broker shall be deducted from the remuneration provided for in this contract.”

• As long as there is a clear distinction between your enterprise-selling activities not covered by the Real Estate Brokerage Act and your real estate brokerage activities, you are not required to keep registers concerning these sales made through the agency;
• The public must not be confused by your advertising or your representations concerning, notably, the person with whom they are doing business, this person’s skills or whether or not they hold a real estate broker’s or agency’s licence. You must avoid having consumers expect to be protected under the Real Estate Brokerage Act as if the transaction were done through a licence holder where that is not the case.
• The broker or agency must check with the FARCIQ to see if the insurance coverage applies.
• As soon as an immovable is included in a transaction, regardless of its value, it is recommended that the transaction be carried out by the licence holder, in which case registers must be kept, due among other things to potential fluctuations in the value of the property.