Conflicts of Interest: Sound Judgment Required #543
CATEGORY: Legally Speaking
TAGS: Conflict of Interest Dual Agency Limited Dual Agency Real Estate Practice
As Brian Taylor summarized in his February 26, 2021 Legally Speaking article, Learning from an RECBC Discipline Decision #535, the disciplinary landscape for real estate professionals changed dramatically in September 2016.
Most starkly, fines and penalties were greatly increased by the then regulator, the Real Estate Council of BC (RECBC).
But there is no need for panic.
As Brian rightly cautions, very few real estate transactions end up in any type of discipline action. When they do, they are no doubt of great importance to the licensees involved and can provide learning points for licensees across the province.
Often, a disciplinary decision, or a consent order (now handed out by the new regulator the BC Financial Services Authority) offers a look into what the regulator expects of licensees. I theorize, perhaps not that scientifically mind you, that conflicts of interest matter to the regulator, due in no small part because of it being of importance to the public. Furthermore, it appears if a licensee is found to be in a conflict, that may impact the level of sanction imposed.
Three disciplinary decisions of note were released in September 2021. They each had large sanctions and a common thread. Let's explore these decisions.
1. Acting in conflict
First, a licensee had their licence canceled, with no ability to reapply for five years, incurred a disciplinary penalty of $23,250, was ordered to pay enforcement expenses in the sum of $51,563.45, and had various other orders imposed including a requirement to be the subject of enhanced supervision for a period of two years if they became re-licensed[i].
Let's examine the findings of the discipline committee.
The licensee was involved in the sale of a multi-use property in 2016. He listed the property at that time through his brokerage. During the course of the listing, he moved brokerages. He did not report the sale to the relevant brokerage at the time. Effectively, he completed the transaction outside of the brokerage.
He did not inform the sellers of his role as a limited dual agent, nor did he have them sign the related Limited Dual Agency Agreement.
He did not clearly explain his role, the remuneration, or other matters to the sellers particularly where there was a conflict of interest.
He did not recommend the clients get legal advice (see my Legally Speaking article Beyond Your Expertise: When to Recommend Clients Get Legal Advice #531).
The discipline decision held, amongst other things, that the licensee had committed professional misconduct, committed conduct unbecoming of a licensee and brought the real estate industry into disrepute. In doing so the licensee was found to be acting in his own interests and not in the best interests of each of his clients.
The decision and stiff sanction were likely aggravated by the fact that in originally acting for the sellers and then becoming an undisclosed dual agent:
- he prepared a contract of purchase and sale for the property with his wife as the buyer,
- the deal called for a vendor take back mortgage in this unique situation, and
- the licensee and his wife moved into the property prior to completion, without paying rent and while the seller still lived at the property.
The decision provides a clear example of a classic (and avoidable) conflict of interest and conduct unbecoming a licensee.
2. Putting consumers at risk
Second, a recent decision of the discipline committee ordered a disciplinary penalty in the amount of $45,000, enforcement expenses of $50,000, a one-year suspension and further administrative orders and sanctions.[ii]
In short, the sanctions were ordered as the licensee was found in multiple transactions to be acting in a conflict of interest and committed misconduct and conduct unbecoming of a licensee where they:
- approached and convinced owners facing foreclosure to engage in a rent to own program on terms that were disadvantageous for the owners;
- purchased the properties at a price less than the assessed value;
- purchased the properties in the licensee's or his wife's, or her company's name;
- rented the properties back at higher than market rental; and
- had the owners execute an option agreement where default meant the option to repurchase was lost.
All without recommending legal advice in writing.
The decision was clear that the program was not illegal but simply disadvantageous to the owners, many did not receive legal advice, and many believed the licensee was acting on their behalf or were at least confused on representation.
The decision recounted that the regulator's primary mandate is to protect the public and that the type of conduct the licensee engaged in put consumers at risk in a situation where the licensee stood to profit from the program while the owners took on the majority of the risk.
Can you spot the common thread of conflict of interest and conduct unbecoming of a licensee being a magnet for sanctions?
3. Acting for yourself
Third, a decision with sanctions of a one-year suspension, enforcement expenses in the sum of $150,000 and related administrative sanctions[iii]
In this case the disciplinary findings were that the licensee labelled herself as seller's agent despite there being a dual agency agreement, failed to disclose to buyers the full amount of commission, failed to disclose everyone on the team, and, most importantly, amended listing documents for the brokerage without its consent and without providing copies to the brokerage.
The decision held that the licensee had provided services for two different brokerages during the relevant time and had entered into listing agreements for several properties. The decision found that the licensee failed to follow the instructions of sellers to cancel several listings, signed cancellations of listings on behalf of sellers without their consent, and did not explain the impact of such cancellations - including that the property cannot be relisted within 60 days of cancellation.
The licensee was found to have altered listing agreements without the consent or knowledge of the managing broker. Specifically, she was suspected of either using a photocopy of the managing broker signature or the managing broker's signature on a blank amendment form to amend listings
In finding, again, professional misconduct and conduct unbecoming a licensee, the decision touches on the fact that the licensee was switching brokerages during the course of the listings, was in a dispute with the old brokerage and wanted to take the listings with her so she amended listing forms largely to accomplish that purpose.
Again, a situation of conflict of interest that could easily have been avoided.
You can and should review these decisions and come to your own conclusions.
My conclusion is the penalty for simple errors, as evidenced by reviewing discipline decisions and consent orders for the past year, is far exceeded by the penalty and sanctions for matters where a licensee puts themselves in a conflict placing their own interests ahead of their client, the industry, or the public (a looking glass into what the regulator likely values).
Conflicts of interest hurt clients and appear to be a source of higher sanctions from the regulator.
Put simply, clients come first. As a professional your interests are always secondary.
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