Know Your Seller #513
Seller's agents must be certain that they are dealing with the person with authority to list and sell the property. Confirming the identity and the authority of your clients may seem simple. However, in the global society today with complex deals, complicated ownerships of property and challenging deals, the pitfalls may be expanding.
Examples of situations that may result in claims or complaints against licensees include:
- a person acting on behalf of the seller does not have a proper power of attorney to execute documents for the absent seller;
- a licensee who has been authorized in writing to sign on behalf of the seller does not execute the contract properly (i.e. signs in the name of the seller rather than in the licensee's own name, as agent for the seller);
- a licensee fails to do a title search and is not dealing with the seller on title;
- a licensee acts for a company without ensuring that she has proper authority from the corporate directors; or
- a licensee takes instructions from an unauthorized representative of the seller such as a friend, family member or business partner without the knowledge or requisite written authority of the seller.
Predictably, these scenarios can lead to situations where the seller refuses to close and is sued by the buyer for failing to complete. In a rising market, the buyer seeks damages for any difference in value of the property, costs and expenses thrown away, specific performance and/or related damages, interests and legal costs. The licensee may be named as a party to the lawsuit with allegations of negligence for failing to ensure the contract was being signed by the proper party or for misrepresenting that they had the authority of the seller to list the property and to accept an offer of purchase and sale for a property.
In a recent decision1 of the British Columbia Supreme Court, a licensee faced this type of allegation when he was not aware that he was receiving instructions from someone other than the person on title. Although the Court found a binding contract at the end of the day and the claims against the licensee were dismissed, the stresses and expenses of a trial that lasted more than 50 days would have been extensive. The best ways to avoid such a kerfuffle include the following:
- When listing a property, always conduct a full title search. Know who your client is!
- On any listing involving a corporation, be certain to have a company search done and ask for the articles of incorporation and proof of who the officers and directors are with authority to authorize a transaction, perhaps with a Director's Resolution.
- Where the seller may be absent physically or have health issues and wishes to give a power of attorney to another person, recommend your client get legal advice to ensure the form of power of attorney being used is valid and acceptable for filing with the Land Titles office and that it has not expired and/or been revoked.
- Consider using DocuSign or other software for secure electronic signatures with proper written consents in place for absent parties to a deal, rather than signing for them.
- If asked to sign for a party, be sure that the request is in writing, is genuine, and that the licensee signs for the seller in the licensee's own name, as agent for the seller.
- Never witness a signature that you did not actually witness.
- Don't be lulled into believing that a family member has authority to make decisions for the person on title. Make sure you are getting instructions from the owner of the property and if it is someone else, that they have been granted the proper authority from the seller to sign on their behalf.
Licensees are expected to draft legally enforceable contracts and the starting point should always be to ensure that you know who owns the property and that you are dealing with the person with proper authority. An ounce of prevention is worth a pound of cure.
Legally Speaking is published monthly. Real estate boards, real estate associations and REALTORS® may reprint this content, provided that credit is given to BCREA by including the following statement: "Copyright British Columbia Real Estate Association. Reprinted with permission." BCREA makes no guarantees as to the accuracy or completeness of this information or the currency of legal information.
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