It’s Not Risk-Free

Making third-party referrals is a practical reality for many REALTORS®. During any given transaction, REALTORS® may refer their clients to mortgage brokers, lawyers, home inspectors, engineers, appraisers, accountants, and other professionals. While seemingly innocuous, making third-party referrals can attract both legal liability and regulatory action. Hence, when making referrals to third-party service providers, REALTORS® should ensure that they are done with requisite care and skill.

Key Considerations

Making third-party referrals is an important tool for REALTORS® to ensure that their clients obtain the advice that they need, and to ensure that they do not rely on the REALTOR® for advice that is outside of their expertise. Indeed, Rule 30(d) of the Real Estate Services Rules¹ require REALTORS® to advise their clients to obtain independent professional advice on matters that are outside of their expertise. In doing so, REALTORS® should also be mindful of their duty to act in the best interest of their clients (Rule 30(a)), their duty to act honestly (Rule 33), and their duty to act with reasonable care and skill (Rule 34).

Guidance from the British Columbia Financial Services Authority (BCFSA)

REALTORS® should be familiar with BCFSA’s Referrals Guidelines and should follow this guidance when making referrals to third-party service providers. Similarly, the “DOs and DON’Ts of Referring Property Inspectors” from the April 2014 Report from Council Newsletter is also instructive. Such guidance from your regulator suggests that REALTORS® should:

1. Provide their clients with a list of at least three service providers and allow their clients to select their preferred service provider independently;
2. Ensure that the service providers that they refer their clients to are appropriately qualified and licensed if required; and
3. Avoid conflicts of interest by disclosing any connection they have with a third-party service provider that may be perceived as a conflict, including any remuneration they receive or expect to receive.

There are currently several ongoing regulatory investigations / proceedings where licensees are alleged to have committed professional misconduct / conduct unbecoming in circumstances where referrals were made to “professionals” who were not appropriately registered or licensed². This suggests that a modicum of care is required when REALTORS® make third-party referrals.

Legal Liability: a Cautionary Tale from the Supreme Court of Canada

While there is a dearth of Canadian jurisprudence considering when a real estate licensee can be found liable for negligence in referring a client to another professional, the relatively recent Supreme Court of Canada case of Salomon v. Matte-Thompson, 2019 SCC 14 [Salomon] is instructive.

Mr. Salomon was a Quebec lawyer who recommended two of his clients, Ms. Matte-Thompson and a company that she owned (the “Clients”), to his financial advisor (Mr. Papadopoulos). Mr. Papadopoulos was a personal friend of Mr. Salomon, and Mr. Salomon had a personal financial interest in the same investments that he recommended to the Clients. With Mr. Salomon’s encouragement, the Clients invested over $7.5 million with Mr. Papadopoulos. Ultimately, Mr. Papadopoulos turned out to be a fraudster, and the Clients lost a significant amount of money that they had invested. The Clients then sued Mr. Salomon and his law firm for professional negligence. In this regard, the Supreme Court of Canada made some important statements about a lawyer’s obligations to their clients when making referrals:

• A high threshold for establishing liability applies to cases where a lawyer has merely referred a client.

• “Although lawyers, as mandataries, do not guarantee the services rendered by professionals or advisors to whom they refer their clients, they must nevertheless act competently, prudently, and diligently in making such referrals, which must be based on reasonable knowledge of the professionals or advisors in question.”

• Lawyers who refer clients to other professionals or advisors “…must be convinced that the professionals or advisors to whom they refer clients are sufficiently competent to fulfill the contemplated mandates.”

Mr. Salomon was found to be negligent, in part, for failing to perform the required due diligence before recommending and endorsing a specific financial advisor and financial products with that advisor. Mr. Salomon also received monetary gifts / commissions from Mr. Papadopoulos which, along with his personal and financial relationship with the financial advisor, gave rise to a conflict of interest.

Ultimately, Mr. Salomon and his law firm were ordered to compensate Ms. Matte-Thompson and her company for their losses. While Salomon was a case about a lawyer’s third-party referral to a financial advisor, similar principles would likely apply to real estate licensees in BC making referrals to other professionals.

Practice Points

The above suggests that REALTORS® should exercise care when selecting the professionals to whom they refer their clients, take steps to maintain the independence of the third-party service provider and avoid conflicts of interest (whether real or perceived). Here are some practice points for REALTORS® looking to make a referral:

1. Consider whether you are in a position to make a referral at all and whether your clients are better served by directing them to a referral service, such as the Lawyer Referral Service, or a professional directory, such as the “Find a Notary” function on the BC Notaries Association’s website.  
2. If you elect to make specific referrals, provide your clients with a list of (at least three) competent service providers for them to choose from. Advise your clients to select the professional / advisor independently and avoid endorsing or selecting any service provider for your clients.
3. Always exercise care in selecting the professionals / advisors who are on your list of third-party referrals. REALTORS® should confirm that those whom they refer are licensed / registered to provide the required advice or complete the work required³. REALTORS® should also be reasonably satisfied that the professionals or advisors they refer are sufficiently competent to perform / provide the required work / advice.
4. Maintain the independence of the referred professional / advisor, and do not deal with the referred professional / advisor on your client’s behalf unless specifically instructed to do so. If you have a personal relationship or any connection with a referred professional that could be perceived as a conflict, be sure to disclose it to your clients beforehand so that they can make an informed decision as to how to proceed.
5. Avoid conflicts of interest, whether real or perceived. Do not retain or pay for the cost of the services of the third-party service provider on behalf of your clients and avoid accepting any remuneration or gifts from the professionals / advisors that you refer your clients to. If you do receive or anticipate receiving any remuneration, however, be sure that it is disclosed in accordance with Rule 56 of the Real Estate Services Rules.
6. Do not make any promises or guarantees about what the referred professional / advisor can achieve. Similarly, do not undermine, endorse, or otherwise provide advice in the area that falls within the referred professional’s expertise.

Conclusion

Recent regulatory investigations / proceedings, as well as the findings in Salomon should serve as a reminder for REALTORS® to exercise caution and due diligence when providing third-party referrals. After all, you are providing more than just a name. For more information about making third-party referrals, please also check Oana Hyatt’s Legally Speaking article, “Third-Party Recommendations and REALTOR® Liability #504”.

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	1.	Real Estate Services Rules, B.C. Reg. 260/2023
	2.	See, for example, BCFSA’s Amended Notice of Discipline Hearing, File #19-063, where a licensee is alleged to have committed professional misconduct, in part, for referring clients to an unregistered mortgage broker: https://www.bcfsa.ca/media/3272/download
	3.	REALTORS® should search available databases to ensure that your referrals are appropriately licensed/registered. For example, the Law Society of B.C. maintains a directory of practicing lawyers in B.C.: https://www.lawsociety.bc.ca/lsbc/apps/lkup/directory/mbr-search.cfm, and the Society of Notaries Public of BC maintains a similar directory: https://snpbc.ca.thentiacloud.net/webs/snpbc/register/#/. The BCFSA has an online database of registered mortgage brokers and sub-mortgage brokers: https://www.bcfsa.ca/public-resources/mortgage-brokers/find-mortgage-broker, and Consumer Protection BC maintains a database of licensed Home Inspectors: https://www.consumerprotectionbc.ca/explore-our-enforcement-actions/

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