One Man’s Opinion – A Conversation With The Readers (Part 1) #402

Dec 01, 2006

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By Gerry Neely, B.A. LL.B

I decided earlier this year that it was time to turn over to others the pleasure of writing the Legally Speaking columns. I made this decision reluctantly, because I enjoy everything involved in the research and writing of the columns, as well as the opportunity to be involved with the people in organized real estate. However, I knew it was time to set my “best used before” date when I began to think I was indispensable. So, this column and the next will be my last. The content will focus mainly on the past to respond to the following questions.

What was the biggest legal issue facing the real estate profession in the past?

My vote, in part because it affected every licensee for much of the last half of the 20th century, was the agency relationship of seller, listing agent and selling agent that resulted in the selling agent who found the buyer becoming a subagent of the seller. Buyers and some selling agents were confused as to whether they acted for the buyers or the sellers, with resulting personal and professional liability.

Over time, what licensees considered to be usual negotiations, intended to bring sellers and buyers together, began to be seen by the courts as breaches of a subagent’s duty to disclose all material facts and to maintain the confidentiality owed to a principal.

It also became apparent that the subagent relationship with a seller created risks of breach of duty that wouldn't exist if the licensee had been the buyer’s agent. It wasn’t until 1994 that subagency was replaced by agency disclosure, limited dual agency and buyer agency. While adapting to these changes is a work in progress, the overall transition benefits every licensee.

Describe a success the profession has had during the years you wrote your column.

The protection of licensees earning commissions against sellers or bankrupt agencies has been a major success. When I started practicing law in 1958, the seller received all of the proceeds of sale, including the commission. An agency would have to sue to collect from a reneging, unhappy seller. Then, a commission clause was added to the Interim Agreement, the predecessor to the Contract of Purchase and Sale, which was signed by the seller and buyer. The clause failed because the agency was not a party to the contract. The next step was to put the clause in the listing contract, where it remains today.

The bankruptcy problem took much longer to resolve. The recession of the 1980s resulted in several agency bankruptcies. Licensees who were owed commissions were devastated to find they were only ordinary creditors of the agencies. As such, they shared the pennies on the dollar divided among all ordinary creditors, after secured or preferred creditors were paid.

Acting on BCREA’s behalf at the time, I prepared a draft amendment to the former Real Estate Act to create commission trusts in favour of licensees. Even though there was precedent for it in Manitoba’s real estate legislation, the superintendent of insurance and real estate wasn’t prepared to recommend that a preference be given to one category of commission salesperson over another.

Nothing further happened until 1992 when the BC Supreme Court ruled a commission trust in a multiple listing contract was unenforceable. The chance to challenge this decision came in 1996, when BCREA funded a successful appeal to the BC Court of Appeal that confirmed the enforceability of the commission trust in independent contractor contracts (see column 266). Now, after three decades, the commission trust provisions of the Real Estate Services Act protect licensees’ commissions.

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