Property Law Act, s.6—Seller Must Have Title to Sue; Commission Case—No Breach of Fiduciary Duty #373
CATEGORY: Legally Speaking
TAGS: Disclosure Fiduciary Duties Limited Dual Agency Property Law Act
By Gerry Neely
A couple who agreed to purchase a yet-to-be-constructed condominium from a developer repudiated the agreement after it was built because their complaints could not be resolved. The developer and the real estate agency entitled to a commission sued for forfeiture of the $391,000 deposit.
The developer consisted of a company and trustee doing business under a partnership name. Title to the land was registered in the name of the company as agent and nominee of the partnership. All of this information was stated in the disclosure statement given to the buyers. The agreement between the buyers and the partnership was signed by the company as managing partner.
The buyers did not rely upon a breach of contract defense. Instead, they used s.6 of the Property Law Act, RSBC 1996, c.377, which prevents a seller, whose title is not registered in his or her name by the completion date, from suing on an agreement for sale of the land. The partnership argued that, unlike a limited company, it was not a legal entity. It could not register title in its name, and transferring the partnership asset from the managing partner would be sufficient compliance with s.6.
This argument was rejected in the BC Supreme Court (BCSC), resulting in the return of the deposit to the buyers1, based in part on the case discussed in Legally Speaking 238 .
There, a husband signed an agreement for the sale of a home where title was registered in his and his wife's names. The buyer did not have the funds to complete the purchase, which normally would result in forfeiture of the deposit; however, the husband's action to obtain the deposit failed because of s.6.
The BCSC decision was reversed by the BC Court of Appeal, which decided the partnership's argument was correct. Partners carry on business both as principals and agents of each other, and the execution of the agreement by the company bound the trust to a transfer of land title to the buyers. Therefore, s.6 did not apply and the deposit was forfeited to the developer.2
A way around s.6 for a seller without title, who wants to avoid the Property Transfer Tax and other costs of transferring title to the seller, may be found in one of the cases referred to in the BCSC reasons for judgment. In that case, the buyer, who was relying on the s.6 defense, lost because he had agreed in writing to take title directly from the registered owner.3
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A licensee, whose clients were interested in a FSBO house, asked the owners for their bottom-line asking price. Using that information, his clients made an offer, which the licensee only presented after the owners signed an MLS® contract and a Limited Dual Agency Agreement. After a counter-offer and acceptance, the sale completed but the owners refused to pay the MLS® commission, arguing the licensee breached the fiduciary duties owed to them.
The argument failed because the asking price had been disclosed to the licensee and the buyers before the agency relationship commenced with the execution of the Limited Dual Agency Agreement. The judge accepted the licensee's evidence that he would not have presented the offer before an agency relationship was created, because of the risk that the owners would deal directly with the prospective buyers.4
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