Protect Your Clients and Reduce Claims Risks During COVID-19 #525

May 01, 2020

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Posted by
Chris Johnston
B.A., LL.B.

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These are unprecedented times with the arrival of COVID-19. We have all heard that many times and it’s true for all industries, including real estate.

Although the market has slowed down, there will still be deals made and deals completed. There will also still be claims made against licensees. For the most part, these claims will look strikingly similar to claims before COVID-19.

While no one has a crystal ball, some claims may increase as a result of social distancing requirements, self-isolation requirements, and the ban on gatherings imposed to slow the spread of COVID-19. Claims may increase surrounding access to properties, problems at completion/possession and tenants.

The court claims against licensees that are most likely to increase as a result of COVID-19 may include:

  • claims relating to the timing and removal of subject conditions and the ability to complete due diligence on a property;
  • claims relating to completion/possession;
  • claims to do with the time to effect a sale, marketing efforts made and the value achieved/paid by a seller/buyer respectively; and
  • claims that licensees went beyond their expertise in providing advice, drafting clauses and negotiating resolutions to disputes on deals.

Subject condition and due diligence claims

Claims relating to the removal of conditions and parties to a deal being unable or unwilling to complete are not new. These claims may, however, increase as a result of the COVID-19 pandemic and its potential to create issues of access and the unavailability of parties and service providers (such as inspectors) owing to illness and self-isolation requirements.

For example, a seller may refuse access to a buyer to complete an inspection. This may be because the seller is ill or has recently travelled and is self-isolating. The seller may have a tenant that does not agree to provide access. One party may accuse the other of breaching the contract. When this type of dispute arises, the terms of the contract come under the microscope. Licensees can protect their clients by ensuring that contracts are clearly and properly drafted.

The seller and buyer should also be told to get legal advice on the dispute.

Completion/possession claims

Claims may arise on completion concerning an inability to provide possession, for reasons such as the sellers being unable to move, the buyers being unable to obtain financing or the tenants being unable or unwilling to move at the time of possession (armed with ministerial orders dictating that they cannot be evicted during the state of emergency). Again, the seller and buyer should be told to get legal advice in respect of the dispute. Assuming the licensee has drafted the contract and proper subject clauses in the normal course, then arguably no good claim at law should arise against the licensee; instead, it will be a contractual dispute between the seller and buyer. 

It is best to have detailed and well-documented conversations in these unique times and set out the advice given to clients and the recommendations made, including when you’ve told clients to get legal advice. For instance, it may prove helpful to advise buyers – in writing – who are contemplating the purchase of a tenanted property of the potential pitfalls of reliance on a vacant possession clause. Even though a seller may have contracted to provide vacant possession, the tenant may not agree to leave. The buyer may have a contractual claim against the seller, but the buyer will have a tenant – and perhaps no property to live in at completion.

Marketing and value claims

In turbulent times such as these, it may be more challenging to advise clients on valuation. Sellers may claim they undersold their property or that it was not properly marketed leading to a lower price. 

History shows that a well-documented file can help you avoid these claims. For example, seller’s agents should properly document their advice on valuation with, say, a comparative market analysis. In addition, setting out the marketing efforts that can and cannot be made in these unusual times may be a sound defense. For example, a listing agreement, amendment or correspondence that sets out what will and will not be done to market during this state of emergency (such as no in-person open houses) may go a long way to managing the seller’s expectations and defusing any claim made.

Beyond your expertise claims

The recent article in E&O’s March Risk Report, Keep up to speed, provides a reminder to licensees to stick to your area of expertise.

There may be a temptation in these challenging times for licensees to dabble in areas beyond the limits of their normal practice area. This is never a good idea and that is especially so when the landscape is changing so quickly. If you’ve never sold a tenanted property before, now is not a good time to start. If you have both a trading and property management license but have never worked as a property manager, be wary of venturing into that territory. 

Licensees should be aware of special issues affecting the properties they are selling or managing. It is no defense to say you were just dipping your toes into a practice area or geographic area that you were not familiar with.

Tips to avoid claims

  • Document: If you are giving advice about the impact of COVID-19 on marketing a property to a seller or buyer and providing them links to health orders or industry information, do it in writing.
  • Tell clients to get legal advice: When faced with legal issues/disputes or the interpretation of rights or obligations under a contract, such as a seller refusing access for an inspection or refusing to move out at completion, recommend in writing that your client gets legal advice.
  • Use virtual solutions: Use virtual solutions for showings, meetings and discussions and use e-signature software for contract and document execution.
  • Education: If you’re thinking of working in a new area or with new types of properties, make sure that you learn about them. Look for a mentor or specialist who will help teach you the ropes. There may also be courses available to help you get started. If business is slower as a result of the COVID-19 situation, now may be a good time to update your education.

Lastly, follow all health orders and the recommendations of your local board, BCREA and the Real Estate Council of BC – they are all there to help and to keep you and your clients safe.

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