A Guide to Avoiding Litigation and Enforcing Rights for Real Estate Agents Posted onDecember 9, 2024December 11, 2024 Paria Rad Notable Real Estate Law Decisions of 2024 Zhang v. Primont Homes (Caledon) Inc., 2024 ONCA 622 (CanLII) Superior Court of Justice Decision Facts In February of 2017, the plaintiff Jun Dai signed an agreement of purchase and sale (“APS”) for a house (the “Property”) to be built by developer, Primont Homes (Caledon) Inc. in a new subdivision.[1] Mr. Dai intended to purchase the Property as an investment. Prior to the purchase, one of the defendants and real estate agent, Yu Si, represented by way of words and actions to Mr. Dai that the Property was located at or near the intersection of Mayfield Road and Kennedy Road in Brampton. Two months later, the other plaintiff Yu Zhang joined Mr. Dai in the investment, and together they made payments totalling $120,000 as a deposit for the Property that was sold for $1,232,500. The Property was set to close in March of 2019. In May of 2018, the plaintiffs drove by the intersection of Mayfield Road and Kennedy Road and to their surprise, there was no construction underway at that intersection. Afterwards, they discovered the Property that they agreed to in the APS was not located at the site as represented by the appellants, but rather three kilometres north, in Caledon. It turned out that Ms. Si relied on the information incorrectly provided by her brokerage to advise her clients. The Plaintiffs’ Position The plaintiffs held the position that they should not be required to close on the Property because the location was misrepresented, and therefore their deposit of $120,000 should be returned to them. The plaintiffs also sought damages in the amount of, $600,000 which would have been the profit out of the subject Property that is now worth $1.8 million. The Defendants’ Position There was no misrepresentation. Rather, the plaintiffs did not purchase the Property due to new legislation that imposed a tax requirement on foreign buyers. Findings of the Trial Judge There was no dispute that an agreement existed between the parties. The trial judge found that the real estate agent and brokerage negligently misrepresented the location of a proposed development, which the buyers relied on and entered into an APS for a Property within the development. Ms. Si not only told the plaintiffs that the Property would be located in the Mayfield/Kennedy area, but she also physically accompanied them to that area and provided them with a document with an “X” marked in the vicinity of Mayfield/Kennedy to represent the location of the development. With respect to the defendant’s argument that the plaintiffs did not purchase the property due to the new legislation that imposed a tax on foreign buyers, this legislation did not change the fact that Ms. Si still misrepresented the Property’s location. The trial judge also ordered damages and costs from the defendants. The damages were in the amount of $120,000 (the down payment) in addition to pre-judgment interest as prescribed under the Courts of Justice Act. The trial judge did not award the $600,000 for lost profits, holding that the plaintiffs had the opportunity to close and hold onto the property rather than opt out of the contract. Ontario Court of Appeal The defendants appealed to the Ontario Court of Appeal (“ONCA”), arguing that the trial judge erred in finding that they negligently misrepresented the property’s location and that the respondents were entitled to recover damages from them for this misrepresentation.[2] ONCA disagreed with the appellants and upheld the trial judge’s findings. Key takeaways: Real estate agents can be sued and held liable for negligently misrepresenting the location of a proposed development or property. Negligent misrepresentation can be done by way of telling the clients the misinformation or showing them by way of a visit, diagrams, figures or documents. Ms. Si should have verified the information from her brokerage and done her own due diligence before advising her clients. Smith v. Real Estate Council of Ontario, 2024 ONSC 3965 (CanLII) Facts In this case, real estate agent Darrah Smith (“Ms. Smith”) was found by the Discipline Panel of the Real Estate Council of Ontario (RECO) to have breached her professional Code of Ethics by including an inaccurate number for the property taxes and local improvement charge in a property listing.[3] Ms. Smith was unsuccessful in her appeal to RECO’s Appeal Panel, therefore she sought a judicial review of the appeal decision. In her application, a part of Ms. Smith’s grounds for judicial review included a claim that the Discipline Panel’s decision that the Agent breached the Code of Ethics by including inaccurate tax information was unreasonable considering Ms. Smith’s efforts to verify the property taxes and local improvement charge on the property. The application for judicial review was ultimately denied at the Superior Court of Justice, which found that both Discipline Panel and Appeal Panel decisions were reasonable. The Code of Ethics under the former Real Estate and Business Brokers Act (“REBBA”) provided that realtors must do the below: “treat every person the registrant deals with in the course of a trade in real estate fairly, honestly and with integrity”; “promote and protect the best interests” of their clients; “provide conscientious service” and “demonstrate reasonable skill, judgment and competence”; and Finally, realtors must use their “best efforts to prevent error, misrepresentation, fraud or any unethical practice.”[4] Analysis The court noted that the Discipline Panel made five important findings: “Realtors should only use a reliable source such a tax bill as the basis for statements made in listings about the taxes.” “Realtors should not use their own calculations as the basis for determining the taxes.” “Realtors should not put unverified information about taxes and local improvement charges in listings.” “If a realtor cannot confirm the tax figures, they should make it clear in the public information that the numbers presented are an estimate.” “Disclaimers in the ‘Broker Notes’, which are not visible to the public, are not sufficient to relieve the selling agent from the obligation to confirm the figures in the listing.”[5] The Discipline Panel acknowledged that realtors may not always have access to or the ability to obtain municipal property tax bills due to municipalities often only releasing the local improvement charge information to property owners.[6] Regardless, this is no excuse for providing inaccurate information in a listing. Ms. Smith explained that she never obtained the tax bill from the owners. Instead, she used two databases and her own calculations to arrive to an estimate that was put on the listing. Ms. Smith further explained that she overestimated the property taxes so that “any error would favour the purchaser.”[7] In the court’s analysis, Justice Davies explained that purchasers and mortgage brokers rely on the information in listings to secure financing and as such, it is crucial that the tax information be accurate.[8] Held: Ms. Smith ought to have put accurate tax and local improvement charge information in the listing.[9] In the alternative, she had to clearly communicate to the public and other agents and brokers that the information was not verified and that it was merely an estimate. Without a clear disclaimer, real estate agents could run the risk of misleading those who rely on the information and be held liable for violating the Code of Ethics. Ms. Smith was ordered to pay $4,000 (inclusive of HST and disbursements) to RECO.[10] Key Takeaways: Real estate agents are held strictly to the requirements of the Code of Ethics. Here is the updated version under the new Trust in Real Estate Services Act (“TRESA”). Do not cut corners and do your due diligence. Never use your own calculations as a basis for calculating taxes and other figures; spend the extra time to seek out and rely on the correct sources, documents and experts. Be honest. In any advertisements where there is an estimate, you must direct the readers’ attention to a disclaimer that those figures are mere estimates and are subject to and/or likely to change. Sun v Mani,2024 CanLII 35486 (ON SCSM) Heard at the Oshawa Small Claims Court Facts This was a dispute between buyers and a broker over commission fees.[11] The defendants first retained real-estate broker, Sean Sun, to assist them in buying a new home for their family. The defendants agreed to and signed the “Buyer Representation Agreement” (“BRA”) with Mr. Sun, also known as OREA Form 300. The defendants claimed they were unsatisfied with Mr. Sun and therefore sought a new broker. The new broker with whom the defendants also signed a BRA managed to help them make a successful offer on a home. The initial broker, Mr. Sun, launched a lawsuit against the defendants because he was still owed the 2.5% commission under their BRA, citing breach of contract. Deputy Judge Dennis Ong – “A contract is a contract” Deputy Judge Dennis Ong held that the BRA was a legally enforceable contract and both parties were bound by its terms.[12] The defendants breached the contract by refusing to pay Mr. Sun his commission, therefore Mr. Sun’s claim was granted with costs. There are a host of cases that have reached the courts and especially the Small Claims Court surrounding commission payments.[13] The court in this case explained that there is a public policy interest in ensuring that contracts are upheld. The Modern Age of Commercial Dealings and Claims of Coercion Deputy Judge Dennis Ong went on to explain that Mr. Sun did not coerce the defendants into signing the BRA: “Caselaw in this court regarding onerous and time-pressure situations (i.e. clients being pressured to sign BRA’s while in brokers’ vehicles, etc.) become irrelevant to this analysis and are distinguishable. The Defendants were invited to join a Zoom meeting to sign a document by way of DocuSign. If the Defendants did not wish to sign the Buyer Representation Agreement, they simply could have not clicked their mouse button on the signatory and initial boxes. The Defendants also could have simply exited the Zoom call by closing the window. There was no aspect of physical or implied coercion of any sort. This is perhaps a hallmark of the modern age of commercial dealings and is relevant to this specific contractual formation.”[14] Key Takeaways: Real estate agents and brokers are entitled to enforce their contractual rights.A contract does not simply disappear or become unenforceable due to a party’s decision to walk away and seek services elsewhere.A contract must be effectively terminated for parties to be relieved of their obligations contained therein. In the event of a dispute, there are defences available under contract law depending on the facts of the case. For instance, a party could claim that the contract was never enforceable to begin with for reasons such as fraud. If there is a commission amount owing to you below $35,000, that falls under the jurisdiction of the Small Claims Court, you can initiate an action there. For amounts over $35,000, you can commence an action in the Superior Court of Justice. Graf v. Periyathamby, 2024 ONSC 1062 Facts The plaintiff, Gary Graf, owned and operated a restaurant and hoped to purchase and run a second restaurant.[15] Mr. Graf agreed to purchase a restaurant called “Oscar’s” located in Kitchener. To fund that purchase, Mr. Graf and his wife, Valentina Graf, listed two income properties for sale, one in Waterloo and the other one in Kitchener. The Grafs entered into an APS for both properties. Here are some details of the transactions: Waterloo Property – the purchaser was defendant Easwara Periyathamby. Kitchener Property – the purchaser was defendant Chitra Subramaniam and later amended to be Ramakrishnan Tharmalingam. Waran Nathans was understood by the plaintiffs to be the owner of Oscar’s, as well as a real estate agent. Mr. Nathans was also the broker of record at Via Realty Inc. (“Via Realty”). Mr. Nathans acted as the real estate agent for both the plaintiffs and the defendant purchasers for the two investment properties. The purchasers eventually backed out of the APS and were not able to close the transactions. After some delay, the Grafs were able to sell the income properties, one of which was sold for more than the original APS price and the other one for less.[16] On September 30, 2016, default judgment was granted against Via Realty in the amount of the deposits for each of the investment properties.[17] Mr. Graf was not able to close on the Oscar’s restaurant purchase because of the delay in selling his income properties. Furthermore, it was not until the Grafs sold their income properties and commenced this action that they learned Mr. Nathans was not actually the owner of Oscar’s. It also turned out that all defendants were connected to each other prior to the transactions and that one of the purchasers was the true owner of Oscar’s: “…Mr. Periyathamby and Ms. Subramaniam (and Mr. Tharmalingam) were connected to each other through the defendant Mahesan Subramaniam, that Chitra Subramaniam was the wife of Mahesan Subramaniam, that Mr. Subramaniam was the true owner of Oscar’s, that Mr. Periyathamby and Ms. Subramaniam were trustees or mere representatives or nominees of Mr. Subramaniam on the failed purchases, and that Mr. Nathans and Mr. Subramaniam were in business together at Via Realty.”[18] The Defendants’ Position The true owner of Oscar’s, Mr. Subramaniam, alleged there was a verbal agreement that had two components, as set out below: “The first component was that Mr. Subramaniam would arrange for two buyers for the plaintiffs’ two income properties at the reduced prices … if Mr. Graf agreed to purchase Oscar’s. The second component was that if either of the income property deals did not close for any reason, all parties would sign mutual releases and return the deposits made without deduction of any kind.”[19] The defendants also alleged that the plaintiffs negligently and fraudulently misrepresented the nature of their income properties—they thought the Kitchener Property would be a single-family residence. The defendants also argued that “the price at which the plaintiffs agreed to sell the Kitchener property to Mr. Periyathamby was artificially high and did not properly reflect the market value of the property. Therefore, in the absence of expert evidence of the market value of the property, the plaintiffs have not shown that they have suffered any actual damages.”[20] Held: The court held that there was no verbal agreement to the effect that the plaintiffs would have to return the deposits to the defendants. Furthermore, the plaintiffs did not make a fraudulent or negligent misrepresentation of their income properties. Mr. Nathans, who was acting for both sellers and purchasers and who was at the same time a very close business associate of Mr. Subramaniam, knew of the nature of the properties, including the Kitchener Property.[21] Likewise, Mr. Nathans had personally inspected the Kitchener Property and had copies of the rental agreements to show that the property was a triplex used by more than one family.[22] Additionally, Mr. Nathans was the one who created the listings where he characterized the Kitchener Property as a “Residential-Duplex” and an “investor’s dream property” with further details of the interior. Also, had the purchasers inspected the property as permitted by the APS, it would have been made very clear to them that it was not a single-family residence. Moreover, the parties took the opportunity to amend the APS and agree to a price that reflected the market at that time.[23] “Having freely entered into the contract, and having failed to honour it, the defendants Mr. Periyathamby and Mr. Subramaniam are liable for damages flowing from that failure and assumed the risk that the market would fall between the date of the breach and the date that plaintiffs were able to sell the property to a new buyer… The damages are calculated as the difference between the APS price for the Kitchener property and the price at which it ultimately sold to a new buyer plus any lost transaction costs …The difference in prices in this case is $73,500… the damages on the Waterloo transaction are $76,284.60.”[24] Key Takeaways: Maintain transparency, full disclosure and written agreements.The parties must know who they are dealing with. Who are the sellers? Who are the purchasers? Ensure all agreements and amendments are in writing. Avoid relying on verbal agreements. Be cautious of conducting double-ended deals (multiple representation).Your clients could be subject to serious conflict-of-interest issues, especially where there are prior established business relationships that could disadvantage the other purchaser(s)/seller(s).A representative in the above scenario is no longer able to uphold the client’s best interest, in addition to providing objective and impartial treatment. Brokers and real estate agents could be subject to disciplinary hearings and substantial fines for improper conduct. From RECO: “Multiple representation is not permitted unless each of the clients involved agrees. [Clients] should seek independent professional advice (for example, from [a] real estate lawyer) before proceeding.” If you are a real estate agent or broker and you have questions regarding your rights and obligations, please contact our experienced Real Estate Lawyer and Partner, Paria Rad, at Woitzik Polsinelli LLP at 905-668-4486, ext. 230 or paria@durhamlawyer.ca. This article is intended to inform. Its content does not constitute legal advice and should not be relied upon by readers as such. If you require legal assistance, please see a lawyer. Each case is unique and a lawyer with good training and sound judgment can provide you with advice tailored to your specific situation and needs. This blog was co-authored by Articling Student, Sanaz Sakhapour. [1] Zhang v. Primont Homes Inc., 2023 ONSC 4036 (CanLII). [2] Zhang v. Primont Homes (Caledon) Inc., 2024 ONCA 622 (CanLII). [3] Smith v. Real Estate Council of Ontario, 2024 ONSC 3965 (CanLII). [4] Ibid at para 35. [5] Ibid at para 36. [6] Ibid at para 38. [7] Ibid at para 42. [8] Ibid at para 48. [9] Ibid at para 49. [10] Ibid at para 54. [11] Sun v Mani, 2024 CanLII 35486 (ON SCSM). [12] Ibid at para 4. [13] Ibid at para 26. [14] Ibid at para 32. [15] Graf v. Periyathamby, 2024 ONSC 1062 (CanLII). [16] Ibid at para 2. [17] Ibid at para 3. [18] Ibid at para 6. [19] Ibid at para 74. [20] Ibid at para 87. [21] Ibid at para 72. [22] Ibid at para 71. [23] Ibid at para 88. [24] Ibid at paras 89 and 90. Authors Paria Rad 905-668-4486 (905) 668-9737 paria@durhamlawyer.ca