On December 1, 2023, big changes are coming to the legislation governing real estate professionals in Ontario. These changes, which will see the renaming of the Real Estate Business and Brokers Act, 2002 (“REBBA”) to the Trust in Real Estate Services Act, 2002 (“TRESA”), will not only change agent-client relationships, but they will also affect the way in which competing offers are handled. This blog will consider the background behind these legislative changes, and will explore how these changes will impact the real estate landscape in Ontario.
Legislative Background on Ontario’s Real Estate Industry
Legislative changes to the real estate industry in Ontario have long been in the works, with the Trust in Real Estate Services Act, 2020, being passed just before the COVID-19 lockdowns in March 2020. The first phase of changes came into force later that year, which saw the introduction of personal real estate corporations for real estate representatives (allowing for better tax planning) as well as the expansion and clarity of terminology that real estate agents may use in their advertising.
The second phase of these legislative changes are now scheduled to come into force on December 1, 2023. These additional changes will arguably have a broader impact on not only the way real estate professionals conduct their business and manage their relationships with users of their services, but they will also affect the way most homes are purchased and sold in Ontario. It is, therefore, not only important for real estate professionals to be mindful of the changes introduced under Phase 2, but it is also important for prospective home buyers and sellers to understand how these changes will impact their real estate transactions.
Additional changes are being considered by the provincial government under a future Phase 3. Duncan Linton LLP will continue to follow and report on these developments as they unfold.
Significant Changes to the Existing Real Estate Business and Brokers Act, 2002
There are various changes coming to the Real Estate Business and Brokers Act, 2002, several of which are highlighted below in more detail.
Buyers and sellers engaging a real estate agent in Ontario are represented under a “brokerage representation” model. In other words, it is the real estate brokerage that is engaged to represent the interests of the client, not the specific representative employed by the brokerage that the client is dealing with. This can complicate situations where different representatives from the same brokerage represent both the buyer and the seller in the same real estate transaction.
Under the current framework, even where there are two representatives involved, the brokerage must obtain the consent of each of the buyer and the seller to act for both parties (called “multiple representation”). Additionally, neither representative may offer any advice to one client that would not be in the interest of the other client, which can include abstaining from providing advice to the buyer or seller on the purchase price. This is a difficult situation for a client who ceases to benefit from the expertise of their representative. It is also a risky situation for real estate professionals who are inclined to be helpful to their clients. With the existence of large brokerages that employ hundreds of professionals, situations triggering multiple representation are not as uncommon as one might think.
Recognizing that multiple representation is fraught with potential danger for both real estate professionals and clients, the changes being introduced by the TRESA include the option for brokerages to adopt the “designated representation” model, which is a model that has already been in place in other provinces for several years. Under designated representation, the representation agreement remains with the brokerage, but the difference is that the representation agreement will identify the specific representative employed by the brokerage as the “designated representative” for the client. The designated representative will be the person designated with the role of protecting the best interests of that client, while the brokerage and all of its other representatives will be obligated to remain objective and impartial. In addition to remaining neutral, the brokerage’s role in a designated representation model will include ensuring that confidential information is protected from access by other representatives of the brokerage who are not the designated representative (unless the client provides written consent or the disclosure is required by law).
The use of a designated representation model is optional, and it is expected that brokerages will adopt either a multiple representation model or a designated representation model going forward. Therefore, it is important for a client to understand which model the brokerage has adopted and ensure they are comfortable with that model before entering into a representation agreement with that brokerage.
Until now, buyers and sellers have had the option of entering into a “client” or a “customer” relationship with a real estate agent. The distinction between clients and customers goes beyond terminology and has been a source of confusion for real estate agents and the users of their services. Under the existing framework, a customer is a person who enters into an agreement with a brokerage whereby the brokerage provides services to that person but does not represent the interests of that person in the real estate transaction. On the other hand, a client is a person who enters into an agreement with a brokerage whereby the brokerage represents the interests of that person in the provision of the services identified in the representation agreement.
While not expressly stated in REBBA, buyers and sellers have always had the option of being self-represented, without the need to enter into a client or customer relationship with a real estate agent. The changes being introduced by TRESA will do away with the confusing customer relationship, leaving buyers and sellers the option of being either a client of a brokerage or self-represented.
It is important for real estate professionals, and anyone entering the real estate market, to understand that self-representation is not a replacement for customer relationships and that there is no equivalent to a customer service agreement under TRESA. Going forward, real estate professionals will only be able to provide services to clients under a representation agreement and will be restricted in providing assistance to self-represented parties. A real estate agent will only be able to provide assistance to a self-represented party if the agent represents the party opposite of the self-represented party in the real estate transaction and the assistance is merely incidental to the services being provided to that agent’s client and for the advancement of the client’s best interests. Real estate professionals providing assistance to self-represented parties must be wary not to provide a level of assistance that could be interpreted as implied representation.
Contents of Competing Offers
In the writer’s opinion, changes to the contents of competing offers is arguably the most significant change coming on December 1, 2023.
Under the current framework, sellers’ representatives are prohibited from disclosing the contents of offers received to prospective buyers and their representatives. A seller’s representative was only permitted to disclose the mere existence and number of offers received. Without knowing the details of competing offers, such as the purchase price, amount of deposit, conditions, closing date, etc., competing buyers have, no doubt, been bidding blindly. In the opinion of the writer, this blind bidding may have had negative consequences for many buyers and sellers. For example, an unsuccessful bidder may have been willing to pay more than the successful bidder, but was too cautious to avoid overbidding, and the seller could have sold the property for a higher price had a seller’s representative been permitted to disclose the contents of competing offers to each prospective buyer making an offer.
The changes under TRESA include removing the prohibition on sharing the details of competing offers. Upon receiving the seller’s written direction, real estate professionals will be allowed to share the contents of competing offers with every prospective buyer. Sellers will have the option of directing whether some or all of the content of offers received will be shared; however, representatives will be prohibited from sharing any information that would identify the prospective buyer making the offer. Under these changes, there will be no obligation for sellers to provide advance notice to buyers of their intention to share the contents of the offer with other prospective buyers making the offers. Buyers entering the real estate market after these changes come into force should be cautioned that a seller will be free to share or not share the details of competing offers at any point in the process.
Contact the Knowledgeable Real Estate Lawyers at Duncan Linton LLP in Waterloo
A real estate transaction is one of the largest financial transactions a person or company will make in their lifetime. At Duncan Linton LLP, our team of experienced real estate lawyers are available to answer your questions about these new legislative changes or any other aspect of your residential or commercial real estate transaction. Contact us online or call us at (519) 886-3340 to speak with one of our real estate lawyers.