When a brokerage is engaged by a client to provide real estate services, certain duties are owed to that client. Section 3-3(1)(a) of the Rules requires the brokerage and its related licensees to “act in the best interests of the client”. Section 3-3(1)(i) requires the brokerage and its related licensees to “take reasonable steps to avoid any conflict of interest”. Where a conflict of interest, which cannot be reasonably avoided, does exist, section 3-3(1)(j) requires the brokerage and its related licensees to “promptly and fully disclose the conflict to the client”.
It is important for brokerages to recognize that the duties that are owed to a client are owed to all clients regardless of the type of real estate services provided. In other words, brokerages providing trading services, rental property management services and strata management services must all comply with section 3-3(1) of the Rules and must take reasonable steps to avoid conflicts of interest.
Conflicts of interest may arise under a variety of circumstances as outlined below.
Whenever a licensee attempts to act for more than one party involved in the same trade in real estate, a conflict arises. Please note the ban on dual agency in section 5-16 of the Rules, the very limited exception to that ban in section 5-17 of the Rules, and section 5-18 of the Rules regarding addressing conflicts of interest for multiple clients. For a discussion of this issue please see PSM topics “Conflicts respecting current clients” and “Conflicts respecting former clients.”
If, under brokerage agency, a licensee engaged by the brokerage is considering taking a substantial professional risk and making an offer to buy their own listing or any property listed with the brokerage, please refer to the conflict of interest articles in the February and June 2008 Report from Council newsletters.
This conflict may not exist under designated agency if the other party is able to obtain independent representation through their own designated agent, and if the client’s confidential information has not been and will not be shared with the licensee who is acquiring, or disposing of the real estate or a licensee who is representing that licensee.
Generally, a brokerage that provides strata management services to a strata corporation, while at the same time providing rental property management services or trading services to an owner of a strata lot in a strata corporation, is in a conflict of interest situation. The problem arises because the interests of the strata corporation may conflict with the interests of the strata lot owner, thus compromising the brokerage’s ability to act in the best interests of one of its clients.
Specifically, the brokerage may find itself unable to fulfill all of the duties it owes to one client under section 3-3 of the Rules without at the same time breaching some of the duties owed to the other client under the same section.
For example, consider a situation where a strata lot owner in an age 55+ strata-titled complex rents their lot to an “under age tenant”. A brokerage providing both strata management and rental property management services in these circumstances would find itself in an untenable position. Acting as strata manager, the brokerage’s duty to disclose material information to its strata corporation client would require the brokerage to inform the strata council of the bylaw infractions for necessary action. However, to do this would require the brokerage to breach its duty owed as rental property manager to the owner to maintain the confidentiality of information.
Section 3-3(2) of the Rules allows the brokerage to obtain the client’s consent to an alteration or abridgement of some or all of the duties ordinarily owed to the client. This provision can be used by a brokerage that wishes to provide strata management services to a strata corporation while at the same time providing rental property management or trading services to a strata lot owner. Using this provision, there are different approaches that can be taken by a brokerage in these circumstances to avoid a breach of section 3-3.
Essentially, all approaches require the informed consent of any client who will not, or who might not, receive the full benefit of all of the duties ordinarily owed by the brokerage to that client. A brokerage may wish to seek legal advice about how to structure its client relations in order to avoid a breach of section 3-3 of the Rules. The following options present two different approaches that may be used:
- Obtain the agreement of all clients to the provision of limited representation to all clients. Under this approach, the brokerage would obtain each client’s informed consent to the brokerage acting for others and, accordingly, to its providing only limited representation to the client. The agreement with each client should disclose the following:
- that the brokerage intends to provide rental property management services or trading services, or both, to one or more owners, as well as to provide strata management services to the strata corporation;
- that the brokerage will not be able to:
- act in the client’s best interests, if those interests conflict with the interests of the other clients;
- act in accordance with the client’s instructions, if acting in accordance with those instructions would lead the brokerage to breach any of the brokerage’s obligations to the other clients, or
- disclose to the client any confidential information about the other client.
The agreement with each client should be in writing and should be obtained before any services are provided to the client.
A brokerage that provides real estate services under this type of agreement must maintain the confidentiality of each client’s information and must also act impartially, not favouring the interests of one client over the other.
- Obtain the agreement of some clients to the provision of limited representation (or no representation) to those clients. Under this approach, the brokerage would designate either its strata corporation client or its owner client as a “primary client”, and provide full representation to that primary client. Since there would be no limitation on the duties owed to the primary client, it would not be necessary to obtain that client’s agreement under section 3-3(2) of the Rules. However, the brokerage would have to obtain, before providing any services to a non-primary client, that client’s informed consent to the brokerage acting for a primary client, and accordingly, to providing only “limited representation” to the other client. The agreement with each non-primary client should disclose the following:
- that the brokerage intends to provide real estate services or trading services to the strata corporation or an owner, as the case may be, as a “primary client”, and can only provide limited representation to the client;
- that the brokerage will not be able to:
- act in the client’s best interests, if those interests conflict with the interests of the primary client;
- act in accordance with the client’s instructions, if acting in accordance with those instructions would lead the brokerage to breach any of the brokerage’s obligations to the primary client;
- maintain the confidentiality of information about the client, or
- disclose to the client any confidential information about the primary client.
The agreement with each non-primary client should be in writing and should be obtained before any services are provided to that client.
A brokerage that provides real estate services under this type of agreement must maintain the confidentiality of information about the primary client, and must disclose to the primary client any known material information about any non-primary client. This should be made clear to any non-primary client.
- Obtain consent from existing clients. A brokerage providing strata management services, that is also providing real estate services to owners of strata lots in the strata corporation, may be offside of section 3-3 of the Rules. If the brokerage cannot fulfill the full range of its duties under section 3-3 to any client, it should immediately disclose the situation to that client. Service agreements should be amended to reflect that disclosure (and the consent of the client to the arrangement) as soon as practicable, but in any event upon their renewal.