Unfair Business Practices in Ontario

Consumer Protection ~ Unfair Business Practices (Real Estate)

By Brian Madigan LL.B.

The Business Practices Act was a very good piece of legislation, but not too many people knew about it, so last year the Ontario Government replaced it with the Consumer Protection Act.

When it comes to real estate there are some important provisions. While the conveyance of real estate is exempt from the Act, advertising, the conveyance of chattels and agreements with realtors are all affected.

No one is allowed to engage in an "unfair practice" with a consumer, and specifically it is an unfair practice for a person to make a false, misleading or deceptive representation. These will include the following:

1. A representation that the goods or services have sponsorship, approval, performance characteristics, accessories, uses, ingredients, benefits or qualities they do not have.

2. A representation that the person who is to supply the goods or services has sponsorship, approval, status, affiliation or connection the person does not have.

3. A representation that the goods or services are of a particular standard, quality, grade, style or model, if they are not.

4. A representation that the goods are new, or unused, if they are not or are reconditioned or reclaimed, but the reasonable use of goods to enable the person to service, prepare, test and deliver the goods does not result in the goods being deemed to be used for the purposes of this paragraph.

5. A representation that the goods have been used to an extent that is materially different from the fact.

6. A representation that the goods or services are available for a reason that does not exist.

7. A representation that the goods or services have been supplied in accordance with a previous representation, if they have not.

8. A representation that the goods or services or any part of them are available or can be delivered or performed when the person making the representation knows or ought to know they are not available or cannot be delivered or performed.

9. A representation that the goods or services or any part of them will be available or can be delivered or performed by a specified time when the person making the representation knows or ought to know they will not be available or cannot be delivered or performed by the specified time.

10. A representation that a service, part, replacement or repair is needed or advisable, if it is not.

11. A representation that a specific price advantage exists, if it does not.

12. A representation that misrepresents the authority of a salesperson, representative, employee or agent to negotiate the final terms of the agreement.

13. A representation that the transaction involves or does not involve rights, remedies or obligations if the representation is false, misleading or deceptive.

14. A representation using exaggeration, innuendo or ambiguity as to a material fact or failing to state a material fact if such use or failure deceives or tends to deceive.

15. A representation that misrepresents the purpose or intent of any solicitation of or any communication with a consumer.

16. A representation that misrepresents the purpose of any charge or proposed charge.

17. A representation that misrepresents or exaggerates the benefits that are likely to flow to a consumer if the consumer helps a person obtain new or potential customers. (s. 14 (2))


It is also an unfair practice to make an unconscionable representation, and there are some "rules" which will help determine if this is the case.

A Court may take into that the person making the representation or the person's employer or principal knows or ought to know,

(a) that the consumer is not reasonably able to protect his or her interests because of disability, ignorance, illiteracy, inability to understand the language of an agreement or similar factors;

(b) that the price grossly exceeds the price at which similar goods or services are readily available to like consumers;

(c) that the consumer is unable to receive a substantial benefit from the subject-matter of the representation;

(d) that there is no reasonable probability of payment of the obligation in full by the consumer;

(e) that the consumer transaction is excessively one-sided in favour of someone other than the consumer;

(f) that the terms of the consumer transaction are so adverse to the consumer as to be inequitable;

(g) that a statement of opinion is misleading and the consumer is likely to rely on it to his or her detriment; or

(h) that the consumer is being subjected to undue pressure to enter into a consumer transaction. (s.15(2))

Section 18 provides that "any agreement, whether written, oral or implied, entered into by a consumer after or while a person has engaged in an unfair practice may be rescinded by the consumer and the consumer is entitled to any remedy that is available in law, including damages." These common law remedies are available in addition to the opportunity to report the matter to the Director and have the dispute investigated and resolved under the Act. The Director has been given rather broad powers by the legislation.

And further, "each person who engaged in an unfair practice is liable jointly and severally with the person who entered into the agreement with the consumer for any amount to which the consumer is entitled under this section." So, this means that the particular salesperson is responsible as well as the company.

Although, the actual "conveyance" of real property is not subjecty to the provisions of the Act, the matter of advertising is specifically noted as an included matter.

Under section 109 of the Act, "if the Director believes on reasonable grounds that any person is making a false, misleading or deceptive representation in respect of any consumer transaction in an advertisement, circular, pamphlet or material published by any means, the Director may order the person to cease making the representation; and further order the person to retract the representation or publish a correction of equal prominence to the original publication".

This section applies to any representations involving residential real property. If the purchaser cannot be described as a "consumer", then the Act will not apply. So, commercial transactions are not affected. Houses, and vacation properties are included. There is a real grey area when it comes to farms. Large commercial operating farms would not be included, but a hobby farm might.

You will recall earlier that both principals and agents were jointly and severally responsible. This means that a vendor who provides false and misleading information to his realtor is jointly and severally responsible to the purchaser.

All in all, the Consumer Protection Act should be quite helpful to purchasers and consumers in Ontario.

Brian Madigan LL.B., Broker is an author and commentator on real estate matters, if you are interested in residential or commercial properties in Mississauga, Toronto or the GTA, or you would like a free market evaluation of your home in Erin Mills, Credit Mills, Credit Woodlands, Sheridan Homelands, Sawmill Valley, Bridlepath, Pheasant Run, Sherwood Forrest or Mississauga Heights, you may contact him through Royal LePage Innovators Realty, Brokerage 905-796-8888
www.OntarioRealEstateSource.com

The Business Broker under REBBA, 2002

By Brian Madigan LL.B.

A business broker is regulated in Ontario under the same legislation that applies to real estate agents, namely the Real Estate and Business Brokers Act.

In fact, under the Act a business is considered to be real estate.

There is considerably more negotiating when it comes to buying and selling a business than an ordinary real estate transaction, and it requires specialized expertise.

For a business broker to undertake the task of representing either the buyer or the seller, there are some additional considerations that are over and above the routine real estate deal:

~Employees
Knowledge of employment laws (Employment Standards)
Knowledge of the common law of wrongful dismissal
Key employee agreements
Knowledge of collective agreements
Management agreements
Training agreements
Consulting and Supervisory agreements
Non-Competition agreements

~Business Asset Contracts
Equipment and machinery leases
Equipment and machinery pledge agreements

~Business Financing
Pledges of assets
Pledges of receivables
Fixed and floating charges

~Taxes
Income tax implications (deferred and unpaid taxes)
GST implications
PST implications

~Occupancy
The lease, (if rented premises) the right to remain
Chattels and fixtures that are part of the business
Termination rights

~Key Contracts
Intellectual property
Maintenance agreements
Client and customer contracts

~Insurance
General liability insurance
Environmental liability insurance
Property insurance
Vehicle insurance
Business Interruption insurance
Key-Man insurance
Buy-Sell agreement insurance

The above list is far from exhaustive. It is simply to illustrate that there are a number of new issues and considerations when a business is being bought or sold beyond the usual deal.

A business broker must know what is truly for sale. Will the employees stay with the company? Who should pay them during the transition period? Are there any guarantees on the equipment. Can it be sold? If it is to be sold, can the financing be assumed?

A business broker must understand and appreciate the financial statements concerning the operation. What if the profits fall short? What happens if a key employee or large customer leaves?

And, don't forget about the taxes? The purchaser doesn't want to assume the vendor's tax liability. Should an asset purchase or share purchase be used? This varies from deal to deal. There is no standard rule of thumb.

Some businesses are successful because they have good employees, others are successful because they have good systems, good technology, or a strong customer base. The business broker should determine whether the whole is worth more than the sum of the parts. If not, maybe the business can be broken down and sold piece by piece?

Unless these solid assets of the business are transferred, the business will not likely be successful in the hands of a new owner. The business broker, first needs to determine the true value of the transferable business. Then, negotiations must take place with key employees, landlords, financial institutions and customers to ensure that they will be onside with the proposed transaction. It is only then, that an appropriate value might be established. The business broker unlike the ordinary real estate agent should be creating value at this point in the relationship.

Another interesting variation is the role of a business broker in a transaction. Usually, there is just one broker. Frequently, both parties will have the same agent. This occurs much more frequently in the sale of businesses than in ordinary real estate transactions.

So, what is the role? The Real Estate and Business Brokers Act sets out two separate and distinct roles. The buyer or seller can either be a customer or a client of the broker. The broker owes the common law duties of "fair and honest dealing to customers". For clients, the broker owes certain special duties including the common law fiduciary duties and the statutory duties set forth in the Act.

The broker must act in the best interest of the client. That's fine as long as only one party is a client. But, if both are clients, it's impossible to place both of them first on every issue. There is an inherent conflict of interest that cannot be resolved! And, no amount of disclosure can solve it.

The solution adopted in some jurisdictions in the United States is transactional brokerage. It is a concept that is permitted, but not well-known in Ontario. Here, the broker is truly a broker in the common law sense of the term. The broker is not an agent but rather an "intermediary". This reduces the potential liability for the broker. The broker works the deal, and attempts to negotiate a successful resolution. Both parties have their own independent legal, accounting and financial advice, so they are not alone, but they are not relying upon the broker. The role might also be compared with that of an arbitrator or mediator in union-management collective bargaining negotiations. Frequently, there is a far more successful outcome with someone in this type of role.

So, next time you want to buy or sell a business, consider an experienced and qualified business broker. And, maybe you want an "intermediary" rather than an "agent".

Brian Madigan LL.B., Broker is an author and commentator on real estate matters, if you are interested in residential or commercial properties in Mississauga, Toronto or the GTA, or you would like a free market evaluation of your home in Erin Mills, Credit Mills, Credit Woodlands, Sheridan Homelands, Sawmill Valley, Bridlepath, Pheasant Run, Sherwood Forrest or Mississauga Heights, you may contact him through Royal LePage Innovators Realty, Brokerage 905-796-8888
www.OntarioRealEstateSource.com

Customer Disclosure Duties under REBBA 2002

What is the Disclosure Obligation to Customers in Ontario?

Ontario Real Estate Source

By Brian Madigan LL.B.

Under the Real Estate and Business Brokers Act, 2002, a registrant is charged with certain responsibilities.

Customers are entitled to ”services” and their agents must act with competency, knowledge, skill and judgment.

This is the obligation to clients under the Code of Ethics:

Material facts

21. (2)  A broker or salesperson who has a customer in respect of the acquisition or disposition of a particular interest in real estate shall, at the earliest practicable opportunity, disclose to the customer the material facts relating to the acquisition or disposition that are known by or ought to be known by the broker or salesperson.  

         

Material Facts are actually a defined term under the Code:

“material fact” means, with respect to the acquisition or disposition of an interest in real estate, a fact that would affect a reasonable person’s decision to acquire or dispose of the interest;       

It is difficult to appreciate the context without appreciating the definition of a trade in real estate in the Act:

trade” includes a disposition or acquisition of or transaction in real estate by sale, purchase, agreement for purchase and sale, exchange, option, lease, rental or otherwise and any offer or attempt to list real estate for the purpose of such a disposition, acquisition or transaction, and any act, advertisement, conduct or negotiation, directly or indirectly, in furtherance of any disposition, acquisition, transaction, offer or attempt, and the verb “trade” has a corresponding meaning;

So, this basically means that the agent must:

1)     at the earliest practicable opportunity,

2)     disclose to the customer,

3)     the known material facts, and

4)     the material facts which are unknown, but ought to be known.

Naturally, it would be wise from a risk management perspective that the agent recorded this information in some way, and was able to retrieve it later if required.

Brian Madigan LL.B., Broker is an author and commentator on real estate matters, if you are interested in residential or commercial properties in Mississauga, Toronto or the GTA, you may contact him through Royal LePage Innovators Realty, Brokerage 905-796-8888
www.OntarioRealEstateSource.com

Distributing the Proceeds of Sale

Priorities Upon Sale (Mortgage, Lien, Execution)

Ontario Real Estate Source

By Brian Madigan LL.B.

What happens when there is a mortgage, construction lien and execution against the property? How does the money get distributed?

Let’s consider the simple straightforward case.

Here, the property is worth $300,000, and the buyer secures a first mortgage of $250,000.

The deal closes and the money is advanced.

Subsequently, the buyer defaults upon his credit card to the extent of $10,000 and a judgment is obtained.

The homeowner decides to sell and hires a contractor for $25,000 to effect some improvements, repairs and renovations to the property. The work is completed but the homeowner never pays.

So, the basic question is “who gets the money”. Basically, to some extent “priority of registration prevails”:

1)     the first mortgage was fully advanced, and it secures the number #1 position for the principal plus the interest to the date it is paid. 

2)     The construction lien comes in second. The proceeds upon the sale are considered in part to be repayment on account of the work done and the corresponding increase in value.

3)     The Judgment assuming it was registered as an execution comes in third position.

That is what happens 99% of the time, since that is the usual scenario.

If all the money was not advanced under the mortgage, then that would affect the mortgagee’s priority. Assuming only $200,000 was advanced, then it would have priority only for the $200,000 and not the other $50,000. It still has that money.

There may be more than one lien. Some of the liens fall under the general contractor. It works like a pyramid here, with the lien claimant at the bottom having priority over the General contractor.

Executions creditors share on a pro rata basis in respect to the amount of their claims. So, if there was one execution for $10,000 and another for $20,000, they would share 1/3, 2/3 out of the amount leftover.

If there is a shortfall they would share in the shortfall based upon the same ratio.

Any excess would be paid to the homeowner. And, any deficiency would remain the obligation of the homeowner.

Brian Madigan LL.B., Broker is an author and commentator on real estate matters, if you are interested in residential or commercial properties in Mississauga, Toronto or the GTA, you may contact him through Royal LePage Innovators Realty, Brokerage 905-796-8888www.OntarioRealEstateSource.com

Resurgence in Toronto Real Estate Market During September 2011

Resurgence in Toronto Real Estate Market

Ontario Real Estate Source

By Brian Madigan LL.B.

You might wonder what is happening to the real estate market in Toronto and the GTA.
Here are the latest figures released by the Toronto Real Estate Board.

Month        Sales           Average Price

January        4,208           $425,903

February      6,074           $452,967

March          9,009           $455,886

April            8,783           $476,637

May             9,785           $485,436

June             9,976           $474,365

July             7,711           $458,966

August         7,384           $451,310

September   7,658           $465,369

So far, everything is quite predictable. The market rose and peaked in May with a high average price for the year at $485,436. Then it declined until August and started an upward course once again.

If trends continue like they have over the last decade the average price in October will approximate the May number. Usually, the two peaks, being in the Spring and Fall markets are about equal.

There was a significant deviation from this usual trend in October 2009 with the world stock market crisis and loss of confidence in financial institutions.

This October offers challenging market concerns with Greece on the brink of disaster and the Toronto Stock market (TSX) slipping officially into bear market status.

The resurgence in the Toronto real estate market in September was evident and predictable, but there may be some uncertainty going forward. This represents opportunity for both sellers and buyers.

Brian Madigan LL.B., Broker is an author and commentator on real estate matters, if you are interested in residential or commercial properties in Mississauga, Toronto or the GTA, you may contact him through Royal LePage Innovators Realty, Brokerage 905-796-8888
www.OntarioRealEstateSource.com

Common Law Agency Duties and the Mississauga Inquiry

Agency Duties at Common Law (Mississauga Inquiry)

Ontario Real Estate Source

By Brian Madigan LL.B.

The Mississauga Judicial Inquiry into the conduct of the Mayor Hazel McCallion released its report on 3 October 2011.

The Commissioner, Mr. Justice Cunningham concluded that the mayor had both a real and apparent conflict of interest in the dealings with a hotel real estate development in which her son had an equity interest.

There was some saving grace in that the Commissioner found no breach under the Municipal Conflict of Interest Act. Mr. Justice Cunningham went on to make recommendations concerning that Act to the Province. The Commissioner would like to see the Act strengthened and broadened.

Nevertheless, the inquiry focussed upon the obligations at common law. While the Act only deals with specific pecuniary interests, the common law deals with non-pecuniary interests as well. It may also extend to the interests of close family members and not merely the elected official themselves.

In L’Abbe v. Blind River (1904), the High Court of Ontario stated:

“There may be a direct monetary interest, or an interest capable of being measured pecuniarily, and in such case that a bias exists is presumed. But there may also be substantial interest other than pecuniary, and then the question arises, on all the circumstances, as to whether there is a real likelihood of bias - a reasonable probability that the interested person is likely to be biased with regard to the matter at hand.”

A conflict of interest may be real or apparent.

There are three prerequisites for a real conflict of interest:

1)     the existence of a private interest,
2)     that is known to the public office holder,
3)     that has a nexus with his or her public duties and responsibilities that is sufficient to influence those duties and responsibilities.

An apparent conflict of interest arises when a reasonably well-informed person, could reasonably conclude, as a result of surrounding circumstances, that the public official must have known about the connection of his or her involvement with the matter of private interest.

Agency Obligations at Common Law

The law of agency developed thousands of years ago and eventually found its way into the common law in England. There are some fundamental and basic principles which include the obligation of the agent to offer to the principal:

1) disclosure,

2) competence,

3) obedience,

4) accounting,

5) confidentiality, and

6) loyalty.

1) Disclosure. The agent is under an obligation to keep the principal informed and to disclose any material and relevant matters to the principal.

2) Competence. The agent is under an obligation to be competent in his profession, and to inform the principal that there are matters beyond the agent’s expertise.

3) Obedience. The agent is subservient to the interests of the principal. The agent is to follow the reasonable and lawful directions of the principal, carrying out the principal’s instructions. The agent is to act in the principal’s best interests and not his own.

4) Accounting. The agent is to account for monies received and disbursed. Payments of any kind or nature, direct or indirect are all for the benefit of the principal. Funds are received as a fiduciary, and are to be disclosed and remitted in full to the principal. The agent is the intermediary between the principal and third parties. The agent is not a third party contractor but rather the person who brings the principal and third parties into a contractual relationship.

5) Confidentiality. The agent is to maintain the privacy of the principal and matters that are of a private nature are to remain in confidence. Information provided to an agent is received in a fiduciary capacity and is not to be disclosed without authorization by the principal.

6) Loyalty. An agent is to offer loyalty to the principal. Once engaged in a fiduciary capacity, the agent must place the interests of the principal above his own, must not entertain the interest of others, including himself above that of his principal.

Each of these duties are separate and distinct obligations and vary somewhat in their application and interpretation depending on the nature of the agent’s profession and the actual agency agreement.

Common agency arrangements today include attorneys, trustees, solicitors, barristers, doctors, accountants, financial agents and real estate agents. However, they also apply to those politicians who hold public office. And, the same common law fiduciary agency duties apply to them as well.

You can easily appreciate how the common law duty in respect to “conflict of interest” grew out of loyalty, disclosure, obedience and accounting.  All those in an agency relationship are subject to the common law. These are important matters and should not be discounted.

Statutory obligations are in addition to the fundamental common law duties. The mayor has noted her compliance with the statute but failed to appreciate the underlying obligations at common law.

Professionals in the real estate industry would be well-advised to adhere to those principles in addition to their statutory requirements.

Brian Madigan LL.B., Broker is an author and commentator on real estate matters, if you are interested in residential or commercial properties in Mississauga, Toronto or the GTA, you may contact him through Royal LePage Innovators Realty, Brokerage 905-796-8888
www.OntarioRealEstateSource.com

Leslie Log House in Mississauga

Leslie Log House in Mississauga

Ontario Real Estate Source

By Brian Madigan LL.B.

There is now a new museum in Mississauga. You probably already know about Benares and the Bradley House. The Leslie Log House is the third museum in Mississauga,

There is an advantage here, since it houses the Streetsville Historical Society.

The building is open to the public Wednesday and Saturday afternoons. Drop in for a quick tour. Admission is free.

The house is quite historical in nature having been constructed in 1826 on Mississauga Road north of Derry. It was moved to its present location at 4415 Mississauga Road
 (between Burnhamthorpe and Eglinton) in 1994.

The main room can be rented through the city of Mississauga for special functions. In boardroom format, it seats about 12 and in classroom format it can host about 20.

It is located on city property backing onto the Credit river valley and has access to walking trails.

Brian Madigan LL.B., Broker is an author and commentator on real estate matters, if you are interested in residential or commercial properties in Mississauga, Toronto or the GTA, you may contact him through Royal LePage Innovators Realty, Brokerage 905-796-8888
www.OntarioRealEstateSource.com