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Contracts and claims

One of the most important services trading licensees provide to their clients is the ability to draft a legally enforceable contract.

In the case of Russell V Wispinski [1] the judge stated:

“A real estate agent in this province must be qualified and licensed. He and his brethren have a statutory monopoly with all the advantages and burdens that that status bestows. He, in my view, holds himself out as having some special skills and not the least of this is some ability to draft legally enforceable documents relating to his business.”

Reviewing a contract

There are, of course, limits on what is expected of licensees in drafting contracts. Drafting some clauses may be beyond the standard of care of a reasonably prudent licensee, but once a licensee takes on the task, they must do it properly[2].

The key is in knowing when something is beyond your expertise and referring your client to the appropriate expert, likely a lawyer, to draft the clause or contract or generally offer legal advice.


This issue of the Risk Report features Scott Twining’s article, The pitfalls of the poorly drafted contract. He offers several loss-prevention tips on how to avoid claims related to negligence in preparing and reviewing contracts.

Claims for negligence relating to contracts of purchase and sale make up 19% of (now closed) claims that have been reported to E&O since 2010. Watch for these top five problem areas:

  1. Subject clauses
  2. Taxes/GST
  3. Deposits
  4. Strata documentation
  5. Parties to a contract… tied with… fixtures/chattels

Here are some examples of the types of claims made against licensees in each of these categories.

Subject clauses

  • Failing to explain the risks of a subject-free offer
  • Failing to remove subject clauses on time
  • Failing to recommend appropriate subject clauses
  • Drafting unenforceable or ambiguous subject clauses

Taxes/GST

  • Misrepresenting who will pay the GST on the transaction
  • Misrepresenting that GST or other taxes are not applicable on the transaction
  • Misrepresenting the amount of taxes payable
  • Failing to ensure the contract sets out who will pay GST
  • Failing to advise a client that the foreign buyer’s tax applies

Deposits

  • Advising a buyer that their only risk if they failed to complete would be losing the deposit
  • Representing that a deposit had been received when this was untrue
  • Losing a deposit cheque or bank draft
  • Paying out deposit funds without instructions or proper authority

Strata documentation

  • Failing to obtain Form B
  • Failing to provide the complete set of strata documents requested by the buyer
  • Failing to provide minutes or other documents that contain key information such as an upcoming assessment or engineering report
  • Failing to discover and disclose information that makes the strata unsuitable for the buyer (e.g. age or pet restrictions)

Parties to a contract

  • Failing to ensure you as licensee were dealing with a properly authorized person
  • Failing to ensure the instructing party had a valid power of attorney
  • Drafting a contract with the incorrect name for the seller
  • Forging a signature to a contract

Fixtures/chattels

  • Failing to ensure a hot tub or other items are included in the sale
  • Wrongfully removing fixtures
  • Misrepresenting a heat pump as an air conditioner
  • Misrepresenting the age or condition of appliances.
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