April 28th - 2017

Legal Beat: Protect yourself, clients from illegal building

Realtors must disclose material facts about a property. Failure to verify the registration status of a newly built home can put you on the wrong end of a lawsuit.

Legal beat

Realtors must disclose material facts about a property. Failure to verify the registration status of a newly built home can put you on the wrong end of a lawsuit.

by Merv Burgard

Legal beat

Remember that both the REALTOR® code of ethics and the REBBA code of ethics require you to disclose material facts. That includes illegal construction. Be cautious when listing, selling or buying a new home.

A few years ago, I wrote the following in a Merv’s Memo and a Q & A in Legal Forum: If the building was illegal under Tarion’s requirements, then there may also be issues regarding your involvement in the sale of an illegal building.

An online guest column from Tarion posted by the Real Estate Council of Ontario (RECO) contains these paragraphs:

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“If you are a real estate professional involved in an illegal building sale, you can be charged as a party to the offence or for aiding and abetting an illegal builder.”

"Be cautious when listing, selling or buying a new home."

Not too long ago, we were involved in a case where a real estate professional sold an older home to a buyer who wanted to demolish the existing home and build a new one. The salesperson introduced her husband, an unregistered builder, to that buyer. The husband then entered into a contract with the buyer to build him a new home on that property. The salesperson also operated a numbered company that was involved in the construction of the new home. Charges were laid against the builder for failing to be registered and failing to enrol the home. In turn, the real estate salesperson was charged with acting as a party to the offence.

Real estate professionals have a duty to know the law and to protect their clients from illegal building activities. An illegal building conviction can have also leave a nasty stain on their reputation, and could have an impact on their registration with RECO. It’s not enough to say, “I didn’t know that the seller needed to be registered.” As the old adage goes, ignorance of the law is no excuse. Protect yourself, and your clients, from illegal building.

And this very broad statement: “Real estate professionals who sell a home built by an unregistered builder and that has not been enrolled with Tarion may be charged and convicted, even if they were unaware of the law.” See the following links for more details:

  • http://www.reco.on.ca/professionals-news/real-deal-illegal-building/

    • MERV’S COMMENTS

    Mervin Burgard Q.C.Some of those statements are much too broad. There is a legal defence of due diligence that may protect you. However, you must demonstrate that you have done your due diligence. A checklist with some of these questions may help you to demonstrate your due diligence:

    What questions have you asked your sellers about the need for registration?

    • Did you advertise the house as “new”?
    • Did you call Tarion? Is there registration?
    • Did the sellers build it themselves and live there?
    • Is the sale of this “new” house subject to HST?

    OREA’s SPIS may help with their answers. Check with the sellers’ lawyer to determine whether this deal is legal or not.

    Merv Burgard, Q.C.

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    Jean-Adrien Delicano

    Manager, Media Relations

    JeanAdrienD@orea.com

    416-445-9910 ext. 246

    Ontario Real Estate Association
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