Modernizing the Real Estate Game
A Fast-Track Guide to Proposed Amendments to the Real Estate Trading Act
The Real Estate Trading Act (the “Act”) was introduced in 1965 and has not been substantially amended since its inception. Keeping in mind the significant technological advancements over the past 54 years, it is no surprise that real estate professionals, lawyers, purchasers, and vendors have been calling for the statute to be reviewed and updated.
As of November 4, 2019, it appears that those interested parties may be getting their wish. Fifteen changes have been proposed in the House of Assembly under Bill 13, seeking to clarify and modernize the Act to make it more effective in today’s 2019 real estate climate.
Below is a summary of the six most significant changes, along with a short explanation for what these changes mean moving forward.
Streamlining the Release of Trust Funds.
The current Act states that an agent is not permitted to distribute money held in trust unless:
- the Offer to Purchase has not been accepted;
- the sale has been completed;
- they receive written notice from both the Vendor and the Purchaser authorizing the release; or,
- a Court has directed they distribute the funds.
In practice this has proven to be too vague for the comfort of many real estate professionals. The money held in trust is ordinarily the Purchaser’s deposit and, while the Agreement of Purchase and Sale should dictate what will happen to the deposit upon the breakdown of a purchase, the real estate professional holding the money in trust may be reluctant to release the funds due to the risk of a civil action.
According to Service NL, the proposed amendments will clarify that the deposit may be released according to the terms of the Agreement. Additionally, the Superintendent of Real Estate Agents and Salespersons will be given power to direct release of the deposit. This power would act in a similar fashion as the existing requirement that a Court direct the release and will perhaps make disbursement a more efficient process.
Establishment of a Real Estate Recovery Fund.
The current Act creates real estate bonds, which are deposited with the Crown when a prospective licensee applies for a license and are forfeited upon:
- conviction of an offence involving fraud, theft, or conspiracy to commit an offence involving fraud or theft;
- a civil judgment arising out of a trade in real estate; or,
- a winding-up or receiving order made under the Bankruptcy and Insolvency Act or the Winding-up and Restructuring Act.
The problem arising from these bonds is that they were infrequently used and are often insufficient to cover the potential loss.
The amendments to the Act add a new section that provides for the establishment of a Real Estate Recovery Fund. This Fund would be funded by licensees and would seek to protect consumers against financial loss where their real estate agent has committed fraud, a breach of trust, fails to distribute or account for trust monies, or declares bankruptcy.
Establishment of a Code of Conduct.
Under the current Act, there is no requirement for the real estate profession to implement and maintain a Code of Conduct for its members.
The amendments add a new section to the Act, allowing the Superintendent to establish a Code of Conduct. This is a critically important amendment, as it ensures that the industry in Newfoundland and Labrador maintains a standard level of professional conduct.
Modifications to Licensing Requirements.
The current Act provides limited opportunities to modify the licensing requirements for real estate professionals.
The amendments to the Act allow the Superintendent to set the form of the application, and the Lieutenant-Governor in Council to make regulations relating to the requirements, qualifications, and conditions for issuing licenses.
Additionally, several mandatory provisions will be added, some of which include criminal background checks for prospective licensees and an ongoing duty to notify the Superintendent of changes to the information submitted to obtain the license.
Inclusion of Mandatory Errors or Omissions Insurance.
The current Act does not require real estate professionals to carry errors and omissions liability insurance. This type of insurance is also known as professional liability insurance and protects against acts of professional negligence.
Under the amendments, real estate professionals will be required to carry this insurance for an amount to be determined.
Increased Fines and Penalties.
Under the current Act, offences are punishable by:
- a $1,000.00 fine for the first offence;
- a $2,000.00 fine for subsequent offences; and/or,
- imprisonment for a term not exceeding six months.
The amendments to the Act increase fines to a maximum of $50,000.00 with no distinction between first and subsequent offences. These fines will apply to individuals and incorporated entities alike.
Conclusion. Bill 13 received its third reading in the House of Assembly on November 21, 2019 and, if successful, will receive Royal Assent shortly thereafter. Stay tuned for its implementation over the coming months.
The comments contained in this eCaseNote provide general information only and should not be construed as legal advice or opinion. For more information or specific advice on matters of interest, please call our offices at (709) 579-2081.