October 9th - 2007

RECO decision: Failure to disclose costly

The following RECO Complaints, Compliance and Discipline Appeals decision has been condensed and can be viewed in its entirety in the 2007 Discipline and Appeals Decisions on the RECO Web site at http://www.reco.on.ca/.

The following RECO Complaints, Compliance and Discipline Appeals decision has been condensed and can be viewed in its entirety in the 2007 Discipline and Appeals Decisions on the RECO Web site at http://www.reco.on.ca/.
 
The Case
This case involves violations of several rules regarding ethical behaviour, primary duty to client, misrepresentation or falsification, discovery of facts and advertising under the old RECO Code of Ethics.
 
The registrant represented Consumer A as a buyer’s representative in a 2003 transaction to purchase a dwelling that, in 2002, had been used as a grow house. Prior to the execution of the 2003 Agreement of Purchase and Sale, the prior use of the property as a grow house was disclosed to the sales representative. The 2003 Agreement of Purchase and Sale included the following written disclosure:

“The Buyer acknowledges that the use of the property and buildings and structures thereon may have been for the growth or manufacture of illegal substances and acknowledges that the Seller makes no representations and/or warranties with respect to the state of repair of the premises and the Buyer accepts the property and the buildings and structures thereon in their present state and in an “as is” condition.”

In early 2005 the registrant listed the property for sale on behalf of Seller A, acting under a Power of Attorney for Consumer A. The MLS® Listing prepared at the authorization of the registrant stated the following:

“Lovely Home! Close To All Amenities, Street B and Street C, Street D, Close To Shopping Mall. All Electric Light Fixtures, Fridge, Stove, Washer, Dryer, B/I Dishwasher, B/I Microwave, California Shutters, Cac, Cvac, Gdo And Remotes, Interlocking walkway. Entrance to House From Garage. No Disappointments. 24 Hours Notice To Tenants For Showings. Thanks For Showing!”

The registrant showed the property to the buyers, who became clients of Brokerage A, represented by the registrant. The buyers and Seller A then entered into an agreement of purchase and sale for the property and the registrant, on behalf of Brokerage A, represented all parties to that transaction.
 
Shortly before the closing date, the buyers became aware of the prior use of the property as a grow house. Up to this point in time, the registrant had not disclosed to her clients, the buyers, that the property had been a grow house, nor did she give them a copy, or disclose the existence of the written disclosure that she and Consumer A were given in the 2003 transaction.
 
When asked by the buyers to explain this situation, the registrant indicated that she was aware that a previous owner had been preparing the property to be a grow house but the operation was stopped by police before it began. She had forgotten to tell this to the buyers. After this conversation, the registrant faxed the buyers the written disclosure about the grow house which she had been provided in the 2003 transaction. Upon receiving this information, the buyers requested a mutual release from their agreement of purchase and sale, including return of their deposit funds.
 
The findings
The RECO panel determined that the registrant acted in an unprofessional manner and breached Rules: 1, 2, 10, 11 and 21 of the old RECO Code of Ethics by:

  • Failing to disclose that the property had been a grow house, and:

  • Failing to verify whether the property had been a grow house on behalf of her clients the buyers, when this information could have practicably been obtained.

Rule 1 – Ethical Behaviour – A member shall:

    1. Endeavour to protect and promote the best interests of the Member’s client

    2. Endeavour to protect the public from fraud, misrepresentation or unethical practice in connection with real estate transactions.

Rule 2 – Primary Duty to Client – A member shall endeavour to protect and promote the best interests of the Member’s Client. This primary obligation does not relieve the Member of the responsibility of dealing fairly, honestly and with integrity with others involved in each transaction.
 
Rule 10 – Misrepresentation or Falsification – A member shall not make any statement or participate in the creation of any document or statement that the Member knows or ought to know is false or misleading.
 
Rule 11 – Discovery of Facts – A member shall discover and verify the pertinent facts relating to the Property and Transaction relevant to the Member’s Client that a reasonably prudent Member would discover in order to fulfill the obligation to avoid error, misrepresentation or concealment of pertinent facts.
 
Rule 21 – Advertising – A member shall ensure that all advertising and promotion by or on behalf of the Member, including for Properties and services, is not false, misleading or deceptive.
 
Penalties and costs
The registrant was ordered to pay an administrative penalty of $15,000.00 to RECO within 180 days of the discipline decision.
 
Discipline under REBBA 2002
The old RECO Code of Ethics has been replaced by the Code of Ethics under REBBA 2002. A majority of the rules under the old Code have equivalent sections in the new REBBA Code. Consult the explanatory notes for the new provisions of the REBBA Code of Ethics in RECO’s Guide to REBBA 2002.
 
Relating to this matter, see:
 
Section 4 – Best Interests
Section 38 – Error, Misrepresentation, Fraud, etc.
Section 21 – Material Facts
Section 36 – Advertising
Section 37 – Inaccurate Representations

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