RECO and the Man Who Knew Too Little

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A comic twist on a Hitchcock classic: Wallace Ritchie (ably played by Bill Murray) goes out for an evening expecting to attend the theatre and unwittingly stumbles into the midst of an international terrorist plot, is mistaken for a hitman, and ultimately saves the day through his surprisingly effective bumbling.

It might surprise you to learn that people have been deemed to be trading in real estate in much the same way, except the consequences are not nearly as amusing.  An unwitting investor, or anyone for that matter, may be unknowingly “trading in real estate”, and trading in real estate in Ontario without a license can attract serious penalties: individuals can be fined up to $50,000 or be imprisoned for a term of two years less a day, and corporations can be fined up to $250,000.

The Real Estate Council of Ontario (“RECO”) is the governing body charged with overseeing the practice of real estate in Ontario.  One of their primary tasks is to administer the Real Estate and Business Brokers Act, 2002 (“REBBA”), the legislation that governs Ontario’s real estate profession.  That is not to say that RECO’s authority is limited to registered real estate professionals – RECO has authority over anyone who trades in real estate in Ontario.

So how is it possible to “stumble” into a profession without knowing it?  The definition of a “trade” is set out in REBBA:

“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

It is a broad definition, to say the least, which should be of concern to those even peripherally involved with real estate transactions since REBBA also states that no person can “trade” in real estate without being registered under REBBA.  The overall goal is to protect consumers by ensuring that anyone trading in real estate has the proper training and education, and conducts themselves according to REBBA’s Code of Ethics.  Using a broad definition of “trading in real estate” casts a wide net, and ensures that those who use real estate services of any kind are helped only by those who are qualified to do so. There are exemptions to the registration requirement, but those exemptions are limited in scope.  For example, an unregistered individual may trade in real estate on behalf of their employer, but only where they are a “full-time salaried employee”. In other words, a part-time and/or commissioned employee must be registered.

How does one accidentally trade in real estate?  Perhaps an example is best.  In the 2010 case of R v. Goldmintz (“Goldmintz”), Mr. Goldmintz and his company, Blue Mountain Chalets (“BMC”), were charged with trading in real estate without a license under the legislation that preceded REBBA.  BMC was in the business of renting chalets on behalf of their owners to people who wished to use them on a short-term basis. BMC received a portion of the fee paid to the chalet owner.  Before being charged, Mr. Goldmintz claimed that he had no idea that he needed to be a registered broker or salesperson to do what he was doing.  

Part of the defence was that BMC was actually the tenant of the chalet, and was then licensing others to use it; on this basis it was argued that BMC was trading on its own personal account (one of the exemptions to the registration requirement).  This argument was not accepted.  Interestingly though, while the Justice of the Peace did find that Mr. Goldmintz and BMC were trading in real estate, he acquitted them on the basis that there were many companies in Ontario doing the same thing BMC was doing, and RECO had never explained their position and given people like Mr. Goldmintz the chance to bring their operations into compliance.  The Justice of the Peace felt it would be unfair to find them guilty because RECO did not give the industry any advance warning of its position.  Accordingly, the Justice of the Peace acquitted Mr. Goldmintz and BMC.   

RECO appealed the decision of the Justice of the Peace and it was overturned.  Mr. Goldmintz and BMC were found guilty; BMC received a fine of $3,000, and Mr. Goldmintz received a fine of $2,000.  The Judge on Appeal found that it was wrong for the Justice of the Peace to consider the widespread practice of chalet rental services, and to base his decision on the fact that he felt it was unfair for someone to be found guilty of an offence they did not know they were committing.  Ignorance of the law is no excuse.  

Aside from the example in Goldmintz, there could be many situations where one is unknowingly trading in real estate.  As we saw in Goldmintz, even a popular business model can be found to be offending the law, and those involved may not realize that they are vulnerable to prosecution until it is too late.  If you are not sure if your business or a transaction you plan to get involved in could have you charged with trading in real estate without a license, consult a lawyer, and avoid becoming a Wallace Ritchie, unwittingly caught in the real estate trade.

David Reid is a student-at-law with BrazeauSeller.LLP. To contact BrazeauSeller.LLP call 613-237-4000 or e-mail info@brazeauseller.com.

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