Ontario Law Reduces Brokerage Ownership Requirements

Written by Posted On Monday, 03 April 2006 17:00

Changes to Canadian real estate laws designed to improve consumer protection and satisfaction may also change the industry itself.

Property ownership and the real estate industry fall under provincial and territorial jurisdictions in Canada, so laws change at different paces and in different ways. For instance, Ontario’s real estate law now extends ownership of brokerages outside the province’s real estate community.

In “modernizing the regulatory regime” for real estate brokers, brokerages and salespersons, the government removed barriers to brokerage ownership that may impact the makeup of the industry. Many legal restrictions on ownership of Ontario brokerages ended March 31, 2006 when the new Real Estate and Business Brokers Act , 2002 (REBBA 2002) was proclaimed into law. Previous requirements for registration stated that 51% of the voting shares of a real estate corporation had to be held by a licensed real estate broker, who, when originally registered, had to have been a Canadian resident for at least one year.

“There is no requirement with respect to the nationality of who owns a brokerage,” said Gordon Smith, Senior Issues Management Analyst for the Communications Services Branch of the Ministry of Government Services . “Individual brokers and salespeople must be Canadian residents, but the ownership of the brokerage is not regulated from the perspective of the nationality or location of its owners. The Act's purpose is protection of the public, it is not intended to regulate foreign investment.”

REBBA changes include the following:

  • The requirement for Canadian residency of those registering as a broker or salesperson continues, but the one year minium has ended.

  • Successful registration of a brokerage demands a broker of record and a trust account, but there is no requirement for brokerage owners to be Canadian residents or citizens, nor to be registered as brokers or salespersons.

  • Restrictions on brokers and salespersons that set the percentage of voting shares held at a 10% maximum and limited ownership in a brokerage that did not employ them have also been eliminated.

“Share ownership restrictions were seen as unnecessary limitations on business and therefore eliminated,” said Smith, explaining that, as a safeguard, brokerage registrations will be subject to an ‘interested persons’ test. “The identity of shareholders or associated shareholders who own or control 10% or more of the total number of all issued and outstanding equity shares must be disclosed to the Registrar.”

When the broker of record also owns the brokerage or has a controlling share in the corporation, that broker will have clout to back up decisions that comply with REBBA 2002 (“the Act”), but that might not align with corporate plans. However, when the broker of record is a merely an employee, what prevents the potential coercion of this individual by owners of the brokerage?

“Under the new Act, the broker of record is legally accountable for both themselves acting with honesty and integrity as a registrant under the Act, and for the compliance of the brokerage overall with the Act,” said Smith. “Individuals pressuring a broker of record, or any other registrant in the brokerage to act out of compliance with the law would be violating the terms of their registration and would run the danger of being revoked and barred from continuing work as brokers or salespeople in this sector. The new Act's provisions regarding the interlocking accountability of brokers, brokers of record and other brokers and salespeople actually establish stronger responsibility for overall honesty and compliance within brokerages and better address any sort of ‘collective bad action’ than did the previous Act.”

REBBA 2002 also broadens prohibitions against false or misleading advertising, includes provisions to prevent conflicts of interest and unethical behaviour, and increases fines up to C$50,000 for salespersons and C$250,000 for corporations. Significantly, the Code of Ethics has been included in the Act and, therefore, has the strength of law.

The Real Estate Council of Ontario” (RECO) administers REBBA 2002, overseeing licensing and disciplinary matters. In exercising strengthened powers for dealing with violations and “naming names,” RECO will publish notice of ongoing investigations against real estate registrants and brokerages, and of completed disciplinary actions.

REBBA 2002 has also changed Ontario’s real estate language:

  • Broker, which previously could refer to a company and to an individual, will only mean “an individual who has the prescribed qualifications to be registered as a broker under this Act and who is employed by a brokerage to trade in real estate.” [bullet] Brokerage is the corporation, partnership, sole proprietorship or other organization that trades in real estate and may employ real estate salespeople.

  • To recognize the concept of specialization, only individuals with the certification in a real estate specialization can legally use the term specialist. Brokerages cannot be specialists.

  • Broker of Record refers to the broker designated by the brokerage to ensure that the brokerage complies with the Act and its regulations. Neither a broker of record nor a broker are legally required to own any voting or other shares or stake in the brokerage.

Note: A real estate registrant without broker status, who must be employed by a brokerage to trade in real estate, will continue to be referred to exclusively as a real estate salesperson or sales representative.

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