Real Estate Sales Licensee: Agency and Contracts

Part A- Questions

1. (a) You are a recent real estate sales licensee. You have been approached by Bob, who wishes to purchase a condominium for his elderly mother. He says he has authority to do so, as he has a "power of attorney". Explain the type of agency relationship created by a power of attorney. For Bob's case, discuss the legal limitations of power of attorney that he should be careful of.

(b) The condominium unit needed new flooring, so after purchasing the unit, Bob asked Cushioned Comfort to come over and provide a quote. The salesperson, Mark, measured the unit and showed Bob some samples. Bob chose a carpet type and Mark wrote up a contract between Cushion Comfort and Bob. Mark and Bob signed the contract, and Bob was given a copy of it, as well as one of Mark’s business cards showing he is a salesperson for Cushion Comfort. Bob was in the process of throwing out the old carpet when he got a call from the owner of Cushion Comfort. The owner told Bob that Cushion Comfort was not able to meet the terms set out by Mark, and that since Mark did not have permission to enter into a contract for that amount, Cushion Comfort is not bound to the contract. Is there a valid and binding contract? Discuss the relevant law as to whether or not Mark can bind Cushion Comfort to a contract.

(c) Before purchasing the property, advice was sought by Bob from Willie Wunder, a Real Estate agent, to ensure that his mother would not be saddled with any issues such as a "leaky condo". Wunder stated to Bob that he reviewed the necessary documents of the condominium complex and did not notice anything unusual. In actuality, Wunder only partially read the documents and had trouble understanding a majority of what he read. Six weeks into her possession of the condominium, Bob's mother receives a registered letter requesting payment of the $10,000 special assessment to repair the water damaged common area caused by a faulty building envelope. Upon further review, Bob discovered that the condominium documents had clearly discussed the $10,000 special assessment. Bob is very upset and would like to know the following:

Under agency law, what duty or duties did Wunder owe Bob? What are the potential consequences for Wunder’s actions?

(d) Bob's mother sold her home to Mr. Walker, a kindly gentleman and avid gardener, who said he noticed her fabulous fruit trees on his Sunday stroll and decided to knock on her door to see if she would sell her property to him. Bob's mother thought the price seemed reasonable and signed the contract, without concern for her hearing and seeing difficulties given her extreme age. Bob has since found out that Mr. Walker was a real estate sales licensee, who bought a row of houses that Sunday with the intent of building a condominium complex on the property. No fruit trees will remain standing. And, after commissioning an independent appraisal, Bob now discovers that the price paid was less than two-thirds of the market value at the time of sale. Is the contract valid? Explain why or why not, and what option(s) may be available to Bob’s mother.

1. Agency Relationship and Contracts

(e) When Bob's mother is no longer able to live on her own, Bob decides to rent the unit, which is allowed by the bylaws of the complex. What are the requirements that Bob would need to meet in a rental agreement? Explain how a residential tenancy differs from a commercial tenancy. If Bob subsequently decided he wanted the tenant to vacate the unit, explain briefly the various reasons Bob could use to terminate this tenancy agreement.

2. (a) You are selling your home, which has a large mortgage with favourable rates. You want to know whether a new purchaser can assume this mortgage. 

3 (i) Explain when assumption of a mortgage may occur, and also discuss whether you could bear any liability if the mortgage is assumed. 

(ii) Would novation of the mortgage be a better idea? Explain when novation may occur, and any liability you could face.

(iii) You are able to sell your property and now your financial advisor suggests that you should invest your new windfall in mortgages. He lists the various types of mortgages available. Discuss at least three different types of mortgages, relating their advantages and disadvantages to a mortgagee from a legal standpoint, in particular with respect to the security involved.

1. You must examine and review three recent cases outlining breaches of professional ethics or standards in some area of real estate practice. For those interested in researching the Appraisal Institute of Canada, please note that AIC's policy is to not publicly disseminate esults of professional ethics investigations, unless ordered by a disciplinary committee.

However, other real estate associations or related organizations do publish disciplinary decisions related to breaches of professional ethics. The following are examples of organizations that publish this kind of information:

The cases you choose should be ideally reported from the disciplinary body, although court cases can be used, if necessary.

(a) Prepare a brief write up on each of the three cases, including the following information (as best as possible, given available data):

For each case, relate the relevant facts.

Discuss the practical aspect of what transpired (e.g., transferred trust funds, etc.).

State the ethical breach which occurred as a result of the acts undertaken.

Discuss factors taken into account by the disciplinary committee, hearing officers, Benchers, etc.

Was stare decisis followed? Discuss.

Discuss the relevant legislation or regulation involved.

(b) Discuss the similarities and differences of the three cases regarding the offences, persons, and sentences or outcomes.

2. Mortgage Assumption and Investment

(c) Explain vicarious liability and discuss who could be held liable for any losses that might occur relating to this principle. Make reference to all relevant legislation in your answer. If any of the professional ethics cases that you chose above relate to employees or include employee issues, please include reference to those cases in your answer.

2. Locate a commercial lease that you can examine.

(a) Answer the following questions:

What is the name of the landlord?

What is the name of the tenant?

What is the description of the premises rented?

What date did the lease start?

What is the duration of the lease or term?

Can the lease be renewed, and if so, how?

How much notice is required for renewal?

Can the lease be registered? Explain why or why not.

What rent is charged?

What payments are set out, in terms of taxes, utilities, etc.?

Who pays for repairs and improvements?

Are there any special covenants, conditions, exceptions, or reservations?

What type of tenancy is this?

Is this a gross or net lease? In your answer, briefly explain the difference.

Is there a required security deposit, and if so, how much is it and how much will be returned to the lessee?

May the lease be assigned or sublet? Explain the difference.

What are the landlord’s obligations under the lease, both those set out and those implied?

What are the tenant’s obligations under the lease, both those set out and those implied?

How may this lease be terminated?

What is the concept of interesse termini? Explain whether it is applicable.

What remedies are set out for breach of the lease?

3(b) From the perspective of a prospective tenant, discuss the advantages and disadvantages in this lease. Would you advise a prospective tenant to lease this property? State the reasons for your advice.

4. Locate a strata in your community and obtain the strata documents registered in the Land Title Office (or wherever required in your jurisdiction).

5 (a) Answer the following questions regarding the strata development:

Who is/was the developer?

What type of development is it?

How many units are there and how many are already sold?

What is the proposed maintenance fee and how is it calculated?

How are voting rights set out?

Are there any unusual restrictions?

Is rental allowed?

Are there any restrictions on the number of guests and the length they can stay?

Is there an inspection report available?

What common property is there?

What insurance is in place?

Are there requirements for maintenance for each unit?

Who is to manage the properties? Discuss the options available for the complex.

 How are disputes between an owner and the strata corporation handled?

6 Assume you are interested in purchasing a strata unit in this development. How will your share of the maintenance fees be determined. According to the strata documents, are there other fees required in relation to the nearby recreational property?

7 Assume that you are interested in purchasing a unit in the development. Discuss the legal implications of purchasing a strata unit in the development and any cautions that you may wish to consider. As part of your answer, you should discuss any issues with the bylaws and any maintenance issues.