Significant proposed changes for real estate services in Ontario
Trust in Real Estate Services Act, 2020, S.O. 2020, c. 1 – Bill 145 (TRESA, 2020)
On March 4, 2020, the Ontario Trust in Real Estate Services Act, 2020 (TRESA) received Royal Assent, amending the Real Estate and Business Brokers Act, 2002 (REBBA). REBBA governs real estate brokerages, brokers and salespersons (real estate services registrants) in Ontario. Certain provisions under TRESA have yet to come into force and are tied to proposed new regulations under the legislation.
In Phase 1 of regulatory consultations under REBBA, regulations were implemented to allow real estate salespersons and brokers to incorporate, be paid through a personal real estate corporation and use more recognizable terms in advertising, including “agent” and “REALTOR®”. REALTOR® is a trademark owned by The Canadian Real Estate Association and is used by members of organized real estate in Canada.
The Ministry of Government and Consumer Services (Ministry) is currently consulting on Phase 2 of draft REBBA regulations to bring additional provisions of TRESA into force, including updating the Code of Ethics regulation under REBBA, transferring procedural and technical requirements from the current Code of Ethics to other regulations, enhancing disclosure requirements and other registrant obligations to better protect the public and increase choice and update the Real Estate Council of Ontario’s (RECO) regulatory powers and tools.
Input on the regulatory proposals is being sought from the public, industry and other stakeholders until January 24, 2022 (for more information, see: here). The Ministry is proposing that the new Phase 2 REBBA regulations come into force in September 2022.
Rationales for amendments
According to a December 2021 Discussion Paper released in connection with the ongoing consultations, the Registrar currently has limited authority over certain administrative matters, including advertising requirements for registrants.
The Ministry points to several core benefits of the proposed changes, including enhanced professionalism, strengthened consumer protection and updated rules to help the regulator (RECO) operate more efficiently and focus its compliance and enforcement efforts. According to RECO, enhanced “professionalism and consumer protection” are the key purposes for the new Code of Ethics.
Overall, the proposed amendments would maintain some current advertising-related obligations for real estate salespersons and brokers in Ontario, introduce new advertising-related rules and expand both regulatory powers relating to advertising and potential penalties for non-compliance.
The current consultations also contemplate a third phase, which may also apply to advertising by real estate salespersons and brokers.
Summary of proposal
The second phase of regulation development (Phase 2) is currently underway. During this phase, the ministry is developing regulatory proposals to:
a) Update the Code of Ethics regulation (the Code) under REBBA;
b) Transfer procedural and technical requirements from the Code to other regulations;
c) Enhance disclosure requirements and other registrant obligations to better protect consumers of real estate services and increase consumer choice;
d) Update RECO’s regulatory powers and tools, including revising the procedures of RECO’s discipline committee.
The current Code can be confusing for both real estate registrants and the general public because it mixes ethical requirements (e.g., fairness and honesty) with technical and procedural requirements (e.g., details that must be included in written agreements).
The ministry is proposing changes that would streamline registrant obligations to enhance professionalism and consumer protection. The draft updated Code that is the subject of this consultation, retains and revises the ethical requirements that are set out in the current Code, while the technical and procedural requirements would be moved to the General Regulation or other regulations under REBBA. The proposed updated Code is principle-based, articulating requirements that registrants must comply with in relation to matters such as integrity, quality of service and conflicts of interest.
The Ministry of Government and Consumer Services is now consulting on the second phase of draft regulations needed to bring additional provisions of TRESA, 2020 into force, including:
No More REBBA
Bill 145 proposes to rename the Real Estate and Business Brokers Act, 2002, to the Trust in Real Estate Services Act, 2002.
New Code of Ethics Regulation
The ministry first consulted publicly on a proposed updated, principle-based Code from June 1 through July 2, 2021. Informed by the feedback from that consultation, the ministry is proposing further updates to the principle-based Code and is bringing them forward now in conjunction with related regulatory proposals. This proposal includes moving technical and procedural requirements in the current Code to other regulations under REBBA.
The ministry is proposing changes to give the public more choice in the real estate trade process by allowing a registrant to conduct an open offer process and disclose the details of competing offers at the seller’s direction. A mandatory open-offer process is not proposed under Bill 145. Registrants could not disclose any personal information or identifying information through this process.
Information and Disclosure Obligations
The ministry is proposing changes to improve the information registrants must provide to buyers, sellers and others in relation to providing real estate services. This is intended to help the public understand their choices for engaging or interacting with a registrant, as well as the different obligations registrants have under the different forms of engagement or interaction.
“Customer” & “Self-Represented Party”
Bill 145 proposes the deletion of the term “customer” and replaces it with “self-represented party” which is defined as a ‘party that meets the prescribed criteria’. This change has been proposed, in part, to help address concerns around multiple representation. Generally speaking, the Ministry and RECO perceived there to be confusion among consumers regarding the obligations of real estate professionals vis-a-vis “customers”.
The new legislation enables the creation of a specialist certification program for registrants, provided certain criteria have been met. The program/required criteria will be set out in regulation. The first specialist certification the Ministry would like to see created is for commercial real estate.
Bill 145 sets out a very clear prohibition with respect to any registrant holding themselves out as a specialist in trading in any type of real estate, unless the registrant has met specific criteria. The specific criteria are yet to be developed, but shall include education requirements as well as other criteria. Once created, this criteria will be embedded in regulation.
Real Estate Council of Ontario Powers and Tools
Changes are being proposed to help RECO operate more efficiently and focus its compliance and enforcement efforts where they are needed and most effective. The proposed changes include: a) updates to the rules about the information RECO’s Registrar must make publicly available; b) specifying the purposes for which the Registrar can require registrants to provide transactional data and related information to the Registrar; and c) providing the Registrar with additional authority over administrative matters related to certain advertising, record-keeping and notice requirements.
New Discipline Committee Regulation
The ministry is proposing to create a new regulation dealing with the rules and procedures of the Discipline Committee, incorporating the relevant provisions currently found in the Code and General Regulation.
The ministry is proposing regulation changes to add a condition to the exemption for auctioneers. The draft regulation proposes that as a condition to qualify for the exemption, an auctioneer must have no duties other than receiving, managing and recording competing bids and accepting the highest bid as part of an auction bidding process.
Again, the ministry is proposing these Phase 2 regulations, if approved, would come into force on September 1, 2022.
Analysis of Regulatory Impact
The ministry has identified various benefits to the proposed regulatory changes, if approved and implemented, including:
– Enhanced professionalism among registrants as a result of the revised and updated Code of Ethics regulation
– Strengthened consumer protection through enhanced disclosures and information for the public on a registrant’s obligations to buyers, sellers and others in relation to providing real estate services
– Updated rules to help the regulator, RECO, operate more efficiently and focus its compliance and enforcement efforts where they are most needed and most effective
The ministry anticipates there will be additional administrative costs for registrants if the regulatory proposals are approved and implemented, for example, learning about the changes, recordkeeping, and reporting to the regulator.
Proposed advertising-related changes
In general, under section 37 of REBBA, registrants are prohibited from making false, misleading or deceptive statements in any advertisement, circular, pamphlet or material published by any means relating to trading in real estate.
Currently, however, there is no provision under the General Regulation governing advertisements other than section 41, which prescribes a period of one year for Registrar requests under sections 38(4)-(5) of REBBA (Registrar orders regarding false advertising). The majority of advertising-related obligations for registrants are currently in the REBBA Code of Ethics (which is currently not subject to some of the penalties under REBBA).
If they proceed, three of the specific advertising-related changes for real estate services professionals in Ontario would be as follows: (i) moving the advertising requirements found in the current REBBA Code of Ethics to the General Regulation; (ii) authorizing the Registrar to specify requirements in relation to advertising that do not conflict with existing requirements under the Regulation; and (iii) requiring the Registrar to publish any new requirements on RECO’s website.
It appears that some of these objectives are intended to provide RECO with more flexibility in relation to determining permitted registrant advertising.
Proposed New General Regulation
More specifically, the proposed amendments to the General Regulation would add a new stand-alone section on advertising (section 12.1) with requirements for registrants that are largely identical to those under section 36 of the current Code of Ethics. (The current Code of Ethics also prohibits inaccurate representations (section 37), errors, misrepresentations or fraud (section 38) and unprofessional conduct (disgraceful, dishonourable, unprofessional or conduct unbecoming a registrant) (section 39).)
The proposed amendments to the General Regulation would include the following: (i) requiring registrants to prominently disclose their registered name in all advertising (section 12.1(1)); (ii) requiring brokerages that identify brokers or salespersons by name in an advertisement to use the name in which a broker or salesperson is registered (section 12.1(2)); (iii) requiring brokers and salespersons to clearly and prominently identify by registered name the brokerage that employs them (section 12.1(3)); (iv) using prescribed terms to describe any brokerage, broker or record, broker or salesperson referred to in advertising (section 12.1(4)); (v) allowing the use of the trademark “REALTOR®” for members in good standing of The Canadian Real Estate Association; and (vi) not including anything in an advertisement that could reasonable be used to identify a party to the acquisition or disposition of an interest in real estate, specific real estate or the contents of an agreement relating to the conveyance of real estate without consent (sections 12.1(8)-(10)).
While the above reflect obligations already in place under the current Code of Ethics, under the proposed amendments to the General Regulation, the Registrar would also be able to specify additional requirements respecting advertising (section 12.1(11)) and publish additional advertising-related requirements (section 12.1(12)).
Proposed New Code of Ethics
The current REBBA consultation process also proposes a new Code of Ethics for real estate salespersons and brokers in Ontario.
In this regard, the proposed new “principle-based” Code of Ethics would include several general provisions relating to advertising claims (i.e., a much broader principle-based approach underscoring key obligations for registrants). As discussed above, most of the existing technical and procedural requirements in the current Code would then be moved to the General Regulation.
New Code provisions would include those prohibiting fraud (section 4), requiring registrants to make best efforts to ensure that any representations are accurate and not misleading and prohibiting registrants from being a party to any misrepresentation (section 5).
The current REBBA Code of Ethics also includes similar, but not identical, general prohibitions against inaccurate representations and fraud (sections 37 and 38).
Penalties Under REBBA
Under REBBA, where the Registrar believes on reasonable grounds that a registrant is making a false, misleading or deceptive statement, the Registrar may order the registrant to stop, retract the statement or publish a corrective notice, or both (section 38(1)).
The Registrar may also revoke, suspend or impose conditions on a registration if, among other things, the registrant is in violation of REBBA (sections 10 and 13) (other than currently a contravention of the Code of Ethics under section 50).
An individual convicted of an offense under REBBA is also liable to a fine of up to $50,000, imprisonment for up to two years less a day, or both. A corporation convicted of an offence under REBBA is liable to a fine of up to $250,000 (section 40(3)).
In addition to the above, the Registrar may require a registrant to submit all statements in any advertisement for approval before publication (sections 38(4)-(5)). In addition to any other penalty, a court may also order a person convicted of an offence under REBBA to pay compensation or make restitution (section 41(1)).
Once Part VI.1 of REBBA comes into force, an assessor may, by order, impose an administrative penalty of up to $25,000 (section 43.2(4)).
Other Ontario real estate advertising rules
In addition to REBBA and its Code of Ethics, the federal Competition Act and CREA’s REALTOR® Code of Ethics also apply to the advertising of real estate services in Ontario.
The general civil and criminal misleading advertising provisions of the federal Competition Act prohibit representations to the public to promote any product (including services) or business interest that is false or misleading in a material respect.
The Competition Act also includes a number of other civil and criminal provisions that either prohibit or regulate specific types of advertising practices, many of which can be relevant to real estate services advertising and marketing.
Conspiracy (section 45).
Bid-rigging (section 47).
Criminal misleading representations (section 52).
Deceptive telemarketing (section 52.1).
Pyramid selling schemes (section 55.1).
Price maintenance (section 76).
Civil misleading representations (section 74.01).
Refusals to deal (section 75).
The potential penalties for violating the Competition Act are significant and include criminal fines, imprisonment and administrative monetary penalties of up to $10 million. The enforcement of the Competition Act in relation to false and misleading advertising claims is also an ongoing Competition Bureau (Bureau) priority and the Bureau has conducted numerous investigations of organized real estate over the past several decades, including in relation to advertising and marketing practices.
CREA REALTOR® Code of Ethics
In addition to REBBA and the Competition Act, The Canadian Real Estate Association (CREA) has also formulated a REALTOR Code of Ethics for its members (REALTOR® Code).
While not law, the REALTOR® Code sets out a number of advertising requirements for its members, which largely reflect provincial laws and federal Competition Act advertising requirements and includes interpretations (commentaries).
The REALTOR® Code defines advertising as any marketing activity to promote the brokerage, the REALTOR® or a transaction, including any verbal, written or graphic representation in any form, including electronic media.
Article 13 of the REALTOR® Code (Content/Accuracy) requires that all advertising and promotion of properties, including advertisements by persons employed or affiliated with the REALTOR®, shall accurately reflect property and other details and prominently display the name of the brokerage and any additional information required by provincial regulation.
In addition, the name of a REALTORS®’s brokerage must a be readily apparent or displayed in a link if not practical to state in the primary advertisement (interpretation 13.1), all properties displayed on a REALTOR®’s website must comply with the REALTOR® Code and any applicable provincial, federal and other requirements regarding advertising (interpretation 13.2) and any advertised or offered price must only be as agreed upon with the seller (interpretation 13.3).
Article 14 of the REALTOR® Code (Advertising Listings of Other REALTORS®) provides that REALTORS® may only advertise a property in a manner not restricted by the seller and that complies with applicable provincial and federal regulations.
Article 15 of the REALTOR® Code (Advertising Claims) requires, in general, that all advertising claims and offerings must be accurate, clear and understandable. The Interpretation of Article 15 includes several specific additional requirements for particular types of marketing claims including compensation claims, performance claims, initiatives/guarantees and requirements for full and clear disclosure of any material conditions, restrictions, limitations or additional charges (Interpretations 15.1-15.4).
In general, the proposed regulatory changes for real estate salespersons and brokers in Ontario signals that truthful and transparency is a key concern both for the Ontario Government and RECO.
More specifically, proposals to amend the regulations under REBBA, will add additional compliance obligations on real estate salespersons and brokers, expand RECO’s compliance and enforcement powers, including the Registrar’s authority to implement additional requirements under the General Regulation, and potentially expose real estate services registrants to additional penalties for non-compliance with the rules under REBBA and the REBBA Code of Ethics.