Contractual Obligations

Last month we discussed the statutory duties and obligation imposed by Ontario legislation on agents which in part govern the relationship and conduct between agents, their clients and prospective buyers and sellers. As you may recall, in addition to statutory duties, agents are subject to contractual and fiduciary duties. This month we will focus on the contractual nature of an agents duties and will conclude this discussion next month by exploring the nature and extent of their fiduciary obligations.

Unlike statutory duties, which as previously discussed are governed by the Real Estate and Business Brokers Act, 2002 (the “Act”), which is supported by the Real Estate Council of Ontario’s Code of Ethics, the Ontario Real Estate Association, the Canadian Real Estate Association and the Toronto Real Estate Board, contractual duties can be far less precise depending on whether they are express or implied, written or oral. Clearly, express written contracts are preferred to implied oral contracts and this position is supported by the above legislation which in part requires that an agent reduce any agreement or contract with their clients to writing.  Such contracts must expressly state, in clear and precise language, the essential terms of the contact such as the start and end date, the amount of commission payable and what steps the agent will take to fulfill the contract. Additionally, in the context of real estate, the common law has imputed into all contracts the duty to exercise reasonable skill and care and as we saw last month the duty to disclose all relevant information.

This was evident from the decision in Krasniuk v Gabbs ({2002} M.J. No. 13) where a Manitoba court held that an agent had to forfeit her commission because she did not disclose to her client that a verbal offer had been made to purchase her property. Manitoba law, as is the case in Ontario, requires that all offers must be in writing.  However, when weighing the statutory obligation of procuring offers in writing vs. the duty to make full disclosure to your client, the court found that the “overriding duty was simply to disclose all material information to the sellers.”

In terms of exercising reasonable skill and care, which is a more subjective obligation and is judged against the skill and care that the average real estate profession would exercise in similar circumstances, the case of Mohn v Dreiser [2002] O.J. No. 4989, 119 A.C.W.S. (3d) 352 (Ont. S.C.J.) provides a good example. Here, prior to entering into a firm agreement for the purchase of a motel, the seller’s agent provided to the buying agent a profit statement which the buying agent relied on without making any further inquiry. The statement showed annual profits of $60,000, when in fact the records, upon further inquiry after closing showed that the motel had lost money for four straight years.  When the buyer sued his agent, the court concluded that the agent breached his contractual obligations by failing to exercise the skill and care a reasonably competent agent in similar circumstances would have by failing to obtain additional financial information.

While this may be an extreme example in terms of the agents obligations, what is clear from this and other contract cases is that courts are reluctant to read terms into a contract.  This makes it imperative that all agreements not only be reduced to writing but are clear and unequivocal with respect to the intentions and obligations of each party so as little as possible is left open to interpretation.

ABOUT THE AUTHOR:  Jeremy Mandell is an associate with the law firm Garfinkle, Biderman LLP, a full service firm of 19 lawyers located downtown Toronto.  Jeremy’s areas of practice include all areas of commercial and residential real estate as well as aspects of corporate law.  He can be reached at (416) 869-1234 or by e-mail at jmandell@garfinkle.com.

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