When and How a Licensee Becomes Personally Liable to Third Parties Under the Real Estate Act
A licensee may be personally liable to a third party when their actions breach the Real Estate Act, violate fiduciary duties, or involve negligence or unauthorized activities.
WHAT YOU'LL LEARN
When and How a Licensee Becomes Personally Liable to Third Parties
Key Factors That Lead to Personal Liability
Example Scenario
Key Takeaways
Definition of Personal Liability
A licensee may be personally liable to a third party when their actions breach the Real Estate Act, violate fiduciary duties, or involve negligence or unauthorized activities.
“A licensee who acts outside the scope of their authority, misrepresents material facts, or fails to comply with obligations under the Real Estate Act may be held personally liable.”
When Personal Liability Arises
Unauthorized Actions:
If a licensee enters into agreements or transactions without proper authority or approval from the condominium corporation, they may be personally liable.
“A licensee must act only within the scope of the authority granted to them by the condominium corporation.”
Negligence:
Failure to meet the standard of care expected of a reasonable professional. For example, improperly maintaining trust account records.
Misrepresentation:
Providing false or misleading information that causes harm or financial loss to a third party.
“A licensee must not misrepresent or conceal material facts related to a transaction or service.”
Breach of Fiduciary Duty:
A licensee becomes personally liable if they prioritize their personal interests over those of the condominium corporation or unit holders.
“A licensee must act with utmost loyalty and good faith in all dealings with their clients.”
Key Factors That Lead to Personal Liability
Breach of Fiduciary Duty:
Fiduciary duties include loyalty, confidentiality, and acting in the best interest of the client. A breach may occur if the licensee:
Misuses confidential information for personal gain.
Acts in a way that creates a conflict of interest.
Example: A licensee accepts compensation from a vendor without disclosing it to the condominium corporation, violating fiduciary duty.
Negligence:
Negligence is established when a licensee fails to exercise reasonable care, leading to harm or loss.
Example: Failing to adequately supervise a contractor, resulting in substandard work and financial loss for the condominium corporation.
Unauthorized Actions:
Personal liability arises when a licensee acts outside the authority granted to them by the condominium corporation.
“A licensee who exceeds their authorized scope of action may be liable for losses incurred by third parties.”
Determining Liability
Factors considered in assessing liability include:
Nature of the Action: Was it intentional, reckless, or negligent?
Harm or Loss Caused: Did the licensee’s action directly result in harm or loss to the third party?
Compliance with the Real Estate Act: Did the licensee adhere to the standards and rules outlined in the legislation?
Example Scenario
Situation:
A condominium manager, acting on behalf of a condominium corporation, hires a contractor to perform significant renovations to the building. The licensee signs the contract without obtaining approval from the condominium corporation’s board of directors, which is required under the corporation's bylaws.
Action Taken:
The contractor completes the renovations, but the board of directors refuses to pay the invoice, claiming that they never authorized the work.
The contractor sues both the condominium corporation and the licensee personally for breach of contract.
Analysis:
The licensee acted outside the scope of their authority, as they did not obtain prior approval from the board of directors.
Under the Real Estate Act Rules, the licensee must act only within the authority granted by the condominium corporation.“Licensees must ensure their actions are consistent with the authority provided by their clients.”
Outcome:
The licensee is held personally liable for the contractor’s unpaid invoice because they failed to follow the required process and exceeded their authority.
Case Study:
Scenario: A licensee invests reserve funds in a high-risk financial product without consulting the condominium corporation’s board.
Did the licensee act within their scope of authority?
What liability arises in this scenario?
Reflection Question:
How could the licensee have avoided personal liability in this situation?
Key Takeaways:
A licensee becomes personally liable when they act negligently, recklessly, or outside their authorized scope of authority.
Adhering to fiduciary duties and maintaining compliance with the Real Estate Act mitigates personal liability risks.
Proper documentation and clear communication with the condominium corporation’s board are critical in avoiding disputes and liability.
