The elements of representation relationship as outlined in the Real Estate Act and Rules
According to the Real Estate Act Rules, a representation relationship is defined as: “The relationship established between a licensee and a client when the licensee agrees to act on behalf of a client in a real estate, mortgage, or condominium management transaction.”
WHAT YOU'LL LEARN
Elements of a Representation Relationship
A Licensee’s Duty to Act
Steps to Establish a Representation Relationship
Elements of a Representation Relationship
Key Legislative Guidance
Definition of a Representation Relationship
According to the Real Estate Act Rules, a representation relationship is defined as:
“The relationship established between a licensee and a client when the licensee agrees to act on behalf of a client in a real estate, mortgage, or condominium management transaction.”
Mandatory Elements of a Representation Relationship
Written Agreement: The representation relationship must be in writing and signed by the client and licensee.
Services Provided: The agreement must describe the specific services the licensee will provide.
Compensation Details: The agreement must include the remuneration the licensee will receive, along with how it is calculated.
Confidentiality Clause: A requirement that the licensee protects the client’s confidential information.
Conflict of Interest Disclosure: Any conflicts of interest must be disclosed to the client.
Termination Conditions: Terms under which the agreement can be terminated.
Fiduciary Obligations in Representation Relationships
Acting in the client’s best interests.
Exercising care, skill, and diligence in providing services.
Keeping the client fully informed.
Maintaining confidentiality.
Example:
A condominium manager enters a representation relationship with a condominium corporation to provide financial management services. The agreement outlines the manager’s responsibilities for managing reserve funds, remuneration as a percentage of total fees, and confidentiality requirements.
A Licensee’s Duty to Act
Key Legislative Guidance
Duty of Care and Loyalty:
The Real Estate Act Rules requires licensees to “act honestly, with integrity, and in the best interests of the client.”
Avoiding Conflicts of Interest:
There is a need to disclose conflicts of interest and avoid actions that could harm the client’s interests.
For example, a condominium manager must disclose any financial relationship they may have with a vendor offering services to the condominium corporation.
Transparency and Communication:
Licensees are required to ensure clients are fully informed about any decisions or actions affecting their interests.
This includes informing the client of any updates, risks, or changes related to the services provided under the representation agreement.
Practical Considerations for Licensees:
Consistency with Agreements: The licensee must follow the terms of the written representation relationship without deviation unless agreed upon by the client in writing.
Prohibited Behaviours: A licensee must not mislead the client, fail to act in their best interests, or share their confidential information without consent.
Example:
A condominium manager is contracted to collect monthly fees on behalf of the condominium corporation. Acting consistently means ensuring that all collected fees are properly deposited into trust accounts as outlined in the representation agreement and that the corporation is updated regularly with financial reports.
Steps to Establish a Representation Relationship
Initial Discussion with the Client:
Explain the scope of services offered, fiduciary obligations, and the client’s responsibilities under the agreement.
Discuss remuneration terms and disclose any potential conflicts of interest.
Drafting the Representation Agreement: The agreement must include the following elements:
Scope of Services: Clearly define the services the licensee will provide, such as financial management, bylaw enforcement, or general administration.
Remuneration Terms: Specify how the licensee will be paid (e.g., percentage-based, flat fee).
Confidentiality Clause: Include terms regarding how client information will be protected.
Termination Clause: Outline the conditions under which the agreement can be terminated.
Signatures: Both the client and licensee must sign the agreement.
Obtaining Client Consent:
Review the agreement in detail with the client to ensure they understand the terms.
Obtain written consent to formalize the representation relationship.
Maintain Ongoing Documentation:
Keep records of all communications and updates related to the representation relationship.
Regularly review the agreement to ensure compliance and relevance.
Scenario:
A condominium corporation hires a condominium manager to oversee their operations. The manager drafts a representation agreement that includes:
Collection of fees.
Management of reserve funds.
Regular reporting of financial activities.The agreement specifies a monthly fee of 10% of the corporation’s revenue and includes a confidentiality clause to protect the corporation’s sensitive information.
