Highlights of changes to the Real Estate Act and Regulations

Bill 24, the Real Estate Amendment Act, was proclaimed by the Government of Alberta on July 28, 2008 and the amendments are now included in the Real Estate Act (Act). In conjunction with this the new Real Estate Act Regulations (Regulations) came into effect.  While the changes are not significant to the day to day business practices of most industry members, we encourage you to take a look at the amended Act and Regulations in their entirety, found on RECA’s website.  The following are some highlights of the changes:

Composition of Council:  Nomination of Real Estate Appraiser and Property Manager Council Members
The election process for appraisal and property managers for Council has been removed from the Real Estate Act and inserted into the Regulations.

The Executive Director will make a request by email for recommendations from respective industry sectors for each position that will become vacant, at least 90 days prior to the expiry of the existing term of office.

Two real estate appraisers may recommend another real estate appraiser for nomination and two real estate industry members who conduct property management activities may recommend another property manager for nomination.  A committee established by Council will review the recommendations received and make nominations for consideration by Council who will then appoint the two members from the nominations received for the respective positions.

Timing of Deposits
For the purposes of section 25(1) of the Real Estate Act, an industry member who is required by the Rules to keep and operate a trust account must deposit money received in trust within three days of receipt or, in the case of an offer to purchase, three days of acceptance. RECA had requested that the Regulation read three business days of acceptance of the offer to purchase. We are working with the government to accommodate this change.

Trust Account Interest
All real estate brokerages and mortgage brokers that receive money in trust are required to maintain a trust account. The requirements regarding the payment of trust account interest (non-designated) to the Alberta Real Estate Foundation now includes mortgage brokerages. Mortgage brokerages which receive money in trust must direct their financial institution to pay any interest earned on a trust account to the Alberta Real Estate Foundation.  If the contract designates the interest be paid to one of the parties, the broker must set up a separate trust account for that particular transaction. 

Assurance Fund Claim
To provide a level of protection for clients, the Real Estate Act dictates the existence of a Real Estate Assurance Fund.  The purpose of the Fund is to provide a source of funds from which a consumer may be reimbursed should they suffer a monetary loss through the committing of a fraudulent act or a misappropriation of trust money (breach of trust) by an industry member.

Prior to the amendments to the Act and Regulations, applicants for payment from the Fund were required to have a judgment. Section 57(3) of the Act sets out that payment can be made if there is a judgment based on fraud or breach of trust in a transaction involving an industry member or if there is a claim made for losses when an industry member fails to disburse or account for money that has been held in trust.  Consumers now have an easier process in making a substantiated claim against real estate or mortgage broker industry members from the Fund. In these cases, claims can be made directly to RECA.  Application must be made within one year from the date on which the alleged loss or damages occurred.

The maximum payment that may be made to an individual applicant under section 60 of the Act with respect to trades undertaken by a real estate industry member is $35,000 for judgments or claims, and $25,000 for judgments or claims made against a mortgage broker industry member. The maximum amount payable for all applicants for a compensation event is $350,000 for real estate brokers and $100,000 for mortgage brokers.   

Service of Documents
Section 77 of the Act and section 23 of the Regulationshave been amended to include that the service of any required documents may apply to non-industry persons and to provide additional clarity on what constitutes service of documents on Council, industry members and non-industry members.

Production Orders (Section 83.2 of the Act)
For the purposes of enabling an investigation or to determine if an industry member has contravened the Act, Regulations, Bylaws or Rules, the executive director or delegate may require a person to produce for inspection documents, records and other items in the person’s possession or control or answer questions. The executive director may make this order only if the executive director has information that the information or other items requested relate to a possible contravention of RECA’s legislation. The documents, records or other items may be copied by the executive director or delegate. 

These production orders will help RECA in its investigation of complaints but specifically mortgage fraud cases. In the past, RECA did not have access to all documents or records required from non-industry members to adequately prove mortgage fraud activities by industry members. The person to whom an order is directed may make application the court to vary or cancel the order and the court may do what it considers just.

Sale of Real Estate Outside Alberta
The requirement to file a prospectus for trades in real estate located outside of Alberta has been eliminated.  RECA determined the prospectus process went beyond its mandate, placing RECA in a position to regulate the activities of non-industry members such as developers and sellers.  The process was also inconsistent with the requirements in many jurisdictions and set a double standard compared to real estate located in Alberta.  

The Act does not apply to a person that acquires or disposes of real estate for their own account or an official or employee of that person. In practical terms, if a person from another jurisdiction wants to sell real estate located outside of Alberta in Alberta, they may do so just as any person in Alberta disposing of real estate, through an industry member, their own efforts, an employee of that person or in the case of a corporation, an official of that corporation. As a point of clarification, an employee of an owner must meet some minimum standards to be considered an employee and be exempt under the Act.

Outlined below are a few standards to assist in determining if an individual is an employee or self employed:

• The employer pays the employer portion of CPP and EI
• Employees do not have a GST registration number; an independent contractor would be GST registered if their income is in excess of $30,000 per year
• An independent contractor would file income tax as a self employed person
• An employee would receive a T4 slip for their remuneration and an independent contractor would invoice the owner for services
• The source(s) of income for the employee/contractor

If it is determined by RECA that an individual is not an employee then that person must be registered to trade in real estate or cease trading in real estate on behalf of the owner.

Exemption Changes Section 2(1) & (3)
A bank, treasury branch, credit union, loan corporation, trust corporation or insurance company trading in real estate administered by it or dealing in mortgages currently is exempt from the Act for these activities. RECA is of the opinion that these institutions should only be exempt for real estate and financial products that the institution owns. The Act was amended to allow for a modification of these exemptions by making a reference ”subject to the regulations” in the exemption to allow for limiting the exemption in the Regulations.

RECA will undertake further consultation with stakeholders on this issue in the future.

Sale of Businesses
The definition of real estate in 1(1)(u)(iii) has been amended so that it does not include the buying and selling of businesses. RECA’s involvement with business brokerage has been minimal and the regulation of business transactions is beyond RECA’s primary mandate of consumer protection. Prior to the amendment, the Act prohibited business brokering by anyone who was not licensed by the Council.  This prohibition applied whether or not the business had a real estate component. Many other professionals such as accountants, lawyers etc. were involved in the sale of businesses.

A “business” is an entity or undertaking that is separate and apart from real property. Assigning the licensing and regulation of business transaction to RECA is not appropriate to consumer protection legislation.

RECA will continue to regulate any industry members in transactions involving the sale of businesses that have a real estate component such as a lease or sale of a property included in the purchase or lease; however this regulation will be limited to the real estate aspects of the transaction itself.

Administrative Penalties (Section 25 Regulations)
The maximum amount of an administrative penalty has increased to $25,000. Upon completion of an investigation of unlicensed activity that is founded, RECA could levy an administrative penalty. The maximum amount was $5,000 which was not a sufficient deterrent to person who may have earned many times that amount for trading in real estate in contravention of the Act. 

 

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