Legal Corner: Failure to disclose multiple representation leads to major fine

Multiple representation is garnering media attention, and a disciplinary decision from last year emphasizes the consequences of mishandling the disclosure process.

All registrants should know that full disclosure is required when a brokerage represents two parties for the same trade in real estate (including when two different salespeople from the same brokerage are involved), and that disclosure is also required for any commission reduction agreement.

In an April 2015 hearing considering the conduct of Zahra Shaker-Shariat-Panahi (also known as Farah Shaker-Shariat-Panahi at that time, now registered as Zahra Panahi, also known as Farah Panahi), the discipline panel focused heavily on the close relationship between non-disclosure of multiple representation and non-disclosure of a reduced commission agreement.

“The disclosure of multiple representation on the part of a listing salesperson could easily raise the issue of a collateral commission agreement, something which other registrants and would-be buyers would have a clear interest in understanding and considering in making any offers,” it noted.

In the hearing it was revealed that:

    • Panahi failed to inform all the participants to the trade that she was the salesperson representing both a potential buyer and the seller.
    • She failed to disclose the terms of the reduced commission agreement to not only other buyers and their brokerages, but her own brokerage as well.

This is important to note because registrants can only trade on behalf of the brokerage that employs them. For this reason, registrants must do their part to ensure the brokerage conducts its affairs ethically on all levels. Panahi should have informed her brokerage of the details of the commission agreement to ensure it could comply with its own disclosure requirements.

The discipline panel described Panahi’s conduct as “disgraceful, dishonourable, and unprofessional”. Failure to disclose multiple representation and her commission agreement created an “effective monopoly over information,” which led to an “uneven playing field” over the trade of the property.

As a result, Panahi was ordered to pay a $15,000 fine, and to complete an educational course on Ethics and Business Practice.

The panel concluded that Panahi breached the following sections of the Code of Ethics:

Brokers and salespersons

2. (1) A broker or salesperson shall not do or omit to do anything that causes the brokerage that employs the broker or salesperson to contravene this Regulation (With reference in this case to s.25 of the Code of Ethics set out below).

Agreements relating to commission

25. (1) If a brokerage has a seller as a client and an agreement between the brokerage and the seller contains terms that relate to a commission or other remuneration and that may affect whether an offer to buy is accepted, the brokerage shall disclose the existence of and the details of those terms to any person who makes a written offer to buy, at the earliest practicable opportunity and before any offer is accepted.

(2) Subsection (1) applies, with necessary modifications, to a brokerage that has a seller as a customer, if the brokerage and the seller have an agreement that provides for the brokerage to receive written offers to buy.

Fairness, honesty, etc.
3. A registrant shall treat every person the registrant deals with in the course of a trade in real estate fairly, honestly and with integrity.

Best interests
4. A registrant shall promote and protect the best interests of the registrant’s clients.

Conscientious and competent service, etc.
5. A registrant shall provide conscientious service to the registrant’s clients and customers and shall demonstrate reasonable knowledge, skill, judgment and competence in providing those services.

Nature of relationship
17. If a registrant represents or provides services to more than one buyer or seller in respect of the same trade in real estate, the registrant shall, in writing, at the earliest practicable opportunity and before any offer is made, inform all buyers and sellers involved in that trade of the nature of the registrant’s relationship to each buyer and seller.

Inaccurate representations
37. (1) A registrant shall not knowingly make an inaccurate representation in respect of a trade in real estate.

Error, misrepresentation, fraud, etc.
38. A registrant shall use the registrant’s best efforts to prevent error, misrepresentation, fraud or any unethical practice in respect of a trade in real estate.

Unprofessional conduct, etc.
39. A registrant shall not, in the course of trading in real estate, engage in any act or omission that, having regard to all of the circumstances, would reasonably be regarded as disgraceful, dishonourable, unprofessional or unbecoming a registrant.

You can read about the disclosure obligations associated with multiple representation in our Registrar’s Bulletin.

 


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