Personal Real Estate Corporations (PREC) and Advertising Terms

The Ontario Government has introduced new and amended regulations to the Real Estate and Business Brokers Act, 2002 (REBBA), dealing with personal real estate corporations, expanding the terms that brokers and salespersons may use to describe themselves in advertising, and replacing references to “commissions and other remuneration” with “remuneration.”

Personal Real Estate Corporations (PRECs)

The legislation has been amended to permit a brokerage to pay remuneration owed to a salesperson or broker for trading in real estate to a corporation that meets specific criteria.

The corporation is referred to as a personal real estate corporation (PREC). A PREC is a corporation that a salesperson or broker may establish that is permitted to directly receive from a brokerage remuneration that is earned by the registrant. The use of a PREC may have financial advantages for the salesperson or broker.

The new rules allow for, but do not require, the use of a PREC.

A PREC is exempt from registration under REBBA and is permitted to receive remuneration from a brokerage if the PREC meets all the required criteria and satisfies all the conditions set out in the legislation. A PREC cannot trade in real estate other than to provide the services of its controlling shareholder (the broker or salesperson) to a brokerage. The salesperson or broker must continue to be employed by the brokerage in order to trade in real estate and to have their remuneration paid to their PREC.

Based on each registrant’s personal circumstances, there are advantages and disadvantages to the creation and use of a PREC. Registrants are encouraged to consult financial and other experts on whether a PREC is the right approach for them. It’s also important to speak to the broker of record to inquire whether the brokerage is willing to enter an agreement with the PREC. Brokerages are not obligated to do so.

In addition to consulting financial and other experts, and confirming that the brokerage will agree to the use of the PREC, registrants will need to:

    1. Ensure the corporation meets the criteria and conditions set out in the legislation (refer to checklist).
    2. Ensure that the agreement between the registrant, the PREC and the brokerage includes the required content set out in the legislation (refer to checklist).
    3. Provide the legal name of the PREC and its address for service to registration@reco.on.ca

No. The PREC would not have a real estate trust account. In fact, the PREC is not permitted to hold any money or other property as a deposit in connection with a trade in real estate.

How to name the PREC is a business decision to be made by the registrant at the time of setting up the corporation or by way of articles of amendment for an existing corporation. In choosing a name, a registrant is reminded that in order to remain exempt from registration, the PREC, its controlling shareholder and others must not represent to the public that the PREC trades in real estate.

As its name implies, only one registrant may be paid remuneration through a given PREC. All remuneration for team members must flow from the brokerage to each of the individual brokers and salespersons or to their respective PRECs.

No. There must be one registrant who owns all the equity shares and the PREC may only receive remuneration for that one individual registrant.

No. A registrant must not represent to the public that the corporation carries on the business of trading in real estate.

A registrant may be able to use an existing corporation if it meets the criteria and conditions of a PREC (refer to checklist). There may, however, be limitations with other types of registered businesses that may prohibit its use.

The PREC must not trade in real estate other than to provide the services of its controlling shareholder (broker or salesperson) to the brokerage. There are no restrictions in the legislation on what other activities a PREC might engage in. Permitted activities will depend on the objects of the corporation. However, there may be limitations on the corporation if it is used to operate in another regulated sector.

Yes. However, the brokerage would have to stop trading and its registration terminated. Registrants should consult with financial and other professionals to determine the best approach for their personal circumstances. The corporation would have to meet all the criteria and satisfy all the conditions of a PREC. The termination of the brokerage would have to follow the requirements for doing so.

No. A PREC is not a registrant and therefore is not insured under the insurance program. The program will not be liable to defend or indemnify a registrant for any claim made against a PREC, but this does not affect the coverage otherwise afforded to the registrant.

Failure to pay remuneration owed to a PREC for the services of a registrant that is the controlling shareholder of the PREC could give rise to a claim under the insurance program by the registrant. Program coverage responds in events such as brokerage theft, fraud, insolvency, or misappropriation of funds, subject to the terms and conditions of the policy.

The legislation requires that all the equity shares of the corporation be legally and beneficially owned, directly or indirectly, by the controlling shareholder. It also provides that all the non-equity shares must be owned directly or indirectly by a family member. A family member is a spouse, child, parent, or a trust for a minor child. Whether shares will be held directly or indirectly by the controlling shareholder or a family member is a business decision to be made by the registrant setting up the PREC. Legal advice should be sought to ensure compliance with the law.

Send an email to registration@reco.on.ca providing the name of the registrant (controlling shareholder), the legal name of the PREC and the PREC’s address for service.

For more information, refer to RECO’s PREC Checklist.

This question should be considered from the perspective of REBBA and that of taxation.

From a REBBA perspective, provided the individual registrant had earned and was entitled to the remuneration, the brokerage is not prohibited from paying the remuneration to an eligible PREC.

Salespersons and brokerages should consult their accountant and corporate lawyers to better understand when and how to report earnings for a PREC.

REBBA does not impose requirements on the name of a PREC. However, because the PREC cannot be promoted or advertised as being able to provide real estate trading services, it may be a consideration to not name it in such a way that would suggest or imply it is a brokerage. Another consideration in naming is that the PREC must be registered in Ontario, or continued in Ontario, if incorporated outside of Ontario.

Yes, REBBA does not limit the holdings of a PREC. However, if the PREC is used in the operation in another regulated sector, it may have limitations.

A PREC is not a registrant, so it is not insured by the RECO E&O insurance program. A PREC is like any other non-registrant corporation and should be insured against the risks it may face. A brokerage is a registrant covered by the RECO program.

Registrants are required to notify RECO of the name of their PREC and the address for service, by email. Brokerage owners must satisfy themselves that the PREC complies with REBBA requirements, in addition to confirming that the registrant has notified RECO of the PREC. The individual salesperson or broker must ensure it is complying with REBBA in respect of its own PREC and the brokerage must satisfy itself that the PREC has met its obligations before it can pay any remuneration to a PREC. The brokerage must do its own due diligence and might ask the salesperson or broker to confirm compliance.

The individual salesperson or broker may advertise as they have using their own name and must include the brokerage name, as is required in all advertising. They may not advertise in any way the name of the PREC.

Outside of the limitations in trading in real estate, a PREC is not limited in terms of other businesses or income that it earns or its holdings. Registrants are encouraged to discuss their plans with an account and lawyer for other requirements for corporations.

Holding corporations aren’t identified specifically in the legislation, however the possible shareholders of the PREC are defined as follows:

• A single controlling individual owns all equity shares (i.e. voting shares) and the controlling individual is the sole director and officer of the corporation;
• The controlling individual is registered as a broker or salesperson;
• The family members (spouse, children, parents) of the controlling individual (as well as the controlling individual) may hold non-equity shares (i.e. non-voting shares) in the PREC.

Please consult your lawyer for further advice on structuring a PREC or holding corporation.

A registrant and brokerage must determine the compensation structure and set out the terms in the agreement between the brokerage, the controlling shareholder (salesperson or broker) and the PREC, which is an agreement required by the legislation.

It is important to seek advice from an accountant or lawyer to understand the available options and tax consequences of its operation.

PREC Checklist (PDF)


Advertising Terms

The Code of Ethics under REBBA is amended to permit the use of new terms, in addition to those currently permitted, to be used to describe a salesperson and broker. Eligible registrants who wish to do so may now use the new terms.

Brokers, other than the Broker of Record, are now permitted to use the following additional descriptors:

    • Real estate agent
    • Broker real estate agent
    • REALTOR® (limited to CREA members in good standing)
    • REALTOR® broker (limited to CREA members in good standing)

 
Salespersons are now permitted to use the following additional descriptors:

    • Real estate agent
    • REALTOR® (limited to CREA members in good standing)
    • REALTOR® salesperson (limited to CREA members in good standing)

 

No. The registrant must be a member in good standing of the Canadian Real Estate Association to use the term REALTOR®.


Remuneration

The term “commission” has been removed from the regulations and replaced with “remuneration,” which is defined as “…any form of remuneration, including any commission, fee, gain or reward, whether the remuneration is received, or is to be received, directly or indirectly.”

Registrants will determine how best to describe the financial arrangements that appear in advertising, agreements and other documentation.