End of dual agency : bill 5 - Key Information
This article was updated on August 24, 2022.
Bill 5
Given the current overheated real estate environment and in the interest of better protecting buyers in a real estate transaction in Quebec, Bill 5 was passed by the National Assembly. This amendment to the Real Estate Brokerage Act was adopted on June 10, 2022. Bill 5 involves various tax measures, but also measures related to the real estate market. It prohibits, among other things, the dual agency of a real estate broker with a buyer and a seller for a residential immovable, as well as the verbal brokerage contract. These measures would then avoid a potential conflict of interest.
With the arrival of this new law, many questions arise. What exactly does this law consist of? What are the benefits for buyers? Does it have any exceptions regarding its application? What are the advantages of the brokerage purchase contract for buyers? What is the opinion of our team’s real estate brokers regarding this important change?
Implications of the prohibition of dual agency
As mentioned previously, Bill 5 prohibits a real estate broker from representing a buyer and a seller at the same time in a transaction involving a residential immovable property. A real estate broker is licensed by the Organisme d’autoréglementation du courtage immobilier du Québec (OACIQ). The broker works with his client, must protect his interests and ensure loyalty. Respect for confidential customer information is essential. In a case of dual agency, these obligations cannot always be fulfilled and can give rise to major conflicts of interest, hence the importance of the establishment of this law.
The real estate broker must then represent only one part of the transaction (the buyer/the seller or the tenant/the lessor), thus ensuring a fairer treatment vis-à-vis the buyer.
The prohibition of dual agency is also combined with the prohibition of the verbal purchase brokerage contract. A written purchase brokerage contract must then be established between the buyer and the real estate broker in order to formalize the transaction.
If a case of dual agency occurs, i.e. a real estate broker is bound by a sale brokerage contract and a purchase brokerage contract, he must then notify the buyer in writing as to the termination of the purchase contract. As soon as this writing is sent, the termination of the purchase contract takes effect. The broker will then have to recommend a new real estate broker to this buying client. However, the buying client can choose not to be represented by anyone and make the decision they desire for the rest of the real estate transaction. If this is the case, the real estate broker must grant him fair treatment.
The concept of fair treatment is fundamental here. The real estate broker must inform the unrepresented buyer with objectivity. Indeed, the broker must demonstrate the accuracy of the information transmitted and indicate to the buyer any adverse elements concerning the desired property. However, the representation of the buyer and the defense of his interests are not possible without the signature of the purchase contract. In this case, the real estate broker will work in collaboration with the broker-seller.
Dual agency exceptions
It should be noted that the OACIQ will establish certain exceptions with regard to compliance with the law of double agency. For example, for certain regions of Quebec that would be underserved, real estate brokers in that region would be authorized to represent buyers and sellers. Additional exceptions are expected in the coming months.
New real estate broker roles in a transaction
Broker-Seller: The broker-seller is the real estate broker who is bound by a Brokerage Sale Contract (BSC) with a seller. Since the broker has a signed contract, he must represent his client’s interests.
Broker-Buyer: The broker-buyer is the real estate broker who is bound by a Brokerage Purchase Contract with a buyer (BPC). He can therefore represent the buyer and must defend his interests.
Broker-Collaborator: The broker-collaborator is the real estate broker who accompanies the buyer in the transaction, but is not bound by a brokerage purchase contract (BPC). As mentioned above, the broker-collaborator must work in collaboration with the broker-seller and cannot represent the buyer and his interests.
Brokerage purchase contract: what are the benefits for buyers?
Among the new obligations of this law, the brokerage purchase contract became mandatory as of June 10, 2022. In order to formalize the agreement between the buyer and the broker, the purchase contract must be signed by both parties. Signing this type of brokerage contract has many advantages for buyers:
- Representation: the buyer can be represented by the real estate broker and the latter can defend his interests.
- Personalized service: the buyer benefits from the custom search carried out by the broker (such as the creation of a portal of properties to visit). The buyer will also be better protected with regard to his personal information and interests.
- Access to comparables: the buyer has access to market comparables obtained by the real estate broker’s expertise and the tools at his disposal.
- Advice: The buyer receives advice and recommendations based on their needs and criteria throughout the purchase process. This advice will allow him to have a better knowledge of the situation (for example: are we in a situation of multiple offers) and in the real estate market more generally.
- Negotiation: the buyer is represented by his broker during the negotiation. The real estate broker’s negotiation skills will allow the buyer to acquire the desired property at a fair price and to stand out in multiple offers.
- Writing the promise to purchase: the buyer is advised by the broker on the conditions and clauses to be added to the promise to purchase in order to be further protected and distinguished.
Dual agency exceptions
The OACIQ has established certain exceptions regarding compliance with the dual agency law.
-For certain areas of Quebec that would be underserved, real estate brokers in that area would be allowed to represent buyers and sellers.
-A seller and a buyer can be represented by two brokers from the same real estate agency.
-For residential buildings with more than 5 units and commercial buildings, the brokerage purchase contract is not mandatory. The end of dual agency does not apply here.
Summary
Bill 5 was adopted by the National Assembly and involves changes to the law on real estate brokerage. These changes have been in effect since June 10, 2022. Among other measures, this new law prohibits the dual agency of a real estate broker with a buyer and a seller for a residential building. It also indicates that in order to formalize a transaction, a written brokerage purchase contract must be established between the two parties. Certain exceptions to this dual agency will be granted, such as in small regions of Quebec where there is a deficit of real estate brokers. It also states that in order to formalize a transaction, a written brokerage purchase contract must be established between the two parties. With the mandatory purchase brokerage contract, this reduces potential conflicts of interest that can arise when a real estate broker represents a buyer at the same time as a seller. In addition, this provides additional protection to the buyer, strengthens the relationship of trust and loyalty between the two parties.
*The use of the pronoun “He” was used to lighten up the text.
