4 Duty to disclose the licence holder status of the broker involved in the transaction and the nature of his interest in the transaction

4.1 Obligation to disclose 

A licensee (broker or agency) who holds or proposes to acquire an interest (ownership right or financial right), directly or indirectly, in whole or in part, in a real estate transaction (purchase, sale, loan secured by immovable hypothec) must disclose his status as a broker or agency and the nature of his interest in the transaction, e.g. as a buyer, seller, creditor, shareholder or surety.

Following are examples where the broker or agency must disclose his status as licensee and the nature of his interest in the transaction:

• When selling a property that is owned by him or by a legal person in which he holds an interest.
• When purchasing an immovable, either personally or through a legal person in which he holds an interest.

The aim of the duty to disclose the licensee status is to disclose to the other party that they are dealing with a person who has real estate brokerage expertise.  

This duty is especially important to observe when the licensee is acting on his own behalf and the other party is not represented by a real estate broker.

The Court thus explains the reasons why the licence holder’s status must be disclosed:

The licensee has an advantage over the other parties to a transaction because of his knowledge and experience in the real estate brokerage field, especially if they are not represented by a broker.

In fact, the unrepresented parties do not benefit from the objective and independent advice of a real estate broker who would protect their interests. Furthermore, if the licensee is not himself represented by a broker, he cannot treat the parties fairly since he is personally involved in the transaction.

There are different scenarios where the broker or agency must disclose their licensee status and the nature of their interest in theimmovable that is subject to purchase, sale or immovable hypothec:

1. The broker or agency, themselves, hold or propose to acquire, in whole or in part, an interest in an immovable (direct interest in the immovable);
2. The broker or agency holds or proposes to acquire, in whole or in part, an interest via a natural or legal person to whom they are bound² (indirect interest in the immovable) (e.g. sale of his spouse's immovable; purchase of an immovable by a business corporation he controls);
3. The broker or agency holds or proposes to acquire, in whole or in part, an interest in an immovable themselves and through a natural or legal person to whom they are bound (direct financial interest in the immovable) (e.g. sale of his immovable which he owns with his spouse);
4. The broker or agency acts or proposes to act as a lender for a loan secured by immovable hypothec either personally ( "direct interest" in the immovable) or through a natural or legal person with whom he is bound (he has an "indirect interest" in the immovable).

¹ Gardner c. Lavoie 2015 QCCS 1484
² For example, through a natural or legal person with whom they are bound means a spouse or a legal entity in which the broker or his spouse or the agency has shares.

4.2 Mandatory content of the notice to disclosure 

In accordance with the Act, the notice of disclosure of the licensee's status and the nature of his interest in the transaction must be in writing, transmitted by the licensee immediately and state the following¹:

If applicable, the notice of disclosure shall also include:

The following cases are non-limitative examples:

The information included in the notice of disclosure makes the other parties to the transaction aware that they may not be negotiating on an equal footing and that it might be in their best interest in this situation to seek the advice of another licence holder or financial professional when the object of the transaction is about a loan secured by immovable hypothec

This disclosure is very important because failure to provide this notice or to comply with all the above regulatory requirements regarding the content of this notice may have significant consequences. Indeed, as long as the contract has not been signed by the parties, the party to whom this information must be provided may withdraw, without penalty, from any offer or promise, whether accepted or not, relating to the immovable, the enterprise or the loan, by sending or delivering a written notice to the other party.

¹ Section 18 of the Regulation respecting brokerage requirements, professional conduct of brokers and advertising
² Section 20 of the Regulation respecting brokerage requirements, professional conduct of brokers and advertising
³ Section 21 of the Regulation respecting brokerage requirements, professional conduct of brokers and advertising

4.3 Form Disclosure notice of the real estate agency or broker (Purchase - Sale - Loan) 

The licensee’s notice must be delivered by any means that provides evidence of the date and time of receipt.

Licensees may use the Notice of disclosure - Purchase-Sale-Exchange form. Remember that this form was not designed to disclose a situation where the licensee's interests are in conflict with those of a client, but to:

1. Disclose his status as a licensee because of his brokerage expertise
2. Disclose the nature of the interest (ownership right or financial right) the holder has or proposes to acquire in the immovable
3.  inform the other party that he cannot represent them in this transaction and that they may seek representation by a broker of their choice
4. Inform the other party, at the time of an acquisition, if applicable, that he is negotiating, has negotiated or intends to negotiate the resale or alienation of the immovable he proposes to acquire. In other words, if the licensee (broker or agency) plans to resell or assign the property he wishes to acquire, he must inform the seller;
5. Inform the seller, if he was responsible for selling the immovable that is the subject of the sale under a brokerage contract with the seller, subject to certain restrictions¹, that he is terminating his contract before submitting his transaction proposal
6. Inform the other party of the exclusion of the liability insurance offered by FARCIQ due to their interest in the transaction

¹ S. 22 of the Regulation respecting brokerage requirements, professional conduct of brokers and advertising: A licence holder cannot terminate the brokerage contract with a view to the purchase or lease of the immovable as long as transactions are in progress or the holder is collaborating with another licence holder to complete the transaction on the immovable.

4.4 Register of disclosure notices

The licensee’s notice must be kept in the notice of disclosures record maintained by the broker or the agency for which he is acting and recorded in the register of disclosure notices.

No later than March 31 of each year, and each time the Organization so requests, the licence holder must send a copy of his register of disclosure notices to the Organization.

It is crucial NOT TO CONFUSE, AND TO DISTINGUISH between, two major ethical obligations:

• Disclose in writing and without delay the licensee status of the broker involved in the transaction and the nature of his interest in the transaction.
• Disclose in writing and without delay any conflict of interest that the licensee cannot avoid;

These are two distinct obligations that serve two different purposes.

The duty to disclose the licensee's status and the nature of the licensee’s interest in the real estate transaction does not arise from his duty to avoid a conflict-of-interest situation. And even if the licensee's status and the nature of his interest are disclosed, he is not allowed to place himself in a conflict of interest.

4.6 Prohibition from receiving remuneration for a broker acting on his own behalf

A licensee who is party to a transaction may elect to be represented by another licensee (which is strongly recommended) or to act on his own behalf. If he is acting for himself, he cannot do so as a licensee since he is not acting as a representative of a party and cannot sign a brokerage contract with himself.

When a broker acts for himself, he is not entitled to remuneration because he is not acting as intermediary, but rather as a party to a transaction. Note that a broker who acts in part in this capacity (he is a co-owner of an immovable) for the marketing of an immovable may, however, be compensated for his services.

A licence holder (broker or agency) may not claim or receive remuneration when he, his spouse or a legal person or partnership controlled by him or his spouse becomes a lessee or acquires an interest in the immovable¹.

The notion of control of a company encompasses two aspects that must be taken into account: de jure control and de facto control. The determination of control can be complex and may require special expertise. A broker who has an interest in a company that proposes to acquire a property and who intends to exercise his right to remuneration should discuss the matter with the seller’s broker as early as possible in the transaction and ensure that he provides proof of his right.

 ¹Section 23 of the Regulation respecting brokerage requirements, professional conduct of brokers and advertising

4.7 Conditions for liability insurance coverage by FARCIQ

In order for a claim to be covered by the FARCIQ's liability insurance, the real estate broker’s professional services must have been performed for the benefit of third parties. Thus, if the real estate broker acts as one of the parties to the transaction (either as buyer, seller or lessor), any claims he submits while acting in this capacity will not be covered by the FARCIQ.

Previously, the insurance policy provided that excluded from coverage were claims arising from a real estate brokerage transaction involving a property or a right in which an insured holds an interest:

1. as the owner of more than 10%; or

2. if such property or interest is owned by a corporation, as a shareholder holding more than 10% of the voting shares; or

3. as a creditor having a real right in such property or right.

It should be noted that since May 1, 2024, section 2.03 M) of the insurance policy has been providing for a coverage exclusion for: 

All claims arising from a real estate brokerage transaction involving a property or right in which an insured has or may have, directly or indirectly, any interest whatsoever, notably as a buyer, seller, creditor, shareholder or surety.

This exclusion is not enforceable against any insured who does not hold such an interest.

However, it should be noted that a real estate broker who is entrusted with a mandate to represent a fellow real estate broker (who is then either a seller or a buyer), must himself respect his own ethical obligations in the context of the transaction.