Sector Advisory: Agreements must comply with the legislation

Issued: December 19, 2023

RECO is aware that some brokerages are entering into agreements that do not comply with the legislation.

Brokerages and agents that enter into agreements with buyers and sellers that do not fulfil the requirements of the legislation, or otherwise contravene the legislation are subject to prosecution.

Brokerages have a legal obligation to ensure that every agent the brokerage employs is carrying out their duties in compliance with the legislation. The broker of record has a legal obligation to ensure that the brokerage complies with its duties and obligations under the legislation.

No counselling contraventions

Be aware that section 3 of the Code of Ethics regulation specifically prohibits counselling, advising, or assisting another person to contravene the legislation:

3. A registrant shall not counsel, advise or knowingly assist a person to contravene the Act, the regulations or any other law that is applicable to a trade in real estate or that is relevant to carrying on a registrant’s business.

Any registrant who does so should expect to be prosecuted.

Permitted agreements with buyers and sellers

There are two types of buyer and seller agreements permitted in Ontario:

1. Designated Representation Agreement
A representation agreement between a brokerage and a client under which the brokerage provides services to the client and designates one or more brokers or salespersons employed by the brokerage to represent the client to the exclusion of the brokerage and all of the other brokers and salespersons employed by the brokerage.

2. Brokerage Representation Agreement
A representation agreement between a brokerage and a client under which the brokerage and all of the brokers and salespersons employed by the brokerage provide services, including representation, to the client.

Required content of agreements under the legislation

Brokerages are reminded that section 13.4 of the General regulation sets out requirements related to representation agreements:

13.4 (1) A brokerage shall not enter into a written agreement with a buyer or seller for the purpose of trading in real estate unless the following requirements are satisfied:

1.  The agreement clearly, comprehensibly and prominently, sets out the following information:

i.  The date on which the agreement takes effect and the date on which it expires.
ii.  The method for determining,

A. the amount of any remuneration payable to the brokerage, and
B. in the case of an agreement with a seller, the amount of any remuneration payable to any other brokerage.

iii.  The identification of any circumstances in which an amount mentioned in subparagraph ii may change, and, for each circumstance,

A. an explanation of how the amount may change, and
B. an indication of whether one or more other brokerages may receive remuneration.

iv.  The method to be used for paying any remuneration payable to the brokerage.

v.  The services that the brokerage will provide under the agreement and, in the case of a designated representation agreement, the fact that the brokerage will not provide representation.

vi.  In the case of a designated representation agreement,

A.  the name of each designated representative under the agreement,
B.  the services that the designated representative will provide under the agreement,
C. the duties of the brokerage under section 22.0.4, and
D. the duty of the designated representative under section 22.0.5.

vii.  The terms related to termination of the agreement, if any.

2.  The expiry date is displayed prominently on the first page of the agreement.

3.  The buyer or seller has initialed the agreement next to the expiry date. O. Reg. 357/22, s. 10; O. Reg. 235/23, s. 6.

(2) A brokerage shall ensure that an agreement referred to in subsection (1) contains only one date on which the agreement expires. O. Reg. 357/22, s. 10.

Prohibited agreements

The General regulation prohibits agreements that do not include representation, meaning services can only be provided to clients under a representation agreement – either a brokerage representation agreement or a designated representation agreement.

For greater clarity:

13.3.1 A brokerage shall not enter into an agreement with a buyer or seller for the purposes of trading in real estate if the agreement does not include the provision of representation. O. Reg. 235/23, s. 5.

Agreements with self-represented parties for the provision of assistance are prohibited. 

Related information

For more information about the content of representation agreements, please refer to Bulletin No. 2.3 Representation agreements and unit 2 of the 2024 Update Course: Introduction to TRESA.