RECA fines realtor $10k for illegal property management

RedlineBrett

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Oct 24, 2007
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#1
See the weekly RECA case summary here. page 5.



http://www.reca.ca/Flash-Case-Summaries/February-6-2012/Default.html



This guy was licensed, but because he didn't run his rents through his brokerage he was fined. He complied and did everything they asked but they still fined him.



I post this for two reasons:



1. Make sure the PM firm you hire to manage your property in Alberta is licensed, and is practicing according to RECA regulations. If they aren't and they get shut down you will be left cleaning up the mess and holding the bag.



2. If you are doing rent to owns, a la carte management for another investor or are actually illegally doing property management without a license then think of the risks you are running by doing so. If they fined an industry member $10k it is my opinion they won't hesitate to push for criminal charges (fraud) on an unlicensed person making money this way. They need to do so to uphold the integrity of the industry and be onside with the people who pay for them (industry members through licensing fees)
 

Sherilynn

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Oct 22, 2007
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#2
[quote user=RedlineBrett]



2. If you are doing rent to owns, a la carte management for another investor or are actually illegally doing property management without a license then think of the risks you are running by doing so.







Are you referring to controlling a property via a lease option and then renting or optioning it to someone else? I could see that as a potential issue, but if that's not what you mean then could you please clarify?
 

RedlineBrett

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#3
In my opinion RTOs are dangerous because you are ultimately finding a tenant and/or buyer for the owner and getting paid for it. It may be indirect, however it is very clear in these deals that the lessee (RTO investor) never intends to occupy the premesis, and rather plans to sublet the owners property and collect compensation in the form of the difference in rent.



If you cut a deal with the owner and you sell them on the idea of finding a tenant and possibly buyer for their property then you are most certainly offside with the act especially if the leases you have on either side absolve you of all liability and obligations to the owner and push everything onto the tenant buyer.



If you are agreeing to pay rent regardless of whether or not your tenant buyer pays you then you're probably ok... If the lease is with you and you agree to be liable to the owner regardless of what the T/B does I think you're fine.



I haven't seen a RECA case on one of these yet, but I've only been really watching for about six months now. This kind of business is fraught with risks... all it takes is a sour tenant or owner or a realtor or manager to get wind of it and report the whole thing to RECA.



Rest assured the first one they see will be one that goes really sideways and no one will shed any tears for the investor playing both sides trying to make a buck.
 

Sherilynn

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#4
That's what I thought you meant. And I agree that there could be issues if you lease option a property and then lease option it to someone else. I believe some people handle this by "subletting" the property to their tenant buyer, but in some cases intention is everything.



I deal in lease options myself, but I buy the property first.
 

RedlineBrett

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#5
[quote user=Sherilynn] I believe some people handle this by "subletting" the property to their tenant buyer, but in some cases intention is everything.



I deal in lease options myself, but I buy the property first.




If you own the property (or have at least a 25% interest in it that you can prove) then you are fine as you meet one of the exemption requirements in the real estate act.



'subletting' as noted above is most certainly how most RTOs work... find a distressed seller, RTO them, then RTO back to a tenant buyer and keep the difference. That's where the risk is and it's a very grey area.
 

reinvestors88

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#6
Are there repercussions to unlicensed PMs in Ontario? In the first place, is a license required for a company or individual doing PM in Ontario? There was an article posted here before but can't remember the legal position on this. Appreciate any feedbacks. Thanks.
 

JimWhitelaw

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#7
[quote user=RedlineBrett]f you own the property (or have at least a 25% interest in it that you can prove) then you are fine as you meet one of the exemption requirements in the real estate act. I've read the real estate act; don't recall any mention of a specific (25%) interest specified. Can you point that out? My recollection is that the act seems a little vague on some of these topics, doesn't really mention "ownership" of a property, but rather "having an interest" in. That's open to various interpretations. One could reasonably argue that the operator of a "sandwich lease" deal has an interest in the property.



Also, I'm skeptical about RECA's ability to directly impose a fine on someone who isn't a member. I'm sure any reasonable non-member would just tell them to take a flying leap... RECA would have to pursue some other avenue to have someone charged by the crown with contravening the act. I wonder if that's ever happened before - it does seem to be consistent with their mandate.



[... just discussing, I don't have any hate for RECA and I'm sure we all want to run ethical, legal businesses ...]
 

brentdavies

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#8
RECA enforces the Real Estate Act in Alberta on behalf of the Alberta Government. Alberta is one of the few self regulated industries in Canada.



Yes RECA can enforce laws on private citizens. Much easier for them to enforce rules on realtors.



The realtor in the above case was probably operating another account (property management) and every realtor must operate using the brokage account only. Reca can fine and shut down the realtor very quickly. Private citizen, not so quick.



Interesting however, how few provinces have the requirement for licensed property managers, such as Ontario. I would have thought Ontario would be at the top of the list.
 

RedlineBrett

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#9
[quote user=JimWhitelaw]Can you point that out? My recollection is that the act seems a little vague on some of these topics, doesn't really mention "ownership" of a property, but rather "having an interest" in. That's open to various interpretations. One could reasonably argue that the operator of a "sandwich lease" deal has an interest in the property.




1.1 (w.2) `substantial interest` means an ownership interest in real

estate of not less than 25%;



2.1 This Act as it relates to trading in real estate does not apply to

(c) a person

(i) who acquires real estate or any interest in real estate,

(ii) who disposes of real estate owned by that person or

in which that person has a substantial interest, or



I also see this as a bit vague... If you have at least 25% I think this means you're fine. Less than that and it would be up to interpretation. Does an option count as an interest as it's defined here? not sure... probably depends how the option is written up.



[quote user=JimWhitelaw]Also, I'm skeptical about RECA's ability to directly impose a fine on someone who isn't a member. I'm sure any reasonable non-member would just tell them to take a flying leap... RECA would have to pursue some other avenue to have someone charged by the crown with contravening the act. I wonder if that's ever happened before - it does seem to be consistent with their mandate.


They fine people for trading without a license all the time. Usually it's industry members that are not up to speed on their license renewals. But they've most definitely got the authority and power to go after people or companies that never had a license in the first place. I've seen PM companies in remote locations taken down, or companies that try and sell US based real estate in Alberta to Albertans at home shows etc. They are a well funded regulatory body run by lawyers and ex cops. I wouldn't want to take them on.
 

housingrental

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Oct 10, 2007
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#10
Condo board management has requirements

Standard residential rental does not

[quote user=reinvestors88]Are there repercussions to unlicensed PMs in Ontario? In the first place, is a license required for a company or individual doing PM in Ontario? There was an article posted here before but can't remember the legal position on this. Appreciate any feedbacks. Thanks.