Alan Hu/pacificevergreenrealty.com

The Supreme Court of British Columbia has ordered Alan Hu, a Surrey-based Realtor, to surrender his profits from the sale of a $3.35-million property after breaching his fiduciary duty to a client.

According to a court decision published on Jan. 10, Pei Hua Zhong, a Chinese immigrant of “modest means,” hired Hu to sell his South Surrey, B.C. home and purchase a new property in Surrey in 2017. Zhong signed a contract to buy a property listed for $2.1-million, conditional on securing the down payment by selling his current home.

When his home failed to sell by the subject removal deadline, Zhong decided to pursue bridge financing, planning to use the equity in his existing property to secure the down payment.

While Zhong prepared a second offer of $2.05-million, Hu referred his friend Lingxia Tao, who was vacationing with him in Las Vegas, to another real estate agent to compete for the same property. Zhong was not made aware of the referral. Tao’s offer, submitted with Hu’s assistance, included a clause allowing her to assign the contract to a third party.

In January 2018, the seller accepted Tao’s bid of nearly $2.1-million, cutting Zhong out of the deal. According to court findings, Hu later acquired the property through an assignment from Tao and in 2021, sold the property for $3.35-million— a profit of more than $1.2-million. 

2038 174 St., Surrey B.C., Image source: homesbyalan.ca 2017

In her decision, Judge Amy Francis wrote that Hu “intentionally undermined Mr. Zhong’s bid to purchase the 2038 (174 Street) Property so that he could take an interest in the 2038 Property for himself,” describing his actions as a “marked departure from ordinary standards of decent behaviour,” and “deceptive and underhanded.”

Hu’s failure to act in client’s best interests

She emphasized that a Realtor’s core responsibility is to act loyally and transparently in the client’s best interests. Hu violated this duty when he shared Zhong’s bid with Tao, facilitated her competing offer and ultimately acquired the property through a contract assignment.

Justice Francis found that Tao relied on Hu for instructions and she was not held legally liable.

While litigation regarding the profit split from the sale between Hu and Tao is ongoing, the court has ordered Hu to disgorge all “ill-gotten gains” from the sale​.

Insurance and regulatory implications

In February 2022, Hu submitted statements to the Real Estate Errors and Omissions Insurance Corporation, though intentional misconduct like fraud typically falls outside the scope of coverage. The B.C. Financial Services Authority, which oversees real estate agents in the province, is reviewing the judgment and considering regulatory action.

In addition to surrendering profits, Mr. Hu must also repay the $19,000 referral feed he took for the original purchase of the Surrey property. 

Sunshine Coast, B.C. (Canva)

QUICK HITS

 

• Two B.C. Realtors were fined over $200,000 for failing to disclose key restrictions in a 2017 waterfront property sale on the Sunshine Coast.
• Acting as dual agents, they marketed the cabin as “legal non-conforming” without informing buyers of its seasonal-use limitations on Crown foreshore land.
• The B.C. Financial Services Authority found their actions misleading, ordering penalties and remedial education for violating disclosure and client care standards.

Two Realtors in B.C. are facing more than $200,000 in fines for failing to disclose information to clients related to a 2017 oceanfront property sale on the Sunshine Coast. 

According to a consent order by the B.C. Financial Services Authority (BCFSA), Joel Patrick O’Reilly and Denise Anne Brynelsen with Royal LePage Sussex in Sechelt acted as dual agents, representing both the buyers and sellers in the sale. 

Property in question

The waterfront property included an 800-square-foot cabin and a dock, both built on Crown foreshore land in Pender Harbour, B.C. Foreshore land, the area between high and low tide, is subject to strict provincial regulations. 

According to the consent order, the cabin had initially been built as a shed in the 1960s. Over time, the previous owners remodelled it into a residence, without obtaining permits. In 2010, the sellers signed a tenure agreement with the provincial government, acknowledging that the cabin was only allowed to be used as a seasonal residence. The government had also communicated that the foreshore tenure was temporary and subject to renewal or revocation.

The sellers did not share this information with the agents at the time of listing.

Professional misconduct

O’Reilly and Brynelsen eventually learned of these restrictions, not through the sellers, but through an inquiry on behalf of a prospective buyer. A foreshore tenure consultant confirmed the cabin was “not legalized” and classified as a “non-conforming use,” and “that structures on Crown foreshore are generally not approved.” 

Despite being made aware of the cabin’s non-conforming status through a government email in 2017, O’Reilly dismissed these concerns, writing in an email to the sellers he thought there was “zero chance of a government agency removing the cabin.”

The agents marketed the cabin as “legal non-conforming” without disclosing the provincial restrictions or the seasonal limitation. On MLS, the property was described as “freehold nonstrata” and highlighted the cabin as a “completely renovated beach cottage.” 

According to the consent order, the buyers, who eventually purchased the cabin for $900,000, asked about foreshore tenure and the possibility of rebuilding. The agents assured them that the tenure transfer would be straightforward and that the cabin’s legal non-conforming status allowed rebuilding within its existing footprint.

After the sale

After the sale, the provincial government refused to transfer the foreshore tenure to the new owners until the cabin was removed. The buyers filed a complaint with BCFSA in 2019, ultimately building a new home on the property in 2023.

In the consent order, O’Reilly and Brynelsen admitted to advertising the property with “false and/or misleading representations” and failing to disclose “material information” regarding the cabin’s use. They also admitted to providing inaccurate information to the buyers and neglecting to conduct necessary verifications about the property’s restrictions.

As a result, the agents were found to have violated the Real Estate Services Act’s requirements for accuracy, honesty and client care in advertising, disclosure and due diligence. 

They each agreed to pay a $100,000 penalty and $2,500 in enforcement costs to BCFSA, and are required to complete a real estate trading services remedial education course.

“The licensees’ failure to disclose information was harmful to their clients”

“It is imperative that licensees disclose all pertinent information to their clients about a property or transaction,” said Jonathan Vandall, BCFSA’s senior vice president of compliance and enforcement in a press release. 

“In this case, the licensees’ failure to disclose information was harmful to their clients. The penalties handed down are reflective of the severity of their misconduct and serve as a reminder to all real estate licensees about the importance of disclosing crucial information to clients.”

Co-authored by Christina Tassopoulos

QUICK HITS

 

• When a property is owned by 2+ people, one owner might want to sell it against the wishes of the others. Under Ontario’s Partition Act, this is typically allowed. Stothers vs Kazeks is one of the rare exceptions.
• In 2005, Stothers moved out of the jointly-owned home with Kazeks and applied to sell this year, after being diagnosed with terminal cancer and needing to get her affairs together.
• Kazeks showed more than enough evidence that a forced sale would cause serious hardship financially, personally and emotionally, and the court ruled in his favour.

When properties are owned by two or more people, situations can come up when one of the owners wishes to sell the property against the wishes of the other.

The Ontario Partition Act provides a way for joint tenants, tenants in common, or other parties with an interest in any land to request an order from the court for the partition or sale of the land. In the majority of Partition Act cases, the courts are inclined to grant the order that the land be partitioned or sold since it would be unfeasible for the co-owners to be required to continue to hold the property in the face of an ongoing disagreement.

Conversely, the decision of the Ontario Superior Court of Justice in Stothers v. Kazeks, 2023 is an example of a rare situation in which a Partition Act application was refused.

The history

In Stothers, the applicant (Stothers), and the respondent (Kazeks), lived together, in a common law relationship, in a home at 150 King Street in Toronto from 1998 to 2005. The property originally belonged to Kazek’s mother, who then transferred title to herself and her son as joint tenants. Stothers moved in with Kazeks and his mother.

In December 2003, Kazeks’ mother moved out of the home and transferred her interest to her son. Kazeks then transferred his sole interest to himself and Ms. Stothers as tenants in common. However, their amicable co-ownership was short-lived, as their relationship ended in April 2005, and Stothers moved out of the house.

For the next 18 years, Kazeks continued to live in the home and paid all the expenses associated with the house.

Applying to sell after 18 years

In 2023, Stothers brought an application to sell the home because she learned that she had terminal cancer, with a prognosis of only a few months to live, and wanted to get her affairs in order. By the time of the application, Kazeks was 76 years old and had lived in the property for some 40 years.

There was no doubt that the wording of the Partition Act provided Stothers, as a tenant in common, with a prima facie right to the partition and sale of the home. Under section 3, any person with an interest in a property may bring an action or make an application for the partition or sale of that property under the directions of the court, “if such sale is considered by the court to be more advantageous to the parties interested.”

Nevertheless, the common law has recognized that courts have the discretion to refuse such relief in narrow circumstances. The onus is on the party resisting the sale to demonstrate why the court should deny the relief that the applicant seeks. In most cases, it is only where the court finds malice, vexatious intent, or oppression that the respondent will have met their burden to show that the application should be refused.

Demonstrating oppression

To demonstrate oppression, a respondent must show that they would suffer more than mere inconvenience and adverse financial consequences from the partition or sale. Some examples of oppression include sales that would require the relocation of a person with disabilities or a home business (like. Barker v. Barker, 2010 ONSC 408 and Mitchell v Leach, 2015 ONSC 6041).

As part of the analysis in determining whether a partition or sale would be oppressive, the courts use a contextual approach and consider the parties’ relationship, their reasonable expectations regarding the home, the nature of the conduct between them and the impact of a court-ordered sale.

Examining the relationship, expectations and intentions

The application judge first looked at the nature of the relationship between the parties. Kazeks and Stothers were in a personal romantic relationship at the time that title was apportioned between them, not a commercial one. The court noted that many situations end up being litigated because people fail to take a commercial approach to their romantic relationships and fail to consider what may happen if the relationship breaks down.

Next, the court considered the reasonable expectations of the parties when creating their respective interests in the property. Stothers was a tenant in common and held a statutory right to compel the sale of the home. However, she had moved out of the home 18 years earlier and had not once paid any of the expenses, or attempted to exercise her right since that time. Kazeks had paid all of the expenses to maintain the property and had not considered that he would suddenly be forced to sell his home many years later.

Furthermore, Kazeks’ evidence was that he had not intended to gift 50% of the home to Stothers and that he was not informed by the law firm that assisted in the transfer of title that the transfer would give her an ownership interest in the property.

What the evidence showed

There was plenty of evidence to show that the forced sale of the property would cause serious hardship to Kazeks not only financially, but also personally and emotionally:

He had osteoarthritis and had suffered from two heart attacks, an aneurysm, and a hip replacement and it would be difficult to relocate to another home.
His doctor, dentist, physiotherapist, and veterinarian were all within walking distance, and his friends and family who helped care for him were in the neighbourhood.
He used approximately 30 per cent of the home as his workspace for his electrician job and was unsure whether he would be able to continue working somewhere else.
He did not have a high income and was still working at the age of 76 just to make ends meet (his annual expenses exceeded his earnings by $18,000 a year).
The house had significant sentimental meaning to him.

As for Stothers’ circumstances, the application judge concluded that it did not appear that she needed the funds from the sale to provide for her immediate health and comfort.

A litigation twist

Stothers and Kazeks were also involved in a concurrent, ongoing, family law proceeding regarding whether Stothers held her interest in the property in trust for him and for related relief. In cases where a partition application is intertwined with other litigation, the courts generally exercise caution so as not to prejudice the rights asserted in the broader litigation.

Court’s ruling

The court concluded that ordering the sale of the home would cause serious hardship amounting to oppression for Kazeks and dismissed the application.

This decision illustrates the high threshold that must be established to defeat a Partition Act application. Fortunately for Kazeks, he was able to provide sufficient evidence of his personal circumstances to persuade the court that the order sought would be oppressive.

QUICK HITS

 

• In the case of 1000249084 Ontario Inc. v. Andazesgishahr, the Ontario Superior Court of Justice dealt with a property dispute involving co-owners and a mortgage lender; the co-owners had an agreement preventing the sale of the property without mutual consent. 
• When the property faced financial difficulties, one co-owner’s son’s company purchased the second mortgage to enforce it and sell the property. 
• The court ruled in favour of the son’s company, finding no bad faith or wrongdoing. 

When a property is purchased by co-owners for development and sale, they may set out their respective obligations in a written agreement that addresses the ongoing costs and the eventual sale of the property. If their relationship deteriorates or the property needs to be sold before they originally contemplated, they may have to determine how to deal with payment of the outstanding mortgages. Rights between co-owners of a property and their lenders are generally subject to the contracts they have made.

In 1000249084 Ontario Inc. v. Andazesgishahr, the Ontario Superior Court of Justice dealt with a dispute between one co-owner and a mortgage lender owned by the son of the other co-owner over the sale of a property.

The property was purchased by Payam and his friend and business partner, Mansour. They entered into a written co-tenancy and trust agreement under which they agreed that neither of them could compel a sale of the property without the other’s consent. They agreed to share liability under a first mortgage, with Payam taking on sole responsibility for any further mortgages. Payam was also responsible for payment of the realty taxes, home insurance, utilities and maintenance. Payam lived in the property with his wife and child.

Defaulted mortgages and disagreements

A second and third mortgage was registered on title for renovation purposes. By June 2022, all three mortgages were in default. Payam wanted to sell the property, but Mansour disagreed.

In July 2022, Mansour’s son incorporated a numbered company and paid $509,940.10 for an assignment of the second mortgage. The numbered company then sued Payam for judgment under the second mortgage and sought a court-ordered sale of the property.

In response, Payam took the position that the numbered company was actually controlled by his partner, Mansour and that the attempt to sell the property contravened their agreement. Payam argued that the plaintiff company and Mansour colluded for the purchase of the second mortgage in order to give Mansour unfair leverage in the dispute over the sale of the property. Payam claimed that the plaintiff mortgagee was exercising its rights in bad faith and for improper purposes. Since Mansour had refused to consent to the sale of the property, Payam argued that the plaintiff should not be allowed to recover additional interest and fees made payable under the second mortgage.

On a motion for summary judgment brought by the plaintiff mortgagee, the motion judge rejected Payam’s arguments. The evidence of Mansour’s son was that he took steps to incorporate the plaintiff and obtain an assignment of the second mortgage because this was a way to enforce the mortgage in an expedited and controlled manner at less cost than would be incurred by a financial institution. The motion judge agreed that this made good business sense.

Mortgagee’s perspective

As to the relationship between Mansour and the mortgagee, the motion judge noted that children often seek to help their parents, and the fact that they do so does not mean that they are acting improperly. There was no persuasive evidence to conclude that Mansour’s son was motivated by any intention to harm Payam that would contradict his professed intention to assist his father by ensuring that the costs of sale are minimized. 

Further, any act to deliberately and negatively affect the sale price would mostly harm his father rather than Payam since the majority of the equity belonged to Mansour.

Payam argued that Mansour had breached their agreement not to compel a sale of the property, but there was no such contract between Payam and the plaintiff mortgagee. The motion judge noted that it is trite law that a mortgagee acting in good faith and without fraud will not be restrained from a proper exercise of his power of sale except upon tender by the mortgagor of the principal money due with interest and costs. There is no duty on a mortgagee to allow a mortgagor to sell a property when a mortgage has gone into default.

The importance of good faith

The motion judge also considered Payam’s argument that Mansour had deliberately attempted to harm him by refusing to consent to his efforts to sell the property. Payam’s position was that Mansour had failed to act reasonably in the exercise of a discretion set out in their co-tenancy agreement, in violation of the duty of good faith required by the Supreme Court of Canada.

The court briefly reviewed the evidence about Payam’s proposals to sell the property and concluded that Mansour was not obligated to accept any of them. The court also noted that Payam admitted he had obtained the third mortgage without Mansour’s knowledge or consent, which understandably impacted whether Mansour wanted to have any further dealings with Payam.

In assessing whether Mansour had breached any duty to act in good faith, the motion judge concluded that Mansour was entitled to act in his own best interests and was not required to agree to something that could undermine them. While an earlier sale might have achieved a better sale price based on the subsequent market decline, there was no reason to conclude that Mansour and/or the plaintiff mortgagee knew that the market would decline and that it would continue to do so rather than going back up.

The motion judge, therefore, rejected Payam’s argument that there was a genuine issue as to a breach of the duty of honest contractual performance. The plaintiff did not conceal the relationship between Mansour and the son, nor was there any evidence that anyone had misled Payam as to amounts due and owing under the second mortgage. Mansour had the discretion to refuse to agree to sell the property, and in any event, this discretionary power did not arise out of the second mortgage, and there was no privity of contract between the plaintiff mortgagee and Payam.

Court’s ruling

In the result, the court granted judgment to the plaintiff mortgagee and ordered that it could take steps to sell the property. After the property was sold and the mortgages paid out, any remaining balance would be paid into court subject to determination of the remaining dispute between Payam and Mansour.

The decision shows that it will be difficult to establish bad faith or other improper conduct on the part of a co-owner or mortgagee who is acting pursuant to the terms of the written agreements between the parties. In Ontario, the Partition Act generally allows a co-owner to seek a court-ordered sale of a property, but in the case at hand, the parties had agreed that they could not do so without the other’s consent. As a result, there was no contractual breach by the co-owner refusing to agree to a sale, of which he was not in favour. For its part, the mortgagee was simply enforcing its rights to enforce the second mortgage.