Referral Fees Between Realtors And Lawyers In Ontario
Please note that the information provided herein is not legal advice and is provided for informationaland educational purposes only. As always, my observations are based on current Ontario laws; youare cautioned not to rely on the information provided herein and that you should do your own duediligent on present and applicable Ontario laws.Ever wonder about the legality and ethics of referral fees between Ontario realtors (note: I use theterm "realtors" throughout this blog to mean real estate sales representatives) and lawyers? Say, forexample, your realtor recommends a lawyer to close your deal. If you end up going with that lawyer,is it legal and ethical for the lawyer to pay a referral fee to the realtor?Conclusion:The bottom line is that referral fees are prohibited as between a realtor and a lawyer. While the issueof whether a realtor can make a referral fee may be somewhat unclear, the Real Estate Council ofOntario has made a strong case that such fees are prohibited. A realtor is, however, capable ofreceiving a referral fee from a third party provided that such fees are first disclosed by the third partyto the client and the client agrees (preferably in writing). In such a case, the third party would pay thereferral fee to the realtor's employer (i.e. The broker), who would in turn pay the realtor. Much like arealtor, however, a lawyer is not capable of making a referral fee to non-lawyers, but is capable ofreceiving such fees under the same conditions as would a realtor. Therefore, since neither a realtornor a lawyer are capable of making referral fees (notwithstanding that they're capable of receivingthem) to one another, referral fees are prohibited as between them. Breach of this rule is both illegaland unethical.The following analysis shows how I came to these conclusions.Realtors and so-called "Bird-Dog" or Referral FeesThe combined effects of ss. 30(b) and (c) of the Real Estate Business and Brokers Act, 2002 providethat a broker shall not "pay any commission or other remuneration" to "employ or engage anunregistered person to trade in real estate".Here, a number of terms require further clarification.Section 1 defines a broker as "a person who, for another or others, for compensation, gain or rewardor hope or promise thereof, either alone or through one or more officials or salespersons, trades inreal estate, or a person who holds himself, herself or itself out as such".Moreover, s. 1 defines a salesperson as "a person employed, appointed or authorized by a broker totrade in real estate". Here, the word "employ" means "to employ, appoint, authorize or otherwisearrange to have another person act on one's behalf, including as an independent contractor".Finally, s. 1 defines a trade as including "a disposition or acquisition of or transaction in real estate bysale, purchase, agreement for sale, exchange, option, lease, rental or otherwise and any offer orattempt to list real estate for the purpose of such a disposition or transaction, and any act,advertisement, conduct or negotiation, directly or indirectly, in furtherance of any disposition,acquisition, transaction, offer or attempt, and the verb 'trade' has a corresponding meaning".