Despite continued warnings about overvaluation of residential
real estate, home prices continue to rise across the country as
Canadians and foreigners alike find safety in owning real estate in
Canada. With rising prices, issues relating to real estate
brokerage services and transactions will continue to attract the
attention of Canadian regulators including the Canadian Competition
Bureau and federal and provincial Privacy Commissioners. Upcoming
legislative changes will also have an impact on how buyers and
sellers interact with realtors, brokers and real estate
associations (“real estate organizations”) going
forward.
In this series of bulletins, we will outline some of the changes
that have occurred in the regulatory environment and some
additional changes on the horizon. In this first bulletin, we cover
pending changes to Canada’s privacy regime, developments with
low-commission brokerages and changes to short-term rental
regulations.
Digital Charter and Privacy
As part of the federal government’s agenda to modernize
Canada’s privacy laws, the Minister of Innovation introduced
new legislation before Parliament in November 2020. If passed, the
new legislation will strengthen
existing privacy rights and impose new obligations on businesses
related to the collection, use, protection and disclosure of
personal information.
These proposed changes would give consumers a greater ability to
control what happens to their personal information, such as photos
of their current home, and place new responsibilities on real
estate organizations to handle requests related to such personal
information posted online. Buyers and sellers would have greater
rights to ask real estate organizations how they use personal
information, to obtain access to this information, and to compel
real estate organizations to delete, destroy or transfer personal
information. On a practical level, the new obligations –
especially related to data transfer obligations – have the
potential to create material technical and operational challenges
for real estate associations as well as brokers operating virtual
office websites or VOWs.
Real estate organizations will also need to make sure that their
privacy policies are readily available to consumers and assess
whether the transfer of personal information to cloud-based
providers outside of their province or outside of Canada altogether
could raise concerns about the security of this information. The
proposed law would also impose greater transparency requirements
around automated decision-making systems or AI that interact with
buyers and sellers, again creating technical and operational
burdens on those running such systems.
While passage of this legislation is subject to the realities of
a minority government, this legislation is a political priority for
the federal government and one it would like to see passed before a
possible election later this year. If passed in its current
form, the new legislation would grant the federal Privacy
Commissioner additional powers to investigate privacy related
complaints and a new Tribunal would be able to impose significant
financial penalties for non-compliance in the millions of
dollars.
Low-Commission Brokerages
The Competition Bureau has historically followed the U.S. lead
in challenging rules of real estate associations that limit
competition between brokerages, including most recently, rules
around the ability of brokers to post “sold” information
on password-protected virtual office websites or VOWs.
Real estate associations should pay close attention to the recent settlement between the
U.S. Department of Justice and the National Association of
Realtors® that will require NAR to change its rules
to provide greater transparency to buyers and remove barriers to
low-commission brokers. The settlement prevents NAR from
implementing rules or policies that (i) conceal commissions paid to
buyers’ brokers from home buyers, (ii) allow buyer brokers to
represent that their services are “free” because the
commission is paid by the seller, (iii) allow buyer brokers to
filter MLS® listings based on the level of
commission offered and (iv) limit lock-box access to brokers that
are members of an association.
The NAR settlement is a good reminder that real estate
associations and their directors need to be cautious when enacting
rules or policies that might make it harder for low-commission or
digital brokerages to compete with more established brokers.
Canada’s Federal Court of Appeal has determined that where a
board controls access to the MLS® data in its
territory, the board could face a potential challenge under section
79 of the Competition Act if it enacts or enforces rules
that harm certain brokerages without a valid, procompetitive reason
for the rule. Real estate associations should also be careful when
documenting rule changes and should conduct periodic reviews of
their rules to ensure fair treatment of brokerages operating in
their territory.
Short Term Rentals
The emergence of online platforms including Airbnb and VRBO has
transformed how people book short-term accommodations. Changes to
the City of Toronto’s by-laws came into effect in January 2021
requiring that short-term rental operators register their homes or
rooms with the City if they plan to rent them for periods of fewer
than 28 days. The by-laws require that operators obtain a valid
registration, restrict their rental activity to their primary
residence, collect and remit a Municipal Accommodation Tax and adhere to other requirements.
Similar rules may soon come into effect in the City of Ottawa
following a study by city staff. The Toronto by-law changes seem to have precipitated a
material increase in the number of furnished condominium units in
the downtown core listed for 12-month leases, demonstrating the
significant and rapid effect that regulatory changes can effect on
real estate markets. Real estate professionals and their
associations ignore such changes – and other regulatory
actions by governments at every level – at their peril.
The foregoing provides only an overview and does not
constitute legal advice. Readers are cautioned against making any
decisions based on this material alone. Rather, specific legal
advice should be obtained.
© McMillan LLP 2020
