How to buy a real estate brokerage in Ontario: licences, ownership rules and what transfers

Buying a real estate brokerage in Ontario means buying a business that can only trade because of a registration, and the registration is not part of what the seller can hand over. The Real Estate Council of Ontario (RECO), through its Registrar, administers brokerage registration under the Trust in Real Estate Services Act, 2002 (TRESA). The Act says a registration is not transferable. So the deal structure decides what you need: in a share purchase the registered corporation stays in place and the Act’s ownership and officer rules apply, while in an asset purchase the buyer’s own brokerage must itself be registered as a brokerage to trade in real estate. This page covers Ontario’s Act only. For the wider process, start with how to buy a business in Canada.

Who regulates brokerages in Ontario

Under TRESA, no person may trade in real estate as a brokerage unless the person is registered as a brokerage. A person who is not registered may not hold themselves out as a brokerage, directly or indirectly, or perform a brokerage’s functions. RECO’s website sets out the forms and notices that registered brokerages use. Brokers and salespeople are registered as brokers or salespeople of a brokerage, so each broker’s and salesperson’s registration is tied to a brokerage. If you are weighing real estate brokerages alongside other service firms, the professional services businesses for sale are a separate marketplace category.

The registration does not move with the sale

TRESA says a registration is not transferable. A buyer therefore cannot take over the seller’s registration as such, whatever the purchase agreement says. The Registrar decides who is entitled to registration or renewal. For a corporation, the Act looks at the financial position and conduct of the corporation’s officers and directors and of interested persons. A person is an interested person if associated with another, or if, in the Registrar’s opinion, the person has or may have a beneficial interest in the business, exercises or may exercise control over it directly or indirectly, or has or may have provided financing to it directly or indirectly. Ask a lawyer whether a buyer’s lenders and co-investors would be interested persons. A registration is also subject to its conditions, so ask what conditions apply.

Buying shares: officers, directors and share-transfer notices

If you buy the shares of a registered corporation, three parts of TRESA matter. First, a change in the officers or directors of a corporation registered as a brokerage may be made only with the consent of the Registrar, so a plan to replace the board at closing needs that consent. Second, a brokerage that is a corporation must disclose to the Registrar, on registration and renewal, the persons who beneficially own or control the interest in its equity shares set out in section 11. Third, in addition to that disclosure, it must notify the Registrar in writing within 30 days after an issue or transfer of equity shares that results in a change of ownership described in section 18. If the corporation learns of such a transfer afterwards, the 30 days run from when the officers or directors become aware of it. RECO’s changes page lists a notice of change for shareholders, officers or directors. For a partnership, a change in its membership is deemed to create a new partnership for the purposes of registration.

The broker of record

Every brokerage must designate a broker it employs as its broker of record and tell the Registrar who that is. If the broker of record changes, the brokerage must notify the Registrar within five days of the change. The Act makes the broker of record responsible for ensuring that the brokerage complies with the Act and the regulations, and Ontario’s code of ethics regulation adds that the broker of record must ensure the brokerage complies with that regulation. If the brokerage is a sole proprietorship, the sole proprietor must be designated. The Act notes an amendment, to take effect on a day set by proclamation, that adds prescribed requirements for the person designated, so check the current text of section 12. If the seller is the broker of record, ask who will be designated from closing day and who will give the Registrar the five-day notice.

Closing, trust money and records

RECO’s changes page lists separate notices for a change of real estate trust account information and for closing a brokerage, in addition to the notice for shareholder, officer and director changes. Ask which of these the deal triggers and who files them. Confirm the seller’s registration status, any conditions on it and any warnings or complaints before you sign, because the Registrar may give a registrant a written warning where the Registrar believes the Act or regulations were contravened. Ask your lawyer to map the closing sequence to these notices.

• The brokerage’s current registration and any conditions that apply to it
• The most recent shareholder disclosure to the Registrar and any notices of share issues or transfers
• The list of current officers and directors and the identity of the designated broker of record
• Copies of any warnings, complaints or correspondence with RECO
• The real estate trust account details RECO holds for the brokerage