Personal Real Estate Corporations – Part 2
As discussed in Part One of this series it is now possible for salespersons or brokers in Ontario to create Personal Real Estate Corporations or PRECs. In the second part of this series, I discuss some key features of PRECs that are important to keep in mind when these types of corporations are formed.
General Operating Conditions:
There are several key conditions under which PRECS must operate:
- As PRECs themselves are exempt from registration under the Trust in Real Estate Services Act, 2020 (TRESA) and the Ontario Regulation 536/20, they must not engage in activities that would otherwise require them to be so.
- Each PREC may pay remuneration to only one registrant and a PREC cannot be promoted or advertised as being able to provide real estate trading services other than to provide the services of the controlling shareholder (broker or salesperson) to a brokerage.
- Each registrant must be employed by a brokerage but may not be paid a greater amount of remuneration than what the PREC receives from the brokerage.
- While a PREC may be used to purchase real estate or buy and own rental properties, the PREC iteself is not permitted to hold a real estate trust account
PRECs and the Real Estate Council of Ontario (RECO):
As PRECs are not covered by the professional liability program administered by RECO it may be wise for the registrant to inquire about insurance needs ahead of setting up the corporation. RECO also mandates that the registrant provide their name and address for service to their office prior to receiving any remuneration from the brokerage under the PREC. It is important to note that RECO must also be notified in writing of any change in information provided about the PREC within five days. This is vital particularly when the details involved may affect exemption from registration.
Written Agreement Requirement:
Another important consideration when forming a PREC is that a written agreement must be entered into between the registrant, the PREC and the brokerage. This agreement will set out the details regarding the terms under which all parties must work together to ensure that both the brokerage and the controlling shareholder fulfill their duties under the legislation.
These points encompass some of the important conditions and rules that must be followed when operating a PREC. In Part Three I will discuss when and why a Salesperson or Broker might want to form a PREC.
Ontario Regulation 536/20. Ontario Real Estate Association, Personal Real Estate Corporations:
Real Estate Council of Ontario, Personal Real Estate Corporations: