Law Times

Law Times • may 3, 2010 T Change is a bitter pill here are two types of change: incremental and sudden. While we seem to accept the former with resignation, the latter can trigger extreme reac- tions as we've seen over the last few weeks with Premier Dalton McGuinty's government. This was supposed to be a spring of "steady-as-she-goes" strat- egy, with an eye to seeking calmer waters to let the storms of last year's eHealth and Ontario Lottery and Gaming Corp. scandals blow by. With the harmonized sales tax sure to create a thunder of its own, the strategy seemed prudent. Instead, we've seen the govern- ment floundering on policy issues as if caught in a whirlpool. The flip-flop on sex education last month was just the latest in a series of issues buffeting the Liber- als and threatening to send them careening into the rocks. To be fair, this is no easy ride given the financial pressure the government is under, so it's un- derstandable if McGuinty is starting to look a little lost at sea while flung in different directions at the same time. The bulk of government ex- penses, for example, are tied up in contractual agreements with the Ontario Public Service Employ- ees Union and other large labour groups, so there's no wiggle room to change course on that front. Much has also been made of the ballooning numbers of civil servants who, as revealed under the so-called sunshine list, make more than $100,000 a year. For members of the legal pro- fession, Crown prosecutors' sala- ries may not seem like much of an income, but this is the base pay, excluding benefits, that doesn't in- clude expenses other lawyers must carry, such as insurance, dues, and office staff. For the majority of Ontarians, it's a significant threshold. Still, the point here isn't that civil ser- vants make more than $100,000 a year; it's that the number of those making above the threshold seems to be increasing exponen- tially at a time when the public at large is having to practise and accept fiscal restraint. As the NDP under Bob Rae discovered back in the 1990s, when you find yourself painted this far into the corner, you're not going to make many friends ex- trapolating yourself. Former Tory premier Mike Harris could simi- larly offer to compare scars from his era of cost-cutting. Already, McGuinty's gang has incurred the wrath of Toronto Mayor David Miller when it axed — or perhaps postponed — the multibillion-dollar commitment to new streetcar lines. More re- cently, critics have pilloried the government as the Grinch respon- sible for the death of small-town pharmacies and the end of free prescription deliveries. Despite these developments, there's some support. The Ontario Federation of Labour has stepped COMMENT PAGE 7 Competition Bureau v. CREA: What does it mean for real estate lawyers? Inside Queen's Park By Ian Harvey up with a call to boycott Shoppers Drug Mart and Rexall pharmacies for their aggressive stand against the elimination of drug manufac- turers' "kickbacks" — also known as the generic drug compensation plan — that effectively took $700 million out of the system. The changes will reduce drug costs not just for the Ontario Drug Benefit Program but for all consumers. The OFL is also calling on small pharmacies to distance themselves from the big players, noting other changes to Ontar- io's health programs will call on pharmacists to receive compen- sation for playing a larger role in front-line medical care. Greater efficiencies within hospitals and doctors' offices will offset those payments, the government says. Some of the targets identified for cost review will generate politi- cal capital, including the acknowl- edgment that salaries for Ontario hospital executives are far more generous than other jurisdictions. The Globe and Mail also recently revealed big school boards stub- bornly hire retired teachers over re- cent graduates at a huge premium. Of course, everyone wants to find efficiencies in government spending as long as they don't mean cutting favoured programs. It's the nature of sudden change that has whipped the winds of protest, but it appears the govern- ment has little recourse. Some of its decisions and reac- tions smack of sheer desperation, but these are desperate management times. We've become a have-not prov- ince, something that requires a different mental- ity but offers no quick fixes. You can't, for example, just cut or freeze funding to a program like legal aid unless you address the fundamental issues underlying the expense. It's not the lawyers' fault the court system is jammed and that handling complex cases takes time and resources. The howls of outrage from the pharmacists at the effects of this kind of change are but the beginning of what one suspects is going to be a growing chorus of angst in Ontario. The forecast is for more pain regardless of whether the Liberals manage to hang on to power in the next election. It's best to batten down the hatches and trim the sails. The recessionary clouds may be clearing, but the flood waters are still rising. LT Ian Harvey has been a journalist for 32 years writing about a diverse range of issues including legal and political affairs. His e-mail address is ianharvey@rogers.com. is the registered owner of the ubiquitous Mul- tiple Listing Service and related trademarks, all of which it licenses to its member real estate boards and associations across the country. The MLS system provides CREA members with a comprehensive listing of properties for sale in Canada in a uniform format familiar to agents across the country. There's no doubting the effectiveness of the MLS system, which currently accounts for approximately 90 per cent of all home resales in Canada together with a decent number of smaller commercial real estate transactions. Although there's limited public access to the MLS through CREA's web site, the public information is little more than teaser mate- rial with the comprehensive property listing information available only to member licensees. T Although the basic business model for CREA's MLS had been in place for decades, in March 2007 the association imposed addi- tional restrictions on the terms of use, alleg- edly to curb the growth of discount brokerage operations. The new rules allowed only CREA members to list homes on the MLS system and added new conditions requiring, inter alia, that the listing agent receive and present all offers; members be prohibited from making "mere postings," a prohibition preventing a listing agent from being hired only to post the prop- erty at a commensurately lower fee; and list- ings not disclose the seller's name and contact information. According to the discount bro- kerage lobby, these new rules precluded agents from offering prospective sellers the option of paying a flat, and presumably much lower, fee to list the home on the MLS system, instead requiring consumers to buy the full spectrum of more costly agent services rather than selling their homes by themselves with the help of a cheap MLS listing. The 2007 amendments attracted the atten- tion of Canada's Competition Bureau, culmi- nating in charges against CREA filed with the Competition Tribunal alleging abuse of domi- nance, which occurs when a dominant entity or a group of dominant industry players en- gages in conduct intended to eliminate com- petitors or deter their entry, thereby resulting in a decrease in competition. More specifically, the Competition Bureau claims CREA and its members use their control of the MLS system to maintain substantial or complete control of the market for the supply of residential real estate brokerage services, all in alleged contra- vention of the Competition Act. The Competition Bureau's actions came on the heels of the similar 2005 antitrust lawsuit in the United States brought by the Depart- ment of Justice against the National Associa- tion of Realtors, CREA's southern counterpart. The U.S. antitrust lawsuit struck a blow against the association's stringent rules in place at the time preventing access to the MLS system to web-based brokerages. The arguments weren't conceptually dissimilar to the arguments lev- elled against CREA today. In response to the recent scrutiny from the Competition Bureau, CREA recently recanted many of the 2007 amendments, electing in- stead to eliminate the requirement that the agent represent the client for the duration of the listing and allowing the homeowner's name and contact information to be posted. CREA also clarified that agents can, and always could, provide a reduced scope of services. But even after CREA changed course, Melanie Aitken, the competition commissioner, stated the amendments "do not solve the problem" and www.lawtimesnews.com he Canadian Real Estate Association represents more than 95,000 real es- tate agents and brokers in Canada and "are a step in the wrong direction." In par- ticular, she noted that a provision in the 2007 amendments allowing for the changes to be subject to the rules of local real estate boards remained intact. There's little doubt that significant changes The Dirt By Jeffrey W. Lem are coming to the MLS system, regardless of the outcome of the Competition Bureau ac- tion. Furthermore, there's no doubt that some of these changes will be real game changers for the business of real estate brokerage. If the U.S. experience is any example, we can expect the rise of discount brokerages and Internet-based realty at the expense of traditional full-service offerings. The U.S. associa- tion has lost nearly 13 per cent of its membership since the antitrust lawsuit, with many local boards merging to form regional and state- wide entities. While it's true that the ap- parent decline in traditional brokerage is also concomitant with a massive real estate meltdown south of the border, most American pundits still think that traditional full-service realty broker- age will soon go the way of full-service travel agents in the Internet age. One statistic gleaned from a 2009 Los Angeles Times article is illustra- tive. According to that article, in March 2009, approximately 2,000 people took the California realtor licensing examinations. In contrast, there were 8,000 realtor wannabes writing the same test back in March 2005. So what? As lawyers, what will the liberal- ization of MLS access do to our business? It's trite to conclude that increased accessibility to the MLS system will result in a decrease in the overall compensation being paid to many residential real estate brokers, but the impact on lawyers of realtors' lost income isn't readily apparent. In many markets, realtors are a huge referral source for real estate lawyers, some- thing that Internet and discount brokers who are expected to start mowing the lawns of the full-service realty firms aren't likely to replicate. Of course, that might just mean a slightly dif- ferent approach to marketing since the overall demand for legal services shouldn't decrease with the advent of discount brokerage. Recall that real estate lawyers, at least in Ontario, have also experienced the warm and cuddly embrace of the Competition Bureau. Ever since encounters with the bureau in the 1980s, the word "tariff" has disappeared from the vocabulary of all real estate lawyers in the province. The corresponding decrease in com- petence and service is a separate issue, but suf- fice it to say that the residential real estate bar has never really recovered its former robust- ness, in large part because of the chronic, if not permanent, price undercutting that now per- meates that corner of the bar. One can only expect the same fate for full- service realtors, but just as they survived the predation of the residential real estate bar after 1988, we can perhaps expect very little impact on lawyers after this paradigm shift for the agents. Indeed, some observers even posit that the liberalization of MLS access might finally spur the movement towards lawyers actively entering into the brokerage business. Another possibility is that the savings that clients real- ize in their realtor commissions might then translate into a corresponding rise in the aver- age legal fees payable for a residential real estate transaction. All that we really know for sure is that revolu- tionary change is coming to the real estate bro- kerage industry. Such change will forever upset the status quo for this country's realtors. LT Jeffrey W. Lem is a partner in the real estate group at Davies Ward Phillips & Vineberg LLP. His e-mail address is jlem@dwpv.com.

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