Ontario moves to ban use of non-disclosure agreements in real estate transactions

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Confidentiality clauses, or non-disclosure agreements, are increasingly found in all manner of legal agreements Canadians enter into, but as of April 1, 2023, Ontario real estate professionals will be restricted from using them when settling a dispute with a client.

To advocates pushing for an end to the widespread use of non-disclosure agreements (NDAs) the changes are welcome, but for an industry where reputation is a valuable currency it could raise the stakes for realtors facing complaints or business disputes.

“One of the main reason [any party] wants to settle is they don’t want their dirty laundry in public,” said Gosia Bawolska of Cadence Law. Ms. Bawolska said she can see both sides of the issue. “[As a homebuyer], I wouldn’t want to hire a realtor with six settlements … but if I were the lawyer acting for [a realtor] I would still want to have the ability to use a confidentiality clause.”

That ability will be circumscribed as of as of April in Ontario when new language will be added to the Trust in Real Estate Services Act code of ethics regulations to say registered salespersons and brokers will not “obstruct or attempt to obstruct any person from making a complaint to the registrar.” It goes on to make it crystal clear that settlements are still allowed, but a client must be able complain to the industry regulator – the Real Estate Council of Ontario (RECO) – about it.

“Though real estate agents and brokerages have resolved consumer issues directly for years, just as any other business does, this makes it clear that those resolutions cannot include an obligation to withdraw a complaint, not file a complaint or to not provide evidence to RECO,” said RECO registrar Joseph Richer in a statement. “The new provision follows existing case law and other regulated sectors that have similar provisions. … This will help further strengthen consumer protection and allow consumers to do what’s right and inform the regulator.”

NDAs have been much in the news lately with the revelations around secret Hockey Canada sexual assault settlements. There has been a push in several industries to limit the use of NDAs when it comes to assault or harassment claims.

According to Julie Macfarlane, a professor emerita in the law department at the University of Windsor, NDAs were widely used in the technology sector in the 1980s. While Ms. Macfarlane still sees the value in intellectual property protection, she argues that confidentiality that shields potential bad actors from scrutiny has the effect of making misconduct a trade secret.

“I’ve certainly seen cases where people are told they cannot complain to the regulator, I’ve come across this in healthcare,” said Ms. Macfarlane, who is the founder of the Can’t Buy My Silence campaign aiming to restrict NDA use in Canada and the world.

She has advised several provincial governments on new laws that will restrict NDAs specifically that aim to cover up bullying, harassment and abuse, with Prince Edward Island passing the first legislation while Manitoba and New Brunswick have also tabled bills.

On Feb. 9, The Canadian Bar Association passed a non-binding resolution on NDAs that it said would “discourage their use to silence victims and whistleblowers who report experiences of abuse, discrimination and harassment in Canada.” Ms. Macfarlane said that’s a signal as to where the profession is moving on the subject.

While case law in Canada is very limited on the enforceability of such clauses, in the U.S. courts have begun to strike them down on a number of grounds: “For vagueness, exploitation, clear unequal bargaining, for public policy reasons where public safety is involved,” Ms. Macfarlane said.

For working realtors, threats of lawsuits or complaints to the regulator are not unknown.

“Have we been sued? Yes. Has it gone anywhere? No. Whether they were right or wrong, there have been instances of settlement and NDAs or releases,” said Andre Kutyan, a broker with Harvey Kalles Real Estate Ltd. Over 18 years in the business he’s seen everything from clients trying to back out of deals to agreements of purchase and sale that included chattels – one time it was a central vacuum system – that weren’t there at closing time. When calculating the likely cost of legal fees or insurance deductibles to fight with an upset client in court, a settlement sometimes makes the most business sense.

But will they still make sense if a realtor is settling over conduct that could still be reported to RECO?

“It may rub people the wrong way if they enter into an agreement, put a stop to the issues between them and then one side turns around and reports the other party to RECO,” said Daniel Waldman, a lawyer and real estate litigator with Dickinson Wright. “When they enter into a settlement and/or release, the intention of the agreement is to bring finality to the issue and close it off. That is why they are meant to be kept confidential, as it is supposed to be the final word on the matter, just between the parties who enter into it.”

There are still many industries that allow the use of confidentiality clauses. But Ms. Macfarlane argues Canadians shouldn’t just accept that silence is a condition of settling any claim.

“People sign [NDAs] because they are being told they must sign to get a settlement. That’s actually not true,” she said. “If you think about it rationally, the party that wants the NDA is the same party that doesn’t want to bring this into court, that doesn’t want to be in the public domain in any case. It’s a bluff.”