A real estate startup has launched a lawsuit against three Canadian real estate associations. The startup is Unreserved, a platform that allows buyers and sellers of real estate to engage in an auctioning process. Unreserved CEO and founder, Ryan O’Connor, contends that the Ottawa Real Estate Board and other associations are attempting to mislead its customers. In the $25 million lawsuit, Unreserved alleges defamation in published statements on YouTube and in the Ottawa Citizen.

Real estate auction platform alleges defamation by professional associations

Unreserved is an auction platform that officially launched in July 2021. In the short time since its inception, the company has raised approximately $34 million in venture funding. The company possesses up to 3% of Ottawa’s market share, having auctioned more than 250 homes in the area.

The company alleges that statements made publicly by the president of the Ottawa Real Estate Board and the CEO of the Ontario Real Estate Association were defamatory, with the effect of impeding their business operations. It also submits that these statements have damaged its relationship with the brokerage firm that helped Unreserved get its properties listed on the Multiple Listing Service (MLS). Under that system, only licensed realtors can list properties.

On MLS listings, those published by Unreserved contain phrases including “subject to terms and conditions” and “for sale by an unregulated auction.” The company will need to wait until its application is heard in court to understand whether a good case exists for the defamation suit to go to trial.

Are real estate auctions legal in Ontario?

Real estate auctions are legal in Ontario. However, as with anything, they come with both benefits and drawbacks. In terms of advantages, auctions tend to increase competition, which can have a positive effect on the selling price from the view of the seller. It allows sellers to sell their property on an “as is” basis, potentially speeding up the closing process. It can also enhance transparency as all bids on the property will be disclosed to all bidders.

The downside to real estate auctions is that they are not as regulated as regular property sales. Usually, those trading in real estate in Ontario must be registered with the Real Estate Council of Ontario (RECO). RECO is responsible for enforcing the rules that govern real estate brokers, brokerages, and salespeople. However, due to an exemption in the Real Estate and Business Brokers Act, Ontario’s consumer protection rules do not apply to real estate auctioneers. This can expose auctioneers to risks like misappropriation of buyer deposits or conflicts of interest.

Unreserved claims to have its own systems to ensure customer protection, including a requirement for potential buyers to obtain mortgage pre-approvals before being allowed to bid.

What is defamation?

Defamation focuses on an individual or company’s reputation. It seeks to protect that individual or company from harm based on the words of another. There are two types of defamation: libel and slander. The Libel and Slander Act of Ontario contains provisions dealing with each form of defamation.

Libel is defined as defamatory words published in a newspaper or a broadcast. On the other hand, Slander refers to spoken words that have not been recorded. A good distinction between the two is that libel creates a permanent record, whereas slander is impermanent.

For defamation to be found, three elements must be met:

  1. The defamatory statement must be about the plaintiff.
  2. The defamatory statement was made by the named defendant and was shared publicly.
  3. A reasonable person would conclude that the defamatory statement caused harm to the plaintiff’s reputation.

There are a few defences to defamation. One defence is if the statements made are true. Another defence is that of “fair comment”, meaning the statement was a non-malicious opinion pertaining to the public interest.

What is an injunction?

In this case, Unreserved is seeking an injunction. Injunctions are a type of court order that compels a party to do or not do something. Injunctions can be temporary or permanent. They’re a means to stop further harm when parties are in the midst of a dispute.

Injunctions are an ideal remedy when damages are not the best means to compensate the wronged party. The test for whether a court should grant an injunction is set out in the Supreme Court of Canada’s decision in RJR MacDonald Inc v. Canada (Attorney General). The test asks three questions:

  1. Is there a serious issue to be tried?
  2. Will irreparable harm ensue if the injunction is not granted and the conduct continues?
  3. How much harm will the injunction do to the defendant, and how does that compare to the benefit reaped by the plaintiff?

It remains to be seen whether Unreserved will meet the relatively high bar to obtain an injunction.

Calls made for legislative changes to address real estate auctions

The Ontario Real Estate Association is lobbying to repeal the legal exemption allowing auction platforms like Unreserved to operate outside consumer protection rules. The Government of Ontario may consider the scope of the exemption in anticipated reforms to the Real Estate and Business Brokers Act.

Contact Campbells LLP for Experienced Real Estate Advice

We will keep you updated on how any changes to the rules about auctions affect the real estate market in Ontario. Campbells LLP in Oakville provides comprehensive advice and representation to clients in commercial and residential real estate deals and disputes. Our experienced real estate lawyers have been helping clients since 1999. We are thorough, efficient, and focused on delivering the best possible outcome for every client. To schedule a consultation, contact us online or call (905) 828-2247.