Do PRECs need insurance?
What is a PREC?
As a result of new legislation that was enacted in Ontario on October 1st, 2020, a PREC is a personal corporation that real estate agents and brokers can establish.
Read more about PRECs via the Real Estate Council of Ontario (RECO).
How does a PREC work and what are the benefits to incorporating?
As background, a PREC will be a completely separate legal entity from yourself, the agent. So it’s going to act as an intermediary between the brokerage house that you work with and yourself.
In terms of the flow of funds for your commissions, what will happen is that when you earn a commission that amount will be paid directly to the PREC rather than you as the agent, and then as the agent, you have discretion to pull out funds from the PREC to cover your living expenses, and to the extent that you withdraw any funds from the PREC, only those amounts are subject to personal income tax. The big benefit from that is you can, if you’re a saver or depending on your income level, benefit from the very large income tax deferral.
Just one thing to know in terms of mechanics, you, your PREC and your brokerage house will enter into a Tri-Party Agreement that outlines this relationship that you will have to allow your PREC to be paid directly.
Read more about PRECs via the Real Estate Council of Ontario (RECO).
Why should I insure my PREC?
With your PREC not being a RECO registrant it will not have any protections under the insurance program currently administered by RECO. If your PREC is inadvertently named in a professional liability matter, it will not have coverage under the policy administered by RECO. This coverage extends up to $100,000 of defence cost coverage to your PREC in the event it’s named in a professional liability claim.
A PREC can be held responsible for damages caused properties during showings and any clients injured during a showing. The PREC is held liable for the premises they rent, responsible for the well being of any employee working for the PREC. While your PREC is not a “Registrant”, it does have to be registered to RECO, it will be held accountable by RECO for failure to meet the requirements under REBBA 2002.
A PREC can have legal action taken against it in small claims court for contract disputes.
The CRA and FSRA both have the ability to bring Action against you and your PREC.
The coverage REALIST Insurance package provides for your PREC:
- $100,000 in Legal Expense Coverage for investigations and defense of any actions taken by RECO.
- $2,000,000 in property damage coverage per incident.
- $2,000,000 in bodily injury damages to clients or prospective clients per incident.
- $2,000,000 Liability coverage for premises under rent to a PREC meeting commercial lease requirements.
- $2,000,000 Bodily injury coverage for PREC workers not covered under Workers Compensation.
- $100,000 in Legal Expense coverage not covered under the Errors and Omissions insurance provided by RECO, including small claims court actions, and contract disputes.
- $100,000 in Legal Expense coverage when dealing with the CRA and FSRA.
- Unlimited access to the legal hotline for any questions they may have with regards to any legal issue involving the PREC.
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