Agent’s Negligence: Breach of Fiduciary Duties at Common Law
These errors or omissions are really by far the most common and frequent mistakes that real estate agents will make.
Agency Obligations at Common Law
There are some fundamental and basic obligations at common law which the agent offers to the principal including disclosure, competence, obedience, accounting, confidentiality, and loyalty. These obligations are taught and emphasized to real estate practitioners.
1) Disclosure. The agent is under an obligation to keep the principal informed and to disclose any material and relevant matters to the principal. This would include keeping the client advised of changing market conditions, as well as numerous other “material facts” which would affect a principal’s decision.
2) Competence. The agent is under an obligation to be competent in his profession, and to inform the principal if there are matters beyond the agent’s expertise.
To the extent that the agent might lack experience or expertise, then other professionals should be recommended to the client for consultation. The onus naturally is upon the agent to identify and disclose such matters to the principal.
3) Obedience. The agent is subservient to the interests of the principal. The agent is to follow the reasonable and lawful directions of the principal, carrying out the principal’s instructions. The agent is to act in the principal’s best interests and not his own.
4) Accounting. The agent is to account for monies received and disbursed. Payments of any kind or nature, direct or indirect are all for the benefit of the principal. Funds are received as a fiduciary, and are to be disclosed and remitted in full to the principal. The agent is the intermediary between the principal and third parties. The agent is not a third party contractor but rather the person who brings the principal and third parties into a contractual relationship.
5) Confidentiality. The agent is to maintain the privacy of the principal and matters that are of a private nature are to remain in confidence. Information provided to an agent is received in a fiduciary capacity and is not to be disclosed without authorization by the principal.
6) Loyalty. An agent is to offer loyalty to the principal. Once engaged in a fiduciary capacity, the agent must place the interests of the principal above his own, must not entertain the interest of others, including himself above that of his principal.
Each of the duties are separate and distinct obligations and may be varied or modified in the actual agency agreement.
For some reason, these primary and fundamental obligations are the ones that are missed. The Agent fails to disclose something which is important. Interest rates are going up next week. The Buyer client may want to lock in a rate now. In two weeks this information is not helpful.
The Agent must be competent and meet the usual professional standards in the industry. This will mean maintaining one’s education by attending continuing education programs.
The Agent is to be obedient, that means following instructions. If there is a home inspection to be undertaken, the Agent will have to arrange it, attend, review the report and follow the client’s direction and instructions when it comes to the notice and delivery of a Waiver, Notice of Fulfillment or Notice of Termination. Here, the first step was to provide advice and the second step was to be obedient and follow the client’s instructions.
The accounting duty is often overlooked. Just because a real estate agent may be an independent contractor doesn’t mean that that is the “status” for agency purposes. Here, the agent is subservient to the Principal. If an incentive of some kind is passed on to the Agent as a result of the Principal’s deal, then that incentive, a bottle of wine, financial payment or value of the lunch or tickets is for the Principal and the Agent is “to account” for these.
Confidentiality would seem straightforward. Don’t tell the Client’s secrets. But, the real problem here is determining precisely “who is a Client”. It also includes individual to whom the “pitch” is given. This means the Listing presentation. If the Seller says that there is mould in the basement and that’s a secret, then it’s still a secret even if that Agent doesn’t get the Listing. That “fact” can’t be passed on to prospective Buyers later on. That fact came as a secret and it continues as a “secret” unless the individual who disclosed it in the first place gives permission to release it.
Loyalty is a duty that is sometimes overlooked. The Agent has a listing and meets a new person who attends the open house. The duty of loyalty prevents the Agent from acting for the prospective Buyer at all, that is, in the capacity of a client or customer. NEITHER! Not without the “permission” from the Seller.
Frequently, a Listing Agent will take on the Buyer and seek permission afterwards. NO! That is not the correct way of handling matters. First, seek permission. Obtain permission and then take on the prospective Buyer.
If an Agent breaches a fiduciary duty, then the Courts will often deny payment of the commission.
If an Agent is sued for negligence, a breach of a fiduciary duty will be good grounds.
Brian Madigan LL.B., Broker