Introduction Agency is a relationship that is privotal to or relevant to so many businesses and commercial transactions. Agency is a triangular relationship that allows or constructs the creation of a legal relationship between a person ( the principal ) and a third party via the intervention of the agent, a person who represents and is required to act in the best interests of the principal. It is important for a bank employee, a law student or even a member of the public to understand some of the main principles relating to agency. Agents are one of the various type of account holders of a bank, e.g. when the agent acts for his principal through a ‘mandate’ or a power of attorney. In certain circumstances the bank may act as an agent for his customer. And, within the bank itself, the employees of the act as an agent for his customer. And, within the bank itself, the employees of the bank may act as agents for the bank. Most, if not all, of us have acted as agents or have appointed agents to act on our behalf. Businesses usually act as, and employ or engage, agents in the course of carrying on their respective business. Outsourcing certain of an organization’s functions and work to agents ( who may be individuals or companies ) is quite common nowadays. Agency is a common, indeed vital, legal relationship. It appears interstitially in many areas of the law, including the solicitor
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Transcript
Introduction
Agency is a relationship that is privotal to or relevant to so many businesses and commercial
transactions. Agency is a triangular relationship that allows or constructs the creation of a legal
relationship between a person ( the principal ) and a third party via the intervention of the agent,
a person who represents and is required to act in the best interests of the principal.
It is important for a bank employee, a law student or even a member of the public to understand
some of the main principles relating to agency. Agents are one of the various type of account
holders of a bank, e.g. when the agent acts for his principal through a ‘mandate’ or a power of
attorney. In certain circumstances the bank may act as an agent for his customer. And, within the
bank itself, the employees of the act as an agent for his customer. And, within the bank itself, the
employees of the bank may act as agents for the bank. Most, if not all, of us have acted as agents
or have appointed agents to act on our behalf. Businesses usually act as, and employ or engage,
agents in the course of carrying on their respective business. Outsourcing certain of an
organization’s functions and work to agents ( who may be individuals or companies ) is quite
common nowadays.
Agency is a common, indeed vital, legal relationship. It appears interstitially in many areas of the
law, including the solicitor and client relationship, employment law, partnership law, corporate
law, buying and selling of properties, land and goods.
Objectives
Covers the basic principles of agency which are applicable to both our work as well as our
personal lives. It goes on to outline the way in which agency is created, and also states and
examines the duties and rights of the principal, the agent and the third party, with whom the
agent might have cause to interact with on behalf of the principal. This chapter concludes with an
examination of how the agency relationship comes to an end or is ended.
Definition of agency
All definitions suffer from inadequacies but essentially agency is defined as the relationship
which arises where one person known as the agent acts for another known as the principal.
Through the acts of the agent, the principal and a third party may be brought into a contractual
relationship. The agent may also have the power to dispose of property of the principal to a third
party. Generally the agent’s acts have such effect because the principal has authorized the agent
to do the acts in question and the agent has agreed. The agent in a sense becomes an extension of
the principal and is therefore capable of altering the principal’s legal position either by binding
him to a contract or effecting a binding disposal of the principal’s property.
Types of Agents
The evolution of commercial practice, coupled with the need for various functional
classifications of agents, has resulted in the recognition of a number of different kinds of agents.
Some of the common types of agents are described below.
A broker is an agent who is engaged to make contracts between two principals (as
counterparties) engaged in some aspect of trade, commerce or navigation. In fowler v holling it
was held that the role of the broker is quite passive when compared with other types of agents
( such as factors ), that is, the broker’s role is confined to the negotiation of contracts of sale and
purchase. The broker does not obtain possession of the goods from the principal; whereas a
factor does. The broker is generally taken to be acting for a principal ( even if the name of the
principal is not disclosed ) – baring v corrie. In some industries and professions such as
insurance and real estate, the term ‘broker’ is used to denote the agent who is charged with
particular functions on behalf of particular functions on behalf of particular clients.
A factor is an agent who has more extensive powers to act for a principal than a broker
possesses. At common law, the factor is an agent for sale who is entrusted with possession of
goods belonging to the principal for sale and who sells the goods in the name of the agent
without disclosing the name or existence of the principal – Baring v Corrie. The concept of the
factor has been adopted by legislation where the factor has in some cases been termed a
mercantile agent. The factor as a type of agent entrusted with the sale of goods is also applicable
in the context of sales of goods by a non-owner.
A commission agent (or commission merchant) is an agent appointed by a principal to sell goods
( more commonly ) or to buy goods ( less commonly ) on behalf of the principal – Cassaboglou v
Gibb. The reference to “commission” is not to the method of remuneration, but to the function,
mandate or commission with which that the agent is charged.
Other that that, a del credere agent is an who assumes a super-added duty to ensure the principal
is paid by the third party – Campbell v Kitchen & Sons Ltd. This super-added duty is
compensated for by the payment of a del credere commission by the principal. The form of a del
credere agency is that the del credere agent promises to pay the principal the price of the goods if
the third party defaults. The nature of a del credere agent’s liability is that the agent assumes a
secondary liability that is only invoked if the third party defaults in paying the unpaid price of
the goods ( or whatever is payable by the third party under the principal-third party contract ).
Del credere liability is a tool that can be used by a principal to minimize and spread the risk of
non-payment by the third party under the sale contract. Del credere risk means the risk of non-
payment by the third party and therefore, del credere agents need to be very careful in the
selection of customers and to inform their principals of any adverse factors that would influence
the decision of the principal to accept or reject the order placed – Societa Industrie Zanussi v
Guerrieri. Thus, the del credere agent’s risk is matched by the del credere commission. The
amounts of the del credere commission is factored into the agent’s commission.
Agency law and legal definition
Agency law is concerned with any "principal"-"agent" relationship; a relationship in which one
person has legal authority to act for another. The relationships generally associated with agency
law include guardian-ward, executor or administrator-decedent, and employer-employee.
Agency is an agreement, express , or implied, by which one of the parties, called the principal,
entrusts to the other, called the agent, the management of some business; to be transacted in his
name, or on his account, and by which the agent assumes to do the business and to render an
account of it. As a general rule, whatever a man may do by himself, except by virtue of a
delegated authority, he may do by an agent.
When the agency is express, it is created either by deed, or in writing not by deed, or verbally
without writing. When the agency is not express, it may be inferred from the relation of the
parties and the nature of the employment without any proof of any express appointment.
The agency must be given ahead of time, or subsequently adopted; and in the latter case there
must be an act of recognition, or an acquiescence in the act of the agent, from which a
recognition may be fairly implied.
Rights, duties, and liabilities between Principal and Agent
An agency is the creation of a contract entered into by mutual consent between a principal and an
agent. By agency, a principal grants authority to an agent to act on behalf of and under the
control of the principal. The relation between a principal and an agent is fiduciary and an agent’s
actions bind the principal[i]. The law of agency thus governs the legal relationship in which an
agent deals with a third party for his/her principal.
An agent owes certain duties towards his/her principal and a principal owes certain duties
towards his/her agent. The scope of an agent’s duty to the principal is determined by:
the terms of the agreement between the parties[ii]; and
extent of the authority conferred and the obligations of loyalty to the interests of the principal.
An agent’s primary duties are:
act on behalf of and be subject to the control of the principal;
act within the scope of authority or power delegated by the principal;
discharge his/her duties with appropriate care and diligence; and
avoid conflict between his/her personal interests
Other duties of an agent include:
not to acquire any material benefit from a third party in connection with transactions
conducted or through the use of his/her positions as an agent.
to act with the care, competence, and diligence normally exercised by agents in similar
circumstances.
to take action only within the scope of the his/her actual authority.
to comply with all lawful instructions received from the principal and persons designated by
the principal concerning agent’s actions on behalf of the principal.
to act reasonably and to refrain from conduct that is likely to damage the principal’s enterprise.
An agent is liable to a principal when he/she acts without actual authority, but with apparent
authority. An agent is liable to indemnify a principal for loss or damage resulting from his/her
act.
A principal owes certain contractual duties to his/her agent. Correlative with the duties of an
agent to serve a principal loyally and obediently, a principal’s primary duties to his/her agent
include:
To compensate the agent as agreed; and
To indemnify and protect the agent against claims, liabilities, and expenses incurred in
discharging the duties assigned by the principal.
Because of the fiduciary relationship, a principal owes his/her agent a duty of good faith and fair
dealing. However, a principal can be relieved of contractual obligations by an agent’s prior
breach of contract.
A principal has a duty to act in accordance with the express and implied terms of any contract
between a principal and an agent.
When an agent acts within the scope of actual authority, the principal is liable to indemnify the
agent for payments made during the course of the relationship irrespective of whether the
expenditure was expressly authorized or merely necessary in promoting the principal’s business.
Agent duties and rights under contract laws
Agency is the contract which creates relationship of principal and agent is called agency. An
agent is involving party to the contract of agency. He is merely connecting link. His authority
can be revoked by the principal.
Agent
he is a person employed to do any act for another dealing with third parties.
Appointment of agent
according to section 183
“any person who is of the age of majority according to the law to which is subject, and who is
sound mind, may employ an agent.”
Who may be agent
According to section 184 Contract Act.
“As between the principal and third person, any person may become an agent, but no person who
is not of the age of majority and of sound mind can become an agent, so as to reasonable to his
principal according to privisions in that behalf herein contained.
Rights of agent
Following are the rights of agent.
i) Right of remuneration - it is basic rights of an agent.
ii) Right of commission - he has also has right of commission
iii) Right of line - an agent has right of line over goods until the payment in due is
received by him.
iv) Right of retain – an agent has right to retain goods, papers and other property
until the amount due is paid.
v) Right of compensation – in case of injury caused to agent by the negligence of
principal may be compensated by him.
vi) Right to be indemnified – an agent has a right to be indemnified against
liabilities falls on him.
vii) Right to be indemnified against consequences of acts done in good faith – he
has the rights to indemnified against the consequences of act done in good
faith even though it causes an injury to the rights of third person.
viii) Right of stoppage of goods in transit – he has the right of stoppage of goods in
transit.
Duties of an agent
Following are the duties of an agent :
i) Obey the instructions - he should obey the instructions of the principal.
ii) Conducting business - it is the duty of agent to conduct the business of principal.
iii) Showing of accounts - he should maintain the accounts and show to principal on his
demand.
iv) Return of undue profit - if an agent has earned undue profit from the business he
should return it to principal.
v) Use of skill and knowledge - agent should perform his duties as much skill and
knowledge as is generally shown by ordinary prudence in similar business.
vi) Payment of all sums – he should pay all sums to his principal received on his account.
vii) Separate accounts – he should not mix his account with the principal and maintain
separate accounts.
viii) Duty in case principal die or become insane – he should protect the interest of legal
heirs.
ix) Not to delegate authority – he should not delegate his authority to any other.
x) Duty to communicate with principal – he should give all information to principal
about the matters of business.
xi) Should not make any secret profit – he should not make any secret profit
xii) Performance with honesty – he should deal the business honestly. If he conducts the
business dishonestly then he is not entitled to receive the reward of his services.
The Law of Agency - legal duties of an agent
Although not a definitive guide, we shall initially consider the most important of the duties
imposed upon agents. In the final section of the article, the rights of the agent are examined.
Duty of Obedience
Express instructions are paramount and any agent disobeying these will be automatically liable
for any loss which is caused to the principal. This duty takes precedence over the duty to
exercise all reasonable care and skill.
Two important issues stem from this point of law. Firstly, it is wise to ask for all significant
instructions to be given in writing, both at the initial undertaking and throughout the
management of a property. Verbal instructions are more prone to ambiguity and can be
forgotten. Secondly, the firm's management agreement should define the professional services
provided and what actions will be taken in certain situations. In this way, the definition of
'reasonable care and skill' will be less open to interpretation by any aggrieved client.
The only valid excuse for disobeying such express instructions are that they are unlawful, for
example where your principal instructed you to deal with a firm in a country the UK was at war
with.
This duty assumes that the instructions are capable of only one interpretation. If they are
ambiguous and the agent acts upon a reasonable interpretation she is not liable merely if it
happens to be the incorrect one.
Agents Discretion
The instructions may be actually intended to allow the agent a degree of discretion. If so the
agent will not be liable provided the discretion is exercised in a fair and reasonable manner2.
Clearly as Murdoch points out in his recent book on the subject of agency, "At this point the
agent's duty of obedience effectively merges with the duty to exercise reasonable care and skill"
(Law of Estate Agencies 3rd ed. 1994). It is difficult to give an example here because what is
fair and reasonable will depend on the facts of the particular case. In such a case where it is
adjudged that the discretion was exercised in the wrong way the agent will be liable for the
losses to the principal, but it will not necessarily be a breach of contract or a reason for
repudiation of the contract.
Duty of Care and Skill
An agent is under a duty to exercise reasonable care and skill which will be examined in the light
of all the particular circumstances of the case. From a professional liability point of view, this
duty is one of the most important to consider. It holds the highest penalty since professional
negligence claims can be costly in time and any awards for damages made if a matter was to go
to court.
An agent or any firm involved in the management of property should not lose sight of the extent
of the risks and the value of capital at stake. Repairs to a property damaged by water escape
following frozen or burst pipes can total several tens of thousands of pounds. A faulty gas
installation could result in a fatality. The duty of care and skill applies to a firm's obligations to
both the landlord (when managing the property as agent) and tenants.
The Supply of Goods and Services Act 1982 section 13 implies this duty into all contracts as a
term rather than a condition. N.B. This may override exclusion clause in a firm's standard terms
and conditions. This means it renders the agent liable to pay for loss suffered by the principal - it
does not inevitably disentitle the agent to payment. This will depend on the seriousness of the
agent's breach. This duty is subordinate to the duty of obedience so the agent cannot disobey an
instruction by claiming to have acted in the principal's best interests. This of course can work in
the agent's favour. If the agent carries out the principal's imprudent instructions to the detriment
of the principal the agent will not normally be liable in negligence3.
It has long been settled that, where an estate agent or letting agent is instructed to find a
prospective tenant for property owned by his client, he must use reasonable diligence to ascertain
that the person whom he introduces is a 'proper' tenant4. If the agent fails in this duty, he may
well be liable to his client, not only for loss of rent, but also for any damage which the tenant
does to the premises5.
In Brutton v Alfred Savill, Curtis & Henson (1971), for example, an office junior employed by
the agents allowed a prospective tenant to take possession of premises without payment of a
deposit or any rent in advance because he said that he had forgotten his cheque book. The tenant
subsequently defaulted on rent payments and legal proceedings were required to regain
possession. The landlady lost some £770 in unpaid rent and the cost of legal proceedings. It was
held that, since the normal worldly estate agent would not have been taken in by this simple
confidence trick, the young employee's gullibility amounted to negligence, and the defendants
were therefore liable to their client for this loss.
In Hellings v Parker Breslin Estates [1994], the landlords wished to let a flat until such time as
it could be resold. They were concerned that possession could be obtained at the end of the
granted term. The landlords then proceeded to let the flat through the agents having explained
the situation in full. In 1982, the agent granted a tenancy to a Miss B but later became
dissatisfied with the tenant who had fallen in arrears with the rent. When possession proceedings
were brought, it became clear to the owners that it was not going to be possible to recover the flat
with vacant possession; Case 11 of the Rent Act did not apply unless the dwelling-house was
originally occupied by the landlord as his residence and "is required as a residence for the owner-
occupier’’. The judge in this case held that failure by the agent to explain the circumstances
under which possession could have been obtained under Case 11 amounted to a failure of skill in
their duty of care to their clients.
With the majority of landlords and firms now using the assured shorthold tenancy, there are
fewer pitfalls. Yet agents should still take care, especially when dealing with non-AST tenancies
where the protection afforded to the landlord can be substantially reduced.
Repair and Disrepair
Where an agent is employed to manage the property, the agent will normally be responsible for
instructing tradesmen to carry out necessary repairs. Although, in law, the agent is not generally
responsible for substandard work of contractors, an agent could be liable if the workmen were
employed directly (i.e. as the agent's employees), or incorrect instructions were given to the
subcontractor. Equally, there are potential liabilities to a landlord for disrepair and an absentee
landlord relies on his agent to be diligent in performing these duties. If a tenant brought an
action against a landlord in this context, the landlord might well sue the agent in turn for
negligence.
Clearly then, the agent also needs to be aware of the duty of care owed by the landlord to the
tenant when managing such issues. Failure to take expedient action may cause problems for
landlord and agent as a result. Landlords have a general duty of care when carrying out work to a
property so as to avoid defects or damage to the property and danger of injury to the occupier6.
The landlord should use reasonable materials to ensure that any work done is effective7. When a
property is built or altered or its use changed there is usually an obligation to comply with
building regulations. A person who is harmed by a failure to comply with the regulations may
have an action in negligence unless the regulations state otherwise8.
It would be impossible to cover all eventualities within a few pages and in many situations, the
extent of the agent's duty of care will be far from clear. According to Murdoch9 , "Where an
agent is engaged in a particular profession, it is by the standards of that profession that he will be
judged". There is more in this generality than meets the eye; it means that a voluntary code of
practice (although not legally binding directly) could easily be produced in court to evidence
what is to be considered to be the "standards of the profession". The RICS Code of Practice for
property management, currently in a draft stage, could be an example of this.
One topical example of this nature of this duty of care and skill is where the agent had employed
a gas engineer to service and inspect a boiler, the agent should take care that a skilled engineer is
appointed. If the repaired or serviced appliance subsequently became unsafe and it transpired
that the tradesman was not professionally competent, then the agent could be held liable in part
for not taking reasonable care when hiring him. (The fitter would also be criminally liable for
working on a gas appliance without appropriate qualifications). In this situation, the measure of
competence is fairly straightforward; the gas fitter must by law be CORGI registered. It is a
simple and recommended procedure for an agent to verify this. A landlord (or agent) can be in
breach of the duty of care if he fails to act or respond promptly to a reported disrepair as we can
see in the following case:
McCauley v Bristol City Council (1991)
Tenants reported a defective garden step. The Council as landlord failed to carry out repairs.
The tenant fell and broke her ankle. The council were held to be in breach of duty of care.
Tenant was awarded £4,500 damages.
Employed for professional expertise
It should be noted however that where an agent is employed for her or his particular professional
expertise there may well be an implied obligation to warn the principal that certain instructions
are clearly unwise. For example where a letting agent is instructed to disregard the provisions of
the Furniture and Furnishing Regulations 1988 and to buy furniture which does not comply with
the regulations. The agent in such a case should refuse to carry out this instruction in any event
as it would be unlawful.
Duty of Loyalty
This arises automatically out of the fiduciary nature of the relationship between agent and
principal. The underlying principal is that the agent must not allow personal interest or the
interest of a third party to come into conflict with the interests of the principal unless the
principal has full knowledge of the fact and gives consent.
This might apply, for example, where an agent was letting a property to a friend or relation. The
agent has a conflict of interest and it is sensible for the agent to advise his client of the
circumstances and obtain permission to proceed. Where an agent has failed to disclose his
personal interest, the principal may choose to set aside the transaction or to affirm it and claim
the profit made by the agent.
Furthermore, the agent should not take secret profits (which are deemed to include bribes and
commissions) without the prior knowledge and authorisation of the principal. The implication of
this duty is that agents should declare any commissions that may be earned within their agency
agreement or terms and conditions.
Duty of Personal Performance
As a general rule an agent may not entrust performance of the agency to any other person10. In
Allam v Europa Poster Services 1968 the judge said that, ...where the principal does place
confidence in the agent... (acts).. must be done by the agent personally unless either expressly or
inferentially he is authorised to employ a subagent or to delegate the function to another.
Whether or not an agent is entitled to delegate depends on the scope of the agent's authority. For
example a principal who appoints an agent to carry out certain tasks knowing that the agent does
not intend to act personally will be taken to have authorised the appointment of a subagent11.
Authority may also be implied on the basis of what is usual in a particular trade or profession.
Duty to Account
An agent is obliged to pay over or otherwise account for all monies in his possession where such
monies have been received from the principal; that which he receives from a third party to hand
over to the principal, and that which he is deemed to receive on behalf of the principal (e.g. a
secret profit). In connection with the agent's duty to account, it has been held that it is his duty to
keep accurate accounts of all his dealings on behalf of the principal. If he does not, everything
which is consistent with the proved facts is presumed against him12. In accounting for such
monies received, the agent may deduct whatever is due to him by way of commission and
expenses13.
THE RIGHTS OF THE AGENT
Remuneration
Remuneration may include either salary or wages of a person who is employed full time in the
principal's business or the fees or commission charged by an independent professional. The
entitlement will depend on the terms of the agency agreement.If there is no express term, a right
will be implied that a professional will be paid a reasonable sum for services rendered. No-one
in business should rely on an implied term as to payment as the proving of what is a "reasonable"
sum can be fraught with difficulties. If however you have been acting for a principal for a
considerable number of years and you are asked to take on a transaction which is the same as
previous transactions, and those transactions were paid in a way common to all of them, it will
not be fatal to such a claim that the present transaction should be paid at the same rate,
particularly where there has been no time for the formalities to be observed. This is a good
example of the use of the custom and practice argument.
An agent will not be able to claim remuneration in respect of any unauthorised transaction unless
the principal ratifies it at a later stage. Neither will remuneration be payable where the agent has
been guilty of a breach of duty.
Reimbursement and Indemnity
The general rule is that the agent is entitled to be indemnified by the principal against any losses
and liabilities, and to be reimbursed for any expenses which are incurred in acting on the
principal's behalf. An agent who incurs losses or liabilities in performing an unauthorised act
cannot claim reimbursement or indemnity in respect of these. Nor is an agent entitled to an
indemnity for any losses which result from the agent's own failure to obey the principal's
instructions14, negligence15, or other default16. Also, such indemnity does not override
statutory obligations. For example an agent would not be indemnified where the agent was
prosecuted under the Furniture and Furnishings Regulations.
Lien
The agent may be legally entitled to exercise a lien i.e. retain possession of the principal's goods
until debts to the agent are paid. An agent is not in possession of goods if the goods are furniture
in a flat or house. The valid exercise of a lien by an agent is only possible where certain
conditions are met and although it is unlikely that a letting agent would have possession of goods
they are detailed below for the sake of completeness.1. The agent must be in actual or
constructive possession of the goods in question. Constructive possession can be for example,
where the agent has stored the goods elsewhere than on her premises.
2. The agent's possession of the goods must be both lawful and authorised. Anything obtained
by misrepresentation is not lawful and authorised.
3. The agent must have obtained possession of the goods in the same capacity as that in which
the lien is claimed. i.e. cannot be used to claim debts incurred before the commencement of the
agency.
4. The circumstances in which the agent obtained the goods must not be inconsistent with a
lien. This will be the case, for example, where the agent is only given possession of the goods
for a specific or limited purpose such as where the agent is arranging carriage of the goods rather
than being the carrier.
Third Parties
In contract law the general rule is that where an agent enters into a contract on behalf of a
principal and there is a dispute on that contract the agent "drops out" of the contract and the third
party can sue the principal directly or vice versa. Problems arise where the contract is not clear
as to the status of all the parties and some words have been found to be more effective than
others at describing the capacity of the person signing the contract.
Where the agent enters into a contract without revealing the existence of a principal the agent is
regarded in law as contracting personally17. To avoid any doubt the words "for and on behalf
of" should be used where the agent enters into a contract on the principal's behalf. Other words
of explanation such as "on account of" have been held by the courts to be insufficient. However,
the courts will take into account the context of the whole of the contract to determine whether the
words used are sufficient to show that the person was acting as agent.
Where it is made clear that the agent is acting as agent even where the principal is not named and
the agent signed in her own name this is sufficient to show that she intended to act as agent.
Good Practice Guide - The best way to ensure that there is no doubt is to describe the nature of
the parties in the contract and to sign as above. "If in both places the agent is referred to as agent
it will be almost impossible to regard her as the contracting party but if there is no mention in
either place it will be almost impossible to deny that she is the contracting party"18.
Where the tenant has signed a tenancy agreement in good faith believing the agent to be the
landlord, the tenant can sue as if the agent were the landlord. The real landlord in such a case is
called the undisclosed principal and even if the undisclosed principal appears at a later stage and
identifies herself as the landlord the agent is still liable19.
Evidence of Intention
When disputes bring the matter to court the terms and conditions of the agency is determined by
the court deciding what the intention of all the parties was at the time the contract was entered
into. As always in court the best evidence of this is the written document(s) signed by the
parties. Usual custom and practice of the trade or profession, or of the particular parties will also
be considered if necessary as already mentioned above.
Agency:
An agency relationship is created when one person represents the interests of another. Real Estate agents are licensed by the state to represent a person for the sale, purchase or lease of real property. The state law relating to agents, the Realtors Code of Ethics and general principles of agency law define the responsibilities of the Real Estate Agent.
Pennsylvania Law Requires Real Estate Brokers and Salespersons (Licensees) to advise consumers who are seeking to sell or purchase residential or commercial real estate, or tenants who are seeking to lease residential or commercial real estate where the licensee is working on behalf of the tenant, of the business relationships permitted by the real estate licensing and registration act. This notice must be provided to the consumer at the first contact where a substantive discussion about real estate occurs unless an oral disclosure has been previously provided. If the oral disclosure was provided, this notice must be provided at the first meeting or the first time a property is shown to the consumer by the broker or salesperson.
Before you disclose any information to a licensee, be advised that unless you select an agency relationship the licensee is not representing you. A business relationship of any kind should not be presumed but must be established between the consumer and the licensee.
The type of relationship formed between the agent and their client is called a fiduciary relationship. This relationship must be based on trust, and the agent owes the following duties to the client:
Loyalty Diligence Confidentiality Obedience Disclosure Accounting Reasonable Care
Once a fiduciary relationship is established, the client can rely on their agent to put the client's interest before that of anyone else, including their agent's. The courts strictly enforce these duties and require that the Real Estate agent is fair and honest with all parties involved in the transaction.
Any licensee who provides you with real estate services owes you the following duties:
Exercise reasonable professional skill and care which meets the practice standards required by the Real Estate Seller Disclosure Act.
Deal honestly and in good faith. Present, in a reasonable practicable period of time, all offers, counteroffers, notices, and
communications to and from the parties in writing. The duty to present written offers and counteroffers may be waived if the waiver is in writing.
Comply with the Real Estate Seller Disclosure Act.
Account for escrow and deposit funds. Disclose all conflicts of interests in a reasonable practicable period of time. Provide assistance with document preparation and advise the consumer regarding
compliance with laws pertaining to real estate transactions. Advise the consumer to seek expert advice on matters about the transaction that are
beyond the licensee's expertise. Keep the consume informed about the transaction and the tasks to be completed. Disclose financial interest in a service, such as financial, title transfer and preparation
services, insurance, construction, repair or inspection, at the time service is recommended or the first time the licensee learns that the service will used.
Seller Agency:
In a Seller Agency relationship, the licensee, upon entering into a written agreement, owes fiduciary duties only to a seller/landlord. The licensee must:
place the seller's/landlord's best interest above anyone else in a Real Estate transaction. keep confidential all seller/landlord disclosures, except for any known material defects
about the property. make a continuous and good faith effort to find a buyer for the property, except while the
property is subject to an existing agreement. disclose to all other parties in the transaction that the licensee has been engaged as a
Seller Agent.
A Seller Agent may compensate other brokers as subagents if the seller/landlord agrees in writing. Subagents have the same duties and obligations as the Seller Agent. (Although today, you will find subagency is less and less available.) A Seller Agent also may compensate a Buyer Agent and a Transaction licensee, both of which do not have the same duties and obligations as the Seller Agent.
Buyer Agency:
In a Buyer Agency relationship, the licensee, upon entering into a written agreement, owes fiduciary duties only to a buyer/tenant. The licensee must:
be loyal to the buyer/tenant and act in their best interests. keep confidential all buyer/tenant disclosures, except that a licensee is required to
disclose known material defects about a property. make a continuous and good faith effort to find a property for the buyer/tenant, except
while the buyer/tenant is subject to an existing agreement. disclose to all other parties in the transaction that the licensee has been engaged as a
Buyer Agent.
A Buyer Agent may be paid fees, which may include a percentage of the purchase price. And, even though paid by the seller/landlord, the Buyer Agent still represents the interests of the buyer/tenant.
Dual Agency:
Dual Agency exists when a Real Estate licensee is both the Seller Agent and the Buyer Agent in the same transaction. Dual Agency only can be created with the written consent of all parties. The Dual Agent owes the following duties to both parties:
The agent can take no action that is adverse or detrimental to either party's interest in the transaction.
The agent must make a continuous and good faith effort to find a buyer for their listed property, and a property for their buyer client, unless either is subject to an existing contract.
The agent owes confidentiality to both parties, except that the licensee is required to disclose all known material defects about a property.
Designated Agency:
In Designated Agency, the employing broker may, with your consent, designate one or more licensees from the Real Estate company to represent you -- either as a Seller Agent or a Buyer Agent. Other licensees in the company may represent another party and shall not be provided with any of your confidential information. Designated Agents have the same duties as listed above under Seller Agency and Buyer Agency.
In Designated Agency, the employing broker will be a Dual Agent and have the additional duties of:
taking reasonable care to protect any confidential information disclosed to the licensee. taking responsibility to direct and supervise the business activities of the licensees who
represent the seller and buyer while taking no action that is adverse or detrimental to either party's interest in the transaction.
The designation may take place at the time that the parties enter into a written agreement, but may occur later. Regardless of when the designation takes place, the employing broker is responsible for ensuring that confidential information is not disclosed.
Transaction Licensee:
A Transaction Licensee is a broker or salesperson who provides communication or document preparation services or performs other acts for which a license is required WITHOUT being the agent or advocate for either the seller/landlord or the buyer/tenant. Upon signing a written agreement or disclosure statement, a Transaction Licensee has the additional duty of limited confidentiality in that the following information may not be disclosed:
The seller/landlord will accept a price less that the asking/listing price. The buyer/tenant will pay a price greater than the price submitted in a written offer. The seller/landlord or buyer/tenant will agree to financing terms other than those offered.
Other information deemed confidential by the consumer shall not be provided to the Transaction Licensee.
Other Information about Real Estate Transactions:
Note that the following are negotiable with your licensee and shall be addressed in an agreement/disclosure statement:
The duration of the employment, listing agreement or contract. Fees and commissions. The scope of activities or practices. The broker's cooperation with other brokers, including the sharing of fees.
Disclosure of Business Relationships:
In order to provide the Real Estate consumer with the highest level of service, Long & Foster Real Estate has business relationships with Prosperity Mortgage, Long & Foster Settlement Services, and Long & Foster Insurance Agency, Inc. I will gladly put you in contact with a representative from any of these companies. You are under no obligation, however, to use their services.
Seller's Disclosure:
By law, the seller must provide the buyer with a written Seller Property Disclosure Statement prior to ratifying an Agreement of Sale.
Lead Paint Disclosure:
Federal law requires that prior to ratifying an Agreement of Sale, a seller must provide a buyer with a disclosure about lead base paint if the property was built before 1978. To begin the disclosure process I will provide you with the pamphlet, "Protect Your Family from Lead in Your Home." As a buyer, if you would like a property tested for lead base paint, you will be given the opportunity to do so under the Agreement of Sale.
Legal Counsel:
As always, you have the option to be represented by an attorney during your Real Estate transaction. If you decide to do so, you should introduce your attorney to me early on in the process so that we can work together.
Recovery Fund:
The Pennsylvania legislature has established a Real Estate Recovery Fund to compensate persons who obtain a judgment because of fraud, misrepresentation or deceit by a Real Estate agent and are unable to collect the judgment after exhausting applicable remedies.
Contracts:
Applicable laws and regulations do not fix most terms of Real Estate agency contracts. These terms (including the broker's commission, the scope of activities and practices, the broker's cooperation with other brokers, including the sharing of fees, and the time period of the contract) are set by negotiation between the parties.
Zoning:
Any agreement of sale must state the zoning classification of the property, except for single-family dwellings.