Agents' duties to their clients

Real estate agents must be mindful of the duties they owe to their clients and ensure that those duties are fulfilled. The duties owed by all real estate agents are not limited to those prescribed by the relevant contract of appointment (such as the Property Occupations Form 6), but also include duties which are prescribed by statute, common law and equity.

Understanding the full scope of these obligations is essential for agents to discharge their role with the professionalism that is required of them.

Fiduciary relationships

Agents should be mindful that their appointment to act on behalf of a client gives rise to a fiduciary relationship between them. That is, a relationship whereby the client is in a position of vulnerability, having vested trust and confidence in the agent. The agent, as the client’s trusted servant or fiduciary, has undertaken to act for and on behalf of the client, and therefore has a duty of undivided loyalty to the client and must act in the client’s best interests.

In circumstances where the fundamental nature of a fiduciary relationship is the trust, reliance and confidence of the vulnerable party (i.e. the client) being vested in another (i.e. the agent/principal), it follows that the fiduciary duties imposed on agents attract a very high, and strict, standard of care.

Undivided loyalty

Agents undertake to act for, and on behalf of, the client. Accordingly, the fundamental fiduciary obligation imposed on agents is that they must place their client’s interests ahead of their own (and those of any third party). The nature of the agency/fiduciary relationship also requires that agents ensure that they adhere to all instructions provided by their client.

This gives rise to the concept of “undivided loyalty”. Agents must ensure that they are acting solely for the benefit of their client, and not for the benefit of themselves, or any other party.

The obligations imposed on agents to ensure that they act in accordance with their client’s instructions, are also set out in section 22 of the Property Occupations Regulation 2014 (Qld) (the PO Regulation), which provides that “A property agent must act in accordance with a client’s instructions unless it is contrary to this division or otherwise unlawful to do so”.

Standard of Care

The standard of care owed by agents requires them to use a high level of care, skill and diligence when carrying out their role as agent for, and on behalf of, their client. This also includes an obligation that agents act honestly, fairly, professionally and in good faith at all times in the conduct of their role as agent, and in their various business activities. In addition, agents must ensure that they maintain good communication with their client and keep them informed of developments about a sale, purchase, lease or other transaction relating to the relevant property (unless the client has directed otherwise in writing).

Confidentiality

Agents have a duty to ensure that they do not use, or divulge, any confidential information about a client or customer. The only exception to this is in circumstances where the use or disclosure of the confidential information is required by law, or expressly authorised (in writing) by the relevant client or customer. This duty is also encompassed in Chapter 1 of the REIQ Best Practice Guidelines (the Guidelines).

Conflicts of interest and disclosure

As outlined above, agents have a duty of undivided loyalty and must ensure that they are acting solely for the benefit or advantage of their client, and not for the benefit of themselves or any other person.

It follows that agents have a duty to avoid any conflicts of interest between themselves and their client, or between their client and any other party (including the agent’s other clients).

A conflict of interest may arise in various circumstances, including (but not limited to) situations where the agent (or agency) stands to obtain a beneficial interest, and are therefore not acting solely and entirely for the benefit of their client. Another conflict of interest may arise in circumstances where an agent is appointed to act for multiple parties with competing interests (for example, a buyer’s agent acting for one or more clients interested in the same property).

In the above example for a buyer’s agent, consider when two separate clients provide instructions to make an offer to purchase the same property. What does genuine undivided loyalty require of the buyer’s agent in this situation:

• For Buyer A: The agent should use all available information, skill and strategy to maximise Buyer A’s chances of securing the property at the best possible price and on the best possible terms.
  
  
• For Buyer B: The agent should also use all available information, skill and strategy to maximise Buyer B’s chances of securing the same property at the best possible price. This would, by definition, require the same advice, including advice that might directly undermine Buyer A’s position.

The agent is placed in the position of having to choose between their clients, or, alternatively, watering down the advice given to both clients to the point where neither is receiving the expected standard of care owed by the buyer’s agent.

Even without any deliberate misuse of confidential information, an agent holding confidential information about two competing clients interested in the same property is in a compromising position, which creates an obvious conflict of interest.

Section 18 of the PO Regulation precludes agents from accepting an appointment to act, or from continuing to act, for a client if doing so will place the agent’s duty or interests in conflict with the client’s interest. This duty is also encompassed in Chapter 1 of the Guidelines.

Further, Chapter 5 of the Guidelines specifically addresses the above conflict of interest if a buyer’s agent has more than one client with instructions that compete for a particular property.

Best practice

The consequences of a breach of a fiduciary obligation may be significant, including damages at common law, and/or disciplinary action (which may result in fines, imprisonment, and/or disqualification from holding a real estate licence). As a general rule, agents should always avoid situations where a conflict of interest or a breach of a fiduciary obligation may arise.

An agent who has breached the duty to avoid conflicts of interest will only be able to avoid liability if the agent is able to demonstrate that their client has provided fully informed consent, in writing, to the breach of the fiduciary obligation.

As a matter of standard practice, agents should always ensure that full details of the disclosure provided to their client, including any recommendation that they seek independent advice, and their client’s written consent, are all clearly and thoroughly documented and retained on file.

If the fully informed, written, consent of the client to a breach of fiduciary obligation (including a conflict of interest) cannot be obtained, and the breach cannot be avoided, agents must not accept the appointment, or should cease continuing to act on behalf of the client.

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This article refers to version V05.24 of the REIQ Best Practice Guidelines.