Commercial Agents’ Obligations Revisited
Real estate agents must be mindful of the duties they owe to their clients and not only ensure that those duties are fulfilled, but also that they do not act outside the scope of their duties or expertise. The duties owed by agents are not limited to those prescribed by the relevant PO Form 6, but also include duties which are prescribed by statute, common law and equity.
Agents should also 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 entirely in the client’s best interests.
Section 22 of the Property Occupations Regulation 2014 (Qld) (the Regulation) also provides that an agent must act in accordance with a client’s instructions unless it is contrary to the conduct standards of the Regulation or otherwise unlawful to do so.
Many agents will have no doubt been in the situation where they have received instructions from a client that has caused them to question whether they were being asked to act outside the scope of their duties or expertise.
We set out below a situation that may have recently arisen for real estate agents involved in the sale of commercial property.
Agents will be aware that it is vital that they ensure their client’s instructions regarding the scope of their retainer are accurately recorded in writing at Part 4 of the PO Form 6. Agents need to ensure that they only perform these specified services and that they do not act outside the scope of their retainer.
Agents should also ensure that they complete and attach to the PO Form 6, the latest version of the Schedule for Commercial and Industrial Sales and Lease as well as the current terms and conditions approved by the REIQ. If an agent is asked by a client to provide an appraisal of the property, it is important to ensure that Item C of the Schedule is completed accurately.
It is important for agents to be aware of the difference between appraisals and valuations. An appraisal is intended to be a guide to pricing and is often the estimate or opinion of an agent with knowledge of the local area and recent sale prices.
A valuation can only be conducted by a qualified valuer who takes into consideration all features and issues relating to the particular property. A valuation report is often obtained when a definitive value is required, such as to obtain finance to purchase a property.
The situation may have arisen recently for commercial agents where they have been asked by a client to provide a ‘letter of comfort’ or ‘market update’. These requests are set out in such a way to suggest that there has been no change in the value of the property, without directly referring to a valuation amount.
If an agent was to provide the advice requested, it may be deemed to be expressing an opinion of value and therefore, a valuation.
Accordingly, if requested by a client to provide a ‘letter of comfort’ or ‘market update’, which may amount to a valuation, agents should make it clear to their client that they are not qualified to assist in providing a valuation, and are not able to provide any advice regarding the value of the property.
In addition to acting outside the scope of their retainer, providing a ‘letter of comfort’ or ‘market update’, as requested by the client, may also impact on an agent’s professional indemnity insurance.
Most policy wordings for professional indemnity insurance for real estate agents are likely to include a valuation exclusion clause, which will exclude from cover any claim against an agent, directly or indirectly arising from the provision of real estate valuation activities.
However, the Valuation exclusion clause in the policy wording for the REIQ Professional Indemnity Insurance Scheme (brokered by Aon Risk Services and underwritten by CGU Insurance), does not apply in respect of market appraisals, estimates, or opinions of the selling price of a property (or business), as long as such advice is in writing and accompanied by a disclaimer to the effect that such advice does not constitute a valuation.
Agents involved in the sale of commercial property must accurately record the scope of their retainer and ensure that they only perform these specified services. Agents should be familiar with the terms of their appointment and ensure that while acting in their client’s best interests, they do not act outside the scope of their retainer.
It is strongly recommended that agents advise their clients that they are unable to assist them in providing valuation activities and strongly emphasise to their clients that they ought to obtain independent valuation advice in respect of all matters pertaining to the value of a property.
Further, as a matter of best practice, agents should ensure that they comprehensively and contemporaneously document all of their dealings with their clients and retain these records on the sales file.