Agency Highlights: 3Q 2015

A. Cases

The Agency cases reviewed this quarter address a variety of different issues important to real estate professionals.  In an Indiana case, the court ruled that an agent breached the fiduciary duty owed to her client by purchasing a property that her client wanted.  In other cases, the courts examined whether a licensee’s fiduciary duty extends to former clients and tenants of a client.   

1. Bunger v. Demming, 40 N.E.3d 887 (Ind. Ct. App. 2015)

A licensee breached her fiduciary duty when she purchased a property several years after her client’s offer was rejected on that property, thus resulting in an award of $154,000 to the client.

A real estate investor hired a licensee for multiple transactions. The investor was interested in a particular property, but the owner declined the investor’s offer. After several years, the property owner’s representative informed the licensee that the owner wanted to sell. The licensee did not tell the investor that the property was now available. Instead, she and a partner bought the property. There was no written representation agreement between the investor and the licensee, but the parties had orally discussed a standard commission arrangement for the anticipated transaction. When the investor sued the licensee, the court held that the licensee was in an agency relationship with the investor, despite the lack of a formal written agreement. The licensee’s purchase therefore breached her fiduciary duty to the investor. The investor won $154,000 in damages. 

2. Lawson v. Keene, No. 03-13-00498-CV, 2015 WL 4071561 (Tex. Ct. App. July 1, 2015)

A licensee’s failure to notify a purchaser of a discrepancy between the appraisal record and the MLS listing was not a breach of fiduciary duty or a misrepresentation.

The seller’s representative added the square footage of a sunroom to the house’s MLS listing. The sunroom square footage was not included in the county’s appraisal record. When the buyers discovered the discrepancy between the county record and the MLS listing, they sued their representative and the seller’s representative for fraud, breach of fiduciary duty, and violation of the Texas Deceptive Trade Practices Act. The court held that adding the square footage was not fraud or misrepresentation and did not breach fiduciary duties. There was no reason the sunroom should not have been included, and the county’s appraisal was not the definitive record. The buyers were ordered to pay seller’s representatives’ attorneys’ fees.

3. Hopkins v. Coco, 174 So.3d 201 (La. Ct. App. 2015)

The buyer's representative’s failure to notify a lender of the seller's offer to reduce price did not harm the seller because the lender had already rejected the buyer’s loan application.

A sales agreement fell through when the buyer could not secure financing. The sellers claimed fraud, negligent misrepresentation, and breach of fiduciary duty against the buyer and the buyer’s representative, arguing that the buyer did not make a good faith effort to secure financing, and that the buyer's representative failed to notify the lender that the sellers had agreed to lower the purchase price. But the buyer’s representative received the price amendment the same day she learned that the buyer’s loan was not approved, so sending the new price information would have been pointless. The buyer’s representative was therefore not liable.

4.  Kim v. Park, 332 Ga. App. 349 (2015)

A broker was not liable to a former client for not telling him about a phone call received at the broker’s office after their agency relationship ended.

A property owner terminated an agency relationship with a broker. Weeks later, the broker received a call from someone requesting the owner’s address. The broker did not provide the address and did not notify the owner of the call. The call was from a process server attempting to serve the property owner with a lawsuit. The owner claimed the broker’s failure to inform him of the lawsuit caused the entry of default judgment against him. The court held that the broker was not responsible to notify the former client because there was no agency relationship at the time of the phone call.

5. Schweitzer v. Salt Lake Homeless Program, No. 2:15-CV-193-DB-BCW, 2015 WL 5089359 (D. Utah Aug. 27, 2015)

An agent did not owe a fiduciary duty to the tenant of a home seller.

A tenant rented a house from the owner, but the owner later sought to sell the house. The tenant claimed the seller was selling the home to avoid due process obligations under Utah eviction law and the federal HUD Veterans Administrations Subsidized Housing law. The tenant sued the seller’s representative in an effort to stop the sale of the house. The court held that a real estate agent owes fiduciary duties to his or her client, but not to a seller’s tenant.

6. Livia Properties, LLC v. Jones Lang LaSalle Americas, Inc., No. 5:14-00053, 2015 WL 4711585 (W.D. Va. Aug. 7, 2015)

A broker was not liable for interference or conspiracy because it only acted within the scope of its relationship with its client.

A commercial real estate services firm was hired to negotiate leases as broker for a large cable company. In the course of negotiating a lease renewal with a property owner, the broker informed the owner that it would be required to pay the broker’s commissions. The owner later learned that the broker’s employee who negotiated the leases in Virginia was not a licensed broker in the state of Virginia, and refused to pay commissions. Ultimately, the cable company did not renew the lease. The owner claimed that the failure to renew the lease was the result of a conspiracy between the broker and the cable company to punish the owner for refusing to pay the commissions. The owner sued for intentional interference with prospective contract and business conspiracy. The court held that the relationship between the broker and its client precluded the broker’s liability to the owner. Because the broker was acting on its client’s behalf, the broker was not legally considered to be an independent entity from the client, and could not interfere with the contract between the owner and the client.

B. Statutes and Regulations

North Carolina

North Carolina amended a rule relating to brokers selling commercial real estate. Under the amendment, if a commercial real estate broker has an ownership interest of less than 25% in the property, the broker may represent the buyer of that property if the buyer consents to the representation after full written disclosure.1

North Carolina also amended its regulation on handling of trust money. A broker may accept custody of a check payable to a seller or escrow agent, but only for the purpose of delivering it to the seller or escrow agent.2

New York and Colorado regulations addressed the issue of advertising by brokerage teams, and are part of nationwide trend to regulate brokerage teams.  Under the New York regulation, advertising of team names must use the term “team” and include the full licensed name of the real estate brokers or state that the team is “at” or “of” [full name of the broker/the brokerage].”3  In Colorado, teams are prohibited from using terms such as “realty” or “corporation” in their team name, and all team advertising must include the legal name or trade name of the brokerage firm.4 Similarly, a Louisiana regulation states that the words “team” and “group” may be used in team advertising, but team names cannot contain misleading terms, such as “real estate” or “realty.”5

C. Volume of Materials Retrieved

Agency issues were addressed twenty times in fourteen cases (see Table 1). Breach of Fiduciary Duty was the most commonly raised issue, while Agency: Other and Vicarious Liability issues were considered in many cases as well. Two Agency regulations were retrieved this quarter.6

1 N.C. Admin. Code tit. 21, r. 58A.0104 (2015).

2 N.C. Admin. Code tit. 21, r. 58A.0116 (2015).

3 N.Y. Comp. Codes R. & Regs. tit. 19, §175.25(e) (2014).

4 Colo. Code Regs. § 725-1, E-8(b) (2014).

5 La. Admin. Code tit. 46:LXVII, §§ 1901, 1903, 1907, 1909, 1911 (2014).

6 This update covers the 2015 legislative sessions for the two states in Group III, North Carolina and Oregon.

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State Law Based Changes

Read a summary of this quarter's additions to the State Law Based Changes.