Acting as an agent for a client carries responsibilities. One of them is to conduct constant assessment of how your role is evolving, to ensure you can carry it out fairly and without conflict of interest.

Such assessment doesn’t end when a listing agreement is agreed upon or a buyer’s agency is confirmed. Conflicts of interest can arise at various times in an agency relationship with a client and, as a licensee, you need to frequently ask yourself whether a particular situation could, or does, give rise to a conflict of interest.

The topic of conflicts of interest has been addressed frequently in E&O’s Risk Reports, BCREA’s Legally Speaking, and in the Knowledge Base of the British Columbia Financial Services Authority (BCFSA). It can be difficult to fully understand this complex concept, especially in situations involving multiple clients working on related sales, such as land assemblies.

Land assemblies present different opportunities for conflict

Most licensees are aware of the straightforward conflict of interest that occurs when an agent acts on behalf of both themselves and a client on the same transaction, or where one agent acts for two clients in the same transaction.

It seems, however, that licensees consider their risk of acting in a conflict of interest less often when working as seller’s agents in land assemblies. This is likely because you consider the taking of several listings in a block to be no different than acting for various sellers in the same neighbourhood – something done all the time by many licensees. Becoming an expert in a specific geographic area is generally considered a good thing as well as a marketing opportunity.

However, in land assemblies, the intertwined nature of these listings (even when there is a separate listing for each property) creates a unique agency relationship in which potential conflicts of interest ought to be carefully considered. By taking the time to consider the potential conflicts of interest that could arise between seller clients at the start of these agency relationships, you can hopefully avoid disputes and complaints later in the transactions.

The conflict of interest potentially arising from land assembly listings is not like that found in a dual agency (which is now barred, except in rare circumstances, by Rule 63 of the Real Estate Services Rules). The BCFSA Dealing with Conflicts of Interest flow diagram deals with traditional forms of conflict, such as where two clients become interested in one property. This form is limited and does not deal with the kind of conflicts that can arise in a land assembly listing.

Similarly, conflicts that can arise in such land assembly listings are not resolved by using the BCFSA form Resolving Conflicts of Interest Between Clients. This form contemplates that a conflict arises between clients in the same transaction (a buyer client who wants to buy a seller client’s property or two buyer clients who wish to buy the same property).

Preventing conflict between sellers within a group

But what about individual seller clients who have an interest in selling their properties as a group? Is there a conflict between each of those sellers? In my view there is real potential for conflict, and the best way to avoid such a conflict later is to address the issues when you take the listings.

The BCFSA defines conflict as “a situation where there is a substantial risk that [the licensee’s] ability to represent a client would be negatively affected by [the licensee’s] own interest or by [the licensee’s] duties to another current client, a former client, or a third party.” (Emphasis added)

In the scenario of acting as agent for multiple owners selling as part of a land assembly, some of the potential conflict issues would be:

1. List price: How is each property to be valued for list price? What if one lot has better improvements, view, location, etc.? What about a corner lot vs. a lot in the middle of the block? Some sellers will want a common formula while others may want a higher listing price because of particular attributes of their property.
2. Confidentiality: What information should be shared with each seller? What if one owner decides to negotiate differently than the others? What if a developer offers to buy only some of the lots? What if the various offers contain different terms (ie. completion dates, subjects, etc.)?
3. Marketing strategy: What if there are different views by the sellers as to how the properties should be marketed?

Using the BCFSA definition set out above, it’s easy to see how one seller taking a different position from other sellers when properties are being sold as a land assembly can place a licensee in a position where their ability to represent a client may be negatively affected by the licensee’s duties to another current client within the land assembly group. The ability of the licensee to carry out their duties, such as acting in the best interest of a particular seller and following lawful instruction of that client, may not be possible given the impact that looking after the best interests of that particular seller might have on the other sellers in the land assembly group.

Following the rules

It’s been my experience that licensees often don’t consider the potential for conflict when entering into listing agreements with individual owners of property being assembled for sale to a developer/investor. Licensees typically use the standard form of MLS Listing Contract or Exclusive Listing Contract. Both of these forms of contract speak to the obligations of the agent which include compliance with the Real Estate Services Rules (the Rules), specifically Rule 30 (previously Rule 3-3).

Rule 30 of the Rules states:

Subject to sections 31 [modification of duties] and 32 [designated agency], if a client engages a brokerage to provide real estate services to or on behalf of the client, the brokerage and its related licensees must do all of the following:

1. act in the best interests of the client;
2. act in accordance with the lawful instructions of the client;
3. act only within the scope of the authority given by the client;
4. advise the client to seek independent professional advice on matters outside of the expertise of the licensee;
5. maintain the confidentiality of information respecting the client;
6. without limiting the requirements of Division 2 [Disclosures] of Part 5 [Relationships with Principals and Parties], disclose to the client all known material information respecting the real estate services, and the real estate and the trade in real estate to which those services relate;
7. communicate all offers to the client in a timely, objective and unbiased manner;
8. use reasonable efforts to discover relevant facts respecting any real estate that the client is considering acquiring;
9. take reasonable steps to avoid any conflict of interest;
10. without limiting the requirements of Division 2 [Disclosures] of Part 5 [Relationships with Principals and Parties], if a conflict of interest does exist, promptly and fully disclose the conflict to the client.

Being unable to carry out any of these obligations because of duties owed to another seller client who is part of the land assembly group not only means you are at risk of breaching the listing agreement, but in all likelihood have a conflict of interest as between the sellers, all of whom are current clients.

Protecting yourself and all your clients

However, it’s possible to protect both yourself and all your clients by setting out, prior to entering into listing contracts for properties in a land assembly, how your duties will be modified to address potential conflicts among members of the land assembly group.

Rule 31 (previously Rule 3-4) of the Rules permits modification of the duties set out in Rule 30 if such modifications are set out in writing and agreed to by the clients, as follows:

1. By agreement between the brokerage and the client, one or more of the duties under section 30 may be modified or made inapplicable.
2. An agreement under subsection (1) must be
   1. in a written service agreement, or
   2. if there is no written service agreement, preceded by written disclosure made under section 54 (1) [disclosure of representation in trading services].
3. The written document referred to in subsection (2) (a) or (b) must clearly indicate the duties of the brokerage and its related licensees
   1. that have been modified and how they have been modified, and
   2. that have been made inapplicable.
4. Despite an agreement under subsection (1), the brokerage must
   1. supervise its related licensees to ensure that they fulfill their duties under section 30, and
   2. not disclose any confidential information respecting a client to any other person unless
      1. authorized by that client, or
      2. required by law.

In order to best protect yourself when listing multiple properties that are going to be sold as part of a land assembly, you should consider drafting a service agreement that modifies the duties you, as agent, will provide to the client. Such agreement would address a common strategy around sale prices, marketing strategies, offer presentations, negotiations and importantly, how information will be shared between the sellers.

Such service agreements should also contain a clause addressing the potential conflict of interest between the sellers in a land assembly group and give express consent for the agent to act for all sellers in the group. You should also consider how a seller can terminate such a listing and what, if any, impact that would have on information already obtained by the agent from the seller during the term of the listing.

Prior to entering into any such modification of duties agreement, advise all clients to seek legal advice, as the terms will be different than standard listing contracts which may be familiar to them.

A further consideration for land assembly groups is an agreement between the sellers. The service agreement between you and your client creates obligations and duties as between you and each individual seller. It does not bind one seller to act in a common manner with the other sellers in the group. Having the sellers speak to a lawyer about drafting a simple agreement to be signed by all sellers setting out the same kind of terms discussed above may help keep harmony in the group during the term of the listing.

Summary

In my experience, licensees rarely consider the true complexities that exist in selling land assemblies; the result can be disputes that can impact the success of the sale of the land assembly, the right to commissions, and compliance with the profession’s Rules and regulations. Given the growing development in this province, it’s important that licensees begin to address the unique issues that arise in listing properties intended to be sold as a land assembly.

Licensees who are looking to learn more about land assemblies may want to look into the course, “Land Assembly & Development: The Basics,” available through the Real Estate Board of Greater Vancouver. REBGV members can register online through their member portal (or by phone) and non-REBGV members can call 604-730-3090 to register.