What is implied agency?
It’s important to take care at the start of any relationship between a licensee and an unrepresented consumer.
Failing to explain and document the nature of the relationship may leave a consumer with the impression that you are their agent. More importantly, a court may find that you are that consumer’s agent by finding implied agency.
Implied agency is defined on p. 61 in the 20th Edition of Bowstead & Reynolds on Agency as:
“Agreement between principal and agent may be implied in a case where each has conducted himself towards the other in such a way that it is reasonable for that other to infer from that conduct assent to an agency relationship.”
Implied agency can put a licensee in a precarious position: you are agent often without knowing it. If found to be an implied agent, you owe the same fiduciary duties you would to your actual client, including disclosure, loyalty, and confidentiality, and could face the same consequences for not meeting those duties.
What have the courts found?
A recent case[i] of the B.C. Supreme Court (currently under appeal) highlighted the risk to a licensee acting for the seller in assisting an unrepresented buyer, particularly where the nature of the relationship between the licensee and the buyer has not been clarified.
The dispute in the case arose out of the sale of acreage property where approximately two-thirds of the property (around 100 acres) fell within the Agricultural Land Reserve (ALR) while the remaining one-third of the property (around 60 acres) was outside of the ALR.
The fact that 100 acres of the property was located within the ALR was disclosed in the seller’s Property Disclosure Statement (PDS).
The buyer contacted the seller’s agent to make general inquiries about the property. The licensee sent the buyer information about the property, including the applicable zoning regulations – but did not send information about the ALR, beyond what was in the PDS.
The judge made the following findings in relation to agency:
- The buyer and the seller’s agent communicated with each other for more than four months.
- On several occasions, the buyer asked the seller’s agent to assist in making inquiries with the Ministry of Transportation and BC Hydro regarding various issues on the potential development of the property.
- The seller’s agent assisted the buyer by making inquiries on the buyer’s behalf and responding to the buyer with research results and information.
- During the period when the buyer and the seller’s agent were having these communications, the seller’s agent became aware that the Agricultural Land Commission was considering amending the ALR boundaries in the area, which would result in the remaining 60 acres of the property being included in the ALR. He was also aware that the owner of the property could request that this area be left out of the ALR.
- The seller’s agent knew about the buyer’s plans for the property; the buyer had told the agent that he intended to build a corporate executive retreat on a section of the property located within the 60 acres that was subject to the ALR boundary adjustment.
- The buyer wrote to the seller’s agent asking him to prepare an offer to purchase. In his email to the agent, the buyer said:
- “I’m expecting to present an offer on the property before the end of the week, and for simplicity sake and to get you the most commission which you certainly have worked for, I’ll probably just have you act for both the seller and the buyer.” [emphasis added]
- The seller’s agent responded:
- “I would be happy to put the documents together for you. We have all of the current BC Real Estate Association contracts. We could draft the documents and you could have your lawyer insert any comments and conditions concerning due diligence.”
- Almost two weeks later, the seller’s agent emailed the buyer with a link to the “purchase documents,” including the PDS, the Working with a Realtor (Designated Agency) form, and a standard form contract of purchase and sale.
- The Working with a Realtor form and the contract both disclosed that the buyer did not have an agency relationship with the seller’s agent. Although it was not explained to the buyer, the buyer signed the Working with a Realtor brochure and returned it to the licensee.
A key issue at trial was whether an implied agency relationship existed between the buyer and the seller’s agent.
The judge found that the buyer’s email was a specific request from the buyer to have the seller’s agent act as agent for both the buyer and seller. The judge held that if the seller’s agent intended to only act for the seller, he needed to clarify his relationship with the buyer and to state that he was not prepared to act as dual agent. The licensee’s email response did not do that.
The judge found that the situation did change when the seller’s agent sent the buyer the contract and Working with a Realtor form two weeks later, which effectively ended the implied agency, but by this point almost two weeks had passed since the buyer had asked the seller’s agent to act for him.
However, the court held that during the two-week period there was an implied agency. The licensee was effectively agent for the buyer and owed the buyer a fiduciary duty to disclose the boundary review and the potential inclusion of the remaining 60 acres of the property into the ALR.
Other factors that led the court to conclude that the seller’s agent was the implied agent for the buyer included:
- The court found that the seller’s agent did not recommend to the unrepresented buyer that he seek the advice of his own real estate agent;
- The seller’s agent was asked by the buyer to perform “substantial research” for him that should have put the seller’s agent on alert about the potential creation of implied agency;
- The assistance provided by the seller’s agent “moved deeper into the provision of advice, rather than simply providing information;” and
- There was no documentation corroborating the statement by the seller’s agent that he had discussed agency relationships with the buyer prior to the buyer’s email seeking agency.
Material latent defects
On the question of disclosure, the court was also of the view that the seller’s agent would have had a duty to disclose the proposed boundary changes even if he was exclusively agent for the seller. The court reached this conclusion in part based on the wording of Rule 5-13, which extends the common law concept of a “material latent defect” and requires a seller’s agent to disclose a defect that renders property “unfit for the purpose for which a party is acquiring it if (a) the party has made this purpose known to the licensee, or (b) the licensee has otherwise become aware of this purpose.”
The court found that material latent defects are not limited to physical defects with real estate, but may also include conflicts in use arising from land use regulations. In the circumstances of this case, as the judge found that the seller’s agent was aware of the buyer’s intended use, he was obligated to disclose the information about the ALR.
Avoiding a finding of implied agency
The reasons for judgment highlight some important risk management issues that seller’s agents should keep in mind when dealing with unrepresented parties. In particular:
- The existence of an agency relationship with the seller does not necessarily preclude an implied dual agency from arising based on the facts.
- Seller’s agents should always be wary of assisting unrepresented buyers, without first clarifying the nature of the agency relationship.
- While use of the Working with a Realtor form helped to clarify the nature of the relationship in this case, the form did not operate retroactively to extinguish an implied agency that had already come into existence. Since this case, the Real Estate Council of BC forms have changed and the mandatory Disclosure of Risks to Unrepresented Parties form was introduced in 2018 along with Rule 5-10.1. Consumers must receive this form before dealing with a licensee who is representing a client in the same transaction. This will assist the seller’s agent in clarifying the nature of his or her agency with the unrepresented party at the very outset of the relationship.
- Licensees reduce their risks of being found to be an implied agent when all parties to a transaction are represented.
In addition to the lessons to be learned on implied agency, this case also serves as a reminder that a seller’s agent’s duty of disclosure may be more extensive than the seller’s duty to disclose material latent defects. As the Court of Appeal determined in Nixon v. MacIver[ii] a seller’s duty to disclose is restricted to certain types of physical defects that are not observable on ordinary inspection. It would appear, however, that the seller’s agent duty is broader as per Rule 5-13 of the Real Estate Rules.
Seller’s agents should review their Rule 5-13 disclosure obligations with the seller at the time of listing and if the seller objects to disclosure, the seller’s agent must cease acting, as per Rule 5-13 (3).
[i] Luminary Holding Corp. v. Fyfe, 2021 BCSC 167
[ii] Nixon v. Maclver, 2016 BCCA 8