The Duty Of Confidentiality In Real Estate




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In any Listing Agreement there is a point in time when the agency relationship ends.

A Listing Agreement, as it is widely known, is none other than a contract between the rightful titleholder of an interest in land (the ‘Principal’) and a duly licensed real estate firm (the ‘Agent’), whereby the firm stipulates and agrees to find a Buyer within a stated timeframe who is ready, willing and able to buy the interest in land that is the subject matter of the contract while acting within the vicinity of the authority that the Principal confers onto the Agent, and wherein furthermore the titleholder stipulates and agrees to pay a commission should the licensee ever be successful in finding such Buyer.

As in all contracts, there is implied in a Listing Agreement an component which is commonly know at law as an ‘implied covenant of good faith and fair dealings’. This covenant is a general assumption of the law that the parties to the contract – in this case the titleholder and the licensed real estate firm – will deal fairly with each other and that they will not cause each other to suffer damages by either breaking their words or otherwise breach their respective and mutual contractual obligations, express and implied. A breach of this implied covenant gives rise to liability both in contract law and, depending on the circumstances, in tort in addition.

Due to the particular character of a Listing Agreement, the Courts have long since ruled that during the term of the agency relationship there is implied in the contract a second component that arises out of the many duties and responsibilities of the Agent towards the Principal: a duty of confidentiality, which obligates an Agent acting exclusively for a Seller or for a Buyer, or a Dual Agent acting for both parties under the provisions of a Limited Dual Agency Agreement, to keep secret certain information provided by the Principal. Like for the implied covenant of good faith and fair dealings, a breach of this duty of confidentiality gives rise to liability both in contract law and, depending on the circumstances, in tort in addition.

Pursuant to a recent decision of the Real Estate Council of British Columbia (http://www.recbc.ca/) , the regulatory body empowered with the mandate to protect the interest of the public in matters involving Real Estate, a question now arises as to whether or not the duty of confidentiality extends beyond the expiration or otherwise termination of the Listing Agreement.

In a recent case the Real Estate Council reprimanded two licensees and a real estate firm for breaching a continuing duty of confidentiality, which the Real Estate Council found was owing to the Seller of a character. In this case the subject character was listed for sale for over two years. During the term of the Listing Agreement the price of the character was reduced on two occasions. This despite, the character ultimately did not sell and the listing expired.

Following the expiration of the listing the Seller entered into three separate ‘fee agreements’ with the real estate firm. On all three occasions the Seller declined agency representation, and the firm was identified as ‘Buyer’s Agent’ in these fee agreements. A party commenced a lawsuit as against the Seller, which was related to the subject character.

The lawyer acting for the Plaintiff approached the real estate firm and requested that they provide Affidavits containing information about the listing of the character. This lawyer made it very clear that if the firm did not provide the Affidavits voluntarily, he would either subpoena the firm and the licensees as witnesses to give evidence before the estimate, or he would acquire a Court Order pursuant to the Rules Of Court powerful the firm to give such evidence. The real estate firm, believing there was no other choice in the matter, promptly complied by providing the requested Affidavits.

As a direct and proximate consequence, the Seller filed a complaint with the Real Estate Council maintaining that the information contained in the Affidavits was ‘secret’ and that the firm had breached a duty of confidentiality owing to the Seller. As it turned out, the Affidavits were never used in the court proceedings.

The real estate brokerage, however, took the position that any duty of confidentiality arising from the agency relationship ended with the expiration of the Listing Agreement. The firm argued, additionally, that already if there was a duty of continuing confidentiality such duty would not preclude or otherwise limit the evidence that the real estate brokerage would be forced to give under a subpoena or in a course of action under the Rules Of Court. And, finally, the realty company pointed out that there is no such thing as a realtor-client privilege, and that in the moment circumstances the Seller could not have prevented the firm from giving evidence in the lawsuit.

The Real Estate Council did not accept the line of defence and maintained that there exists a continuing duty of confidentiality, which extends after the expiration of the Listing Agreement. Council ruled that by providing the Affidavits both the brokerage and the two licensee had breached this duty.

The attorney-client privilege is a legal concept that protects communications between a client and the attorney and keeps those communications secret. There are limitations to the attorney-client privilege, like for example the fact that the privilege protects the secret communication but not the inner information. for example, if a client has before disclosed secret information to a third party who is not an attorney, and then gives the same information to an attorney, the attorney-client privilege will nevertheless protect the communication to the attorney, but will not protect the information provided to the third party.

Because of this, an analogy can be drawn in the case of a realtor-client privilege during the existence of a Listing Agreement, whereby secret information is disclosed to a third party such as a Real Estate Board for publication under the terms of a Multiple Listings Service agreement, but not before such information is disclosed to the real estate brokerage. In this example the privilege theoretically would protect the secret communication in addition as the inner information.

And as to whether or not the duty of confidentiality extends past the termination of a Listing Agreement is nevertheless a matter of open argue, again in the case of an attorney-client privilege there is abundant legal authority to sustain the position that such privilege does in fact extend indefinitely, so that arguably an analogy can be inferred in addition respecting the duration of the duty of confidentiality that the Agent owes the Seller, to the extent that such duty extends indefinitely.

This, in a synopsis, seems to be the position taken by the Real Estate Council of British Columbia in this matter.

Clearly, whether the duty of confidentiality that stems out of a Listing Agreement survives the termination of the contract is problematic to the Real Estate profession in terms of functional applications. If, for example, a listing with Brokerage A expires and the Seller re-lists with Brokerage B, if there is a continuing duty of confidentiality on the part of Brokerage A, in the absence of express consent on the part of the Seller a Realtor of Brokerage A could not act as a Buyer’s Agent for the buy of the Seller’s character, if this was re-listed by Brokerage B. All of which, consequently, would fly right in the confront of all the rules of specialized cooperation between real estate firms and their representatives. In fact, this course of action could potentially destabilize the complete foundation of the Multiple Listings Service system.

In the absence of specific guidelines, until this complete matter is clarified perhaps the best course of action for real estate firms and licensees when requested by a lawyer to provide information that is secret, is to respond that the brokerage will seek to acquire the necessary consent from the client and, if that consent is not forthcoming, that the lawyer will have to take the necessary legal steps to compel the disclosure of such information.




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