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Professional Standards Manual

Trading Services

1. Practice Standards

(b) Agency - View Entire Section

(IX) Conflicts of Interest - Limited Dual Agency

Whenever a licensee attempts to act for more than one party whose interests conflict, a potential conflict for the licensee can arise. While the law does not prohibit acting for more than one party, it is not possible for a licensee to act as the agent for more than one client whose interests may conflict without being in breach of their fiduciary duties (see Sole agency above) to each client. Accordingly, a licensee wishing to act for more than one client whose interests may conflict must first obtain the informed consent of both parties before acting on their behalf.

In this context, informed consent means that the licensee must disclose to both parties, in a timely manner:

  • the nature of the conflict of interest that would arise if the licensee were to represent both parties; and
  • what is being proposed by the licensee and the implications of giving their consent.

The above disclosure must occur before the licensee begins to act for both parties and before any potential conflict of interest has arisen.

A common conflict that arises is where a licensee is representing both the seller and the buyer in the same transaction. These situations are the ones that generally come to mind when the term ‘‘limited dual agent’’ is used.

Under designated agency, a brokerage and its clients agree that different licensees engaged by that brokerage may be designated to act as sole agents on behalf of clients whose interests may conflict. When different licensees are designated to act on behalf of different clients who are negotiating the same transaction, dual agency is avoided. The conflicts of limited dual agency continue to exist, however, if the same designated agents are acting on behalf of a seller and a buyer in relation to the same transaction, or acting on behalf of two buyers who are interested in buying the same property.

If operating under brokerage agency, this conflict exists either when two different licensees engaged by the listing brokerage work with the seller and the buyer respectively, or when one licensee (or a team of licensees) engaged by the listing brokerage to act on behalf of the seller/landlord is the same licensee (or team of licensees) who brings the buyer/tenant to the trade, i.e. a double-ender). It is important to remember that under brokerage agency practice, when a licensee engaged by a brokerage lists a property for sale, the brokerage is appointed as the agent of the seller, and all of the brokerage’s related licensees assume the agency obligations of the brokerage in relation to that seller. Similarly, under brokerage agency, when a licensee engaged by a brokerage acts as a buyer’s agent, the brokerage is appointed as the agent of the buyer, and all of its related licensees assume the agency obligations of the brokerage in relation to that buyer.

In order to act as a limited dual agent, a licensee (whether the brokerage in brokerage agency or the designated agent in designated agency) must have the agreement of the two clients as to how the duties owed to those clients are to be modified or made inapplicable. Under section 3-3.1 of the Rules, this agreement must either be in a written service agreement, such as a Limited Dual Agency Agreement, or preceded by written disclosure. The agreement must indicate the duties that have been modified and how they have been modified, and the duties that have been made inapplicable.

Licensees who are members of real estate boards, and access WebForms® should be aware that there are now two Limited Dual Agency Agreement forms available, one for use when a licensee wishes to enter into a limited dual agency agreement with a seller and a buyer [the Limited Dual Agency Agreement (Buyer/Tenant and Seller/Landlord) form], and the other for use when a licensee wishes to enter into a limited dual agency agreement with two different buyers who are each interested in making an offer on the same property [the Limited Dual Agency Agreement for Competing Buyers/Tenants form].

Licensees must also keep in mind that the definition of a ‘‘trade in real estate’’ includes a transaction for the leasing of real estate. If a brokerage acts for both the landlord and the tenant, particularly in the arranging of commercial leases, the brokerage may wish to act as a limited dual agent. Designated agency is, of course, an alternative to ‘in-house’ limited dual agency in commercial transactions as well as residential transactions.

There are many other situations where a licensee may be involved in more than one aspect of a trade in real estate and wishes to act as a limited dual agent. Whenever a brokerage is involved in more than one aspect of a trade in real estate, the situation can give rise to conflicts of interest. For example, a brokerage that provides strata management services to a strata corporation might be asked by the owner of a strata lot within that strata corporation to list the strata lot for sale. As an agent for the strata corporation, the strata manager may have access to information that is confidential to the strata corporation and is not intended to be shared with individual strata lot owners or potential buyers (e.g., specific details concerning current legal action, including settlement negotiations, hardship cases, or concerns regarding a rogue strata lot owner). The strata manager has an obligation to keep the confidence of the strata corporation. Yet, as an agent for the seller of the strata lot, that same brokerage would have a duty to disclose all known facts that may affect or influence the seller’s decision.

Another example could be where a licensee is acting as an agent for a seller and as a mortgage broker for a buyer in the same trade. That licensee may become aware of personal, confidential information regarding the buyer that would be of interest to the seller.

Additionally, licensees are occasionally in a position where they act as an agent for various buyers, all of whom wish to make an offer on the same property. Under designated agency, a brokerage, with the agreement of these buyers, may appoint different licensees as the designated agents to act on behalf of these buyers who are interested in purchasing the same property. With proper practice, including not sharing the confidential information of their respective clients, designated agents engaged by the same brokerage are able to avoid many of the conflicts that can arise under limited dual agency with respect to these types of ‘in-house’ transactions.

Whenever a licensee attempts to act for more than one party in a trade as a limited dual agent, the licensee is in a potential conflict of interest. In every case, the licensee must disclose the conflict to their clients and obtain the informed consent of their clients before acting or continuing to act on their behalf.

The disclosure must be timely, and, where possible, made before either client has disclosed confidential information to the licensee. This is important because one of the most significant challenges for a licensee in limited dual agency, where there are two clients, is the conflict between the obligation to disclose to each client all known material information respecting the real estate services, the real estate itself, and the trade in real estate [subsection 3-3(f) of the Rules], and the obligation to maintain the confidentiality of information respecting each client [subsection 3-3(e) of the Rules]. Often, the confidential information of one client would be material to the interests of the other client. Without these clients agreeing to modify these conflicting obligations, the licensee is placed in the untenable position of being obliged to disclose information they are obliged not to disclose. In other words, they are not able to fulfill their obligation of undivided loyalty to both clients at the same time.

In order to comply with the disclosure requirements of section 5-10 of the Rules, appropriate disclosure of the limited dual agency relationship must be made at the first reasonable opportunity and, where possible, made before either client has disclosed confidential information to the agent. Those agents not using the Working With a REALTOR® brochure for this purpose must ensure that they are using an appropriate alternative that provides complete and accurate disclosure of the relationships.

Both clients have to be fully aware of the existence of a limited dual agency relationship. The courts are increasingly imposing an obligation on the limited dual agent to inform both clients of the ‘‘full implications of representation by a limited dual agent’’. This obligation has been extended by the courts to disclosure of the implications and benefits of sole representation, and the parties’ entitlement to choose sole representation. The courts have held that clients have the right to make a fully informed choice as to the nature of the representation they wish to receive.

Although, generally speaking, the informed consent of the client to a limited dual agency relationship is sufficient, there are some cases where a brokerage practicing brokerage agency should not represent both parties in a trade. In those circumstances where a licensee related to a brokerage is acquiring or disposing of property on their own account or when the licensee is providing real estate services to an associate (as defined in section 5-7 of the Rules), the licensee should not also be acting for the other party. In such circumstances, a licensee could not remain objective or neutral.

Even though a licensee has complied with section 5-9 of the Rules, which requires disclosure of their interest in the trade, the licensee should also resist creating a conflict of interest by agreeing to have their related brokerage, if operating under brokerage agency, also represent the other party. In such circumstances, so long as an agency relationship has not been created with the other party, the licensee and their related brokerage may wish to treat the other party as a customer instead of entering into a limited dual agency relationship. In this way conflicts may be avoided.

This conflict may not exist under designated agency if the other party is able to obtain independent representation through their own designated agent, and if the client’s confidential information has not and will not be shared with the licensee who is acquiring or disposing of the real estate or a licensee who is representing that licensee.

It is important for licensees to keep in mind, however, that the determination of the relationship or a change in the relationship must be agreed to by the client/customer. A licensee who wishes to change from one type of relationship to another must first obtain the informed consent of their client/customer. Making such a change is not simply a matter of the licensee advising the client that the relationship has changed.