Addressing Conflicts of Interest when Acting for Multiple Clients

Published on 7 May, 2020
A woman in a suit reviewing a contract and plans with another woman on couch.

Purpose

This guideline will help you anticipate and address conflicts of interest when acting for multiple clients with competing interests in the same real estate transaction.

These conflicts of interests can arise when acting for multiple clients such as:

  • both the seller and the buyer;

  • both the landlord and the tenant;

  • both the assignor and the assignee;

  • two or more buyers, tenants or assignees.

For more about addressing conflicts of interest, see RECBC’s guidelines on Conflicts of Interest and Use of the Dual Agency Exemption.

Practice Guidelines

 

1. Be proactive in anticipating and avoiding conflicts of interest between clients

As a real estate professional, you will often act for multiple clients. In the majority of cases this will not give rise to a conflict of interest. However, conflicts of interest can occur. For example, when your clients develop competing interests in a property. Section 5-16 of the Rules prevents real estate professionals from representing more than one client to a trade, except in limited circumstances.

It is important to identify and anticipate conflicts of interest between clients and avoid them if possible.

Your brokerage should have policies and procedures in place on how conflicts of interest should be addressed. You should discuss these policies with your client(s) at the outset of an agency relationship to prepare them should a conflict arise. Well-informed clients are best positioned to make well-informed decisions, so you should speak with your client(s) clearly, early and often.

One way of being proactive in anticipating and avoiding conflicts is to consider your clients’ interests. Before accepting a new client, ask yourself whether their interests could conflict with the interests of your current client(s). For example:

  • Are any of my current buyer clients looking for the same type of property as my potential client?

  • Are any of my seller clients selling a property that my new potential buyer client might be interested in?

If the answer to either of these questions is “yes,” you should consider referring the potential client to another real estate professional.

You can take steps to avoid and manage conflicts of interest, such as:
  1. Communicate clearly, early and often
    Before you begin working for a client, clearly describe your duties, obligations and the scope of the services you will be providing. Clearly discuss the types of conflicts that may arise, and how you and your client may resolve them. Let the client know what your obligations are under the RESA, Rules and Regulations.

  2. Standardize your processes and procedures
    Run your business like a business. Mistakes and poor or untimely communication occurs when things get busy and crucial steps can be missed. Standardized processes and checklists can help ensure that this does not happen to you.

  3. Remember your role
    You are a trusted advisor with special expertise. You must always act in your client’s best interest, taking reasonable steps to avoid any conflicts of interest. If a conflict of interest does arise, you must promptly and fully disclose it to the client.

 

2. Consider what is in your clients’ best interest

In any real estate transaction you must always consider the best interest of your client. In rural and remote parts of the province, real estate professionals representing clients with competing interests should consider whether the dual agency exemption applies. 

If the specific transaction does not meet the dual agency exemption requirements, and continuing to represent both clients would result in dual agency, you must either:

  • not provide trading services to any client in respect of that trade, or

  • represent only one of the clients in respect of that trade.

You must always consider what is in your clients’ best interest. To help you proceed, you should consider the following questions:
  • Does my brokerage have policies and procedures in place on how conflicts of interest are to be addressed?
  • Is it in both clients’ best interest to continue to represent only one client moving forward?

    • Am I working with a vulnerable client who may struggle to find alternative representation?

  • Do I know confidential information about the released client that would impact my ability to act in the best interest of the continuing client?

    • Could I truly set aside my knowledge of the released client’s confidential information, so I do not use it to the advantage of the continuing client, even unconsciously or indirectly?

    • If I could set aside my knowledge of the released client’s confidential information, would there be the potential for either client to allege that I did not?

  • Have I explained the possible outcomes to both of my clients and how my duties to both clients will change?
  • Are there other real estate professionals in my brokerage or community who can represent the parties in the transaction?
  • Am I acting in my clients’ best interests or am I acting in my own interest?

    • Am I choosing to work with one client because there is a higher earning potential (e.g. higher commission, future leads, less risk)?

 

In order for you to continue representing one client in the transaction, you must obtain the consent of both clients to the Agreement Regarding Conflict of Interest Between Clients. It acknowledges that a conflict exists, and outlines your relationship and duties to each client moving forward.

If one or more clients do not consent to signing this agreement, you must release both clients in respect of the transaction. Only when both clients agree to sign the agreement is it possible to proceed as a representative of only one client.

Before you release one or both clients you should assist your client(s) to obtain independent professional representation. 

Deal appropriately with conflicts of interests as they arise

If a conflict of interest is unavoidable, you must promptly disclose it to your clients and work to resolve it.

Early discussions with your clients are a good practice to prepare clients for the possibility that should a conflict arise, the use of the Agreement Between Clients Regarding Conflicts of Interest may be necessary.

You should talk to your managing broker if a conflict of interest develops between your clients and you are unsure how to proceed. It is always good practice to discuss real or potential conflicts of interest with your managing broker, even if you are confident in how to resolve them.

 

3. Understand the risks of working with a released client as an unrepresented party

There are significant risks to working with a released client as an unrepresented party, because:

  • you have likely obtained confidential information about the released client;

  • you have a continuing duty of confidentiality to the released client; and

  • it is difficult to act in the continuing client’s best interest when you cannot disclose the confidential information about the released client.

Learn more about the limited trading services you can provide to unrepresented parties and your disclosure requirements

Because you previously had an agency relationship with the released client, the risks to you of working with them as an unrepresented party are heightened. You could be in an implied agency relationship – or you could be perceived to be in implied agency.

 

You should:

You should not:

carefully document your actions.provide the unrepresented party with advice;
 refer to previous advice you gave to the unrepresented
party while in a client relationship;
 negotiate on behalf of the unrepresented party; or
 disclose confidential information about your client to the
unrepresented party (unless authorized to do so by the client).
 

If a complaint arises and it is found that you were in an implied agency relationship with an unrepresented party,  you will be subject to disciplinary penalties.

 
Before deciding whether to work with a released client as an unrepresented party, ask yourself:
  • Have I referred the released client to another real estate professional in my brokerage or community?
  • Have I discussed the possibility of continuing to work with my released client as an unrepresented party with my managing broker?
  • Have I sought the advice of my managing broker, professional standards advisor, and/or lawyer?
  • What confidential information do I have about the released client?
  • Am I sure that I can work with the released client as an unrepresented party, considering my knowledge of their motivations, financial means, desired timeline, and needs?
  • Am I certain that the released client has provided informed consent and understands that I cannot act in their interest in the transaction?
  • Is there a risk that either the continuing client or the released client may feel that I disclosed their confidential information to the advantage of the other party?

You should consider the risks of working with a released client as an unrepresented party, such as:

  • it may be determined that you still acted as though you were in an agency relationship with them;

  • a continuing client may allege that you still acted as though you were in an agency relationship with the released client; or

  • either party may allege in a complaint that you shared their confidential information with the other party.

Real estate professionals should consider recusing themselves from a transaction involving a released client who is unrepresented to avoid any perception of a conflict of interest.

You should seek legal advice or speak with a professional standards advisor before working with a released client as an unrepresented party. You must provide a released client with the required Disclosure of Representation in Trading Services form and Disclosure of Risks to Unrepresented Parties form.

 

4. Understand if and when you can re-engage with a previously released client

Given that your agency relationship ended as a result of a conflict of interest, you may be able to enter into a new agency relationship with your released client with regards to a different property. However, since it is your duty to take steps to avoid conflicts of interest, you should consider whether the released client will have further competing interests with your current clients that could result in a similar situation (i.e. potential dual agency).

Ask yourself the following questions:
  • Is it likely that the released client will become interested in the same property again?
  • If the released client is selling a property, is it likely that your current clients will be interested in purchasing it?
  • Are there other ways that the released client’s interests could conflict with your current clients’ interests?
 

You may only enter into a new agency relationship with a previously released client if you are confident it will not create another conflict of interest.

 

Managing Broker Considerations

Managing brokers should talk with licensees about conflicts of interest with multiple clients and the inherent risks.  Given the risks of using the Agreement Regarding Conflicts of Interest Between Clients, you should consider establishing a brokerage policy to review these agreements entered into by licensees at your brokerage.

You should also consider developing policies and guidelines concerning conflicts of interests between multiple clients to help your licensees navigate this situation. These could include procedures to ensure licensees keep you informed of the services they are providing on behalf of the brokerage. You may also consider implementing procedures around referrals to other licensees within or outside the brokerage.

If a licensee in your office enters into an Agreement Regarding Conflicts of Interest Between Clients, they must deliver a copy to the brokerage, and the brokerage has to retain a copy.

Applicable sections of RESA/Regulation/Rules/Bylaws

Section 3-3(a), Rules [Duties to clients] 

Section 3-3(i), Rules [Duties to clients] 

Section 3-3(j), Rules [Duties to clients] 

Section 3-3.1, Rules [Modification of duties] 

Section 3-4, Rules [Duty to act honestly and with reasonable care and skill] 

Section 5-16, Rules [Restriction on dual agency in trading services] 

Section 5-17, Rules [Dual agency in under-served remote locations] 

Section 5-18, Rules [Addressing conflicts of interest when acting for multiple clients]

 

Definitions

Agency: a type of relationship where the agent has the authority to represent and act for the consumer in dealing with others.

Continuing Client: client who, if the Agreement Regarding Conflict of Interest Between Clients is signed by both clients, will continue to be represented by the licensee in the transaction.

Client: in relation to a real estate professional, the principal who has engaged the licensee to provide real estate services to or on behalf of the principal;

Conflict of interest: a situation where there is a substantial risk that the agent’s representation of a client would be negatively affected by the agent’s own interests or by the agent’s duties to another current client, a former client, or a third party.

Confidential Information: any information about a client that is not available to the public. That can include the client’s finances, personal situation, motivations or needs.

Dual agency: the representation, in respect of a trade in real estate, by the brokerage of the following:

(a) both the seller and the buyer as clients;

(b) both the lessor and the lessee as clients;

(c) both the assignor and the assignee as clients;

(d) 2 or more buyers, lessees or assignees, as the case may be, as clients who have conflicting interests in respect of the trade in real estate;

Released Client: client who, if the Agreement Regarding Conflict of Interest Between Clients is signed by both clients, will no longer be represented by the licensee in the transaction.

Unrepresented party (non-client): in respect of a trade in real estate, a party to the trade in real estate who is not a client of a licensee for the trade in real estate.