The Duty of Confidentiality in Real Estate
In any Listing Agreement there is a point in time when the agency relationship ends.
A Listing Agreement, as it is widely known, is nothing more than a contract between the rightful owner of an interest in the land (the ‘Principal’) and a duly licensed real estate company (the ‘Agent’), whereby the company stipulates and agrees to find a Buyer within a specified time that is ready, willing and able to purchase the interest in the land that is the subject of the contract while acting within the scope of the authority that the Principal confers on the Agent, and where in addition the owner stipulates and agrees to pay a commission in the event that the licensee is successful in finding said Buyer.
As with all contracts, an element commonly referred to in law as an ‘implied covenant of good faith and fair dealing’ is implied in a Listing Agreement. This covenant is a general assumption of law that the parties to the contract, in this case the owner and the licensed real estate company, will deal fairly with each other and will not be harmed for breaking their words or otherwise breach their respective and mutual contractual obligations, express or implied. Failure to comply with this implicit agreement gives rise to liability both in contractual law and, depending on the circumstances, also in non-contractual liability.
Due to the particular nature of a Listing Agreement, the courts ruled long ago that during the term of the agency relationship a second element is implicit in the contract that arises from the multiple duties and responsibilities of the Agent towards the Principal: a duty of confidentiality, which requires 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 certain information provided by the Principal confidential. As for the implicit agreement of good faith and fair dealing, the breach of this duty of confidentiality gives rise to liability both in contractual law and, depending on the circumstances, also in non-contractual liability.
Pursuant to a recent decision by the Real Estate Council of British Columbia (http://www.recbc.ca/), the regulatory body empowered with the mandate to protect the public interest in matters related to Real Estate, now arises a question as to whether or not the duty of confidentiality extends beyond the expiration or termination of the Listing Agreement.
In a recent case, the Real Estate Board reprimanded two licensees and a real estate company for violating an ongoing duty of confidentiality, which the Real Estate Board determined was owed to the Seller of a property. In this case, the property in question was for sale for more than two years. During the term of the Listing Agreement, the price of the property was reduced twice. Despite this, the property ultimately failed to sell and the listing expired.
After the expiration of the listing, the Seller entered into three separate “fee agreements” with the real estate company. On all three occasions, Seller declined agency representation, and the firm was identified as ‘Buyer’s Agent’ in these fee agreements. One party filed a lawsuit against the Seller, which was related to the subject property.
Plaintiff’s attorney approached the real estate firm and requested that they provide him with affidavits containing property listing information. This attorney made it very clear that if the firm did not voluntarily provide the affidavits, he would subpoena the firm and the licensees as witnesses to testify in court, or obtain a court order pursuant to court rules compel the firm to provide such evidence. The real estate firm, believing that there was no other option in the matter, promptly complied by providing the requested affidavits.
As a direct and proximate result, the Seller filed a complaint with the Real Estate Board arguing that the information contained in the Affidavits was ‘confidential’ and that the firm had breached a duty of confidentiality to the Seller. As it turned out, the affidavits were never used in court proceedings.
The real estate broker, for her part, took the position that any duty of confidentiality arising from the agency relationship ended with the expiration of the Listing Agreement. The firm further argued that even if a continuing duty of confidentiality existed, such a duty would not prevent or otherwise limit the evidence that the real estate agency would be required to provide under a subpoena or in a proceeding under the court rules. And finally, the real estate company pointed out that there is no such thing as a privilege between the real estate agent and the client, and that in the present circumstances the Seller could not have prevented the firm from testifying in the lawsuit.
The Real Estate Council did not accept the line of defense and held that there is a continuing duty of confidentiality, which extends after the expiration of the Listing Agreement. The Board ruled that, by providing the affidavits, both the brokerage and the two licensees had breached this duty.
The attorney-client privilege is a legal concept that protects communications between a client and attorney and keeps those communications confidential. There are limitations to the attorney-client privilege, such as the fact that the privilege protects the confidential communication but not the underlying information. For example, if a customer has previously confidential information disclosed to a third party who is not an attorney, and then gives the same information to an attorney, the attorney-client privilege will still protect communication with the attorney, but it will not protect the information provided to the third party.
Because of this, an analogy can be drawn in the case of a privilege between the real estate agent and the client during the existence of a Listing Agreement, whereby confidential information is disclosed to a third party, such as a Real Estate Board, for publication under the terms of a Multiple Listing. service Agreement, but not before said information is disclosed to the real estate agency. In this case, the privilege would theoretically protect the confidential communication as well as the underlying information.
And as to whether or not the duty of confidentiality extends beyond the termination of a Listing Agreement remains a matter of open debate, again in the case of an attorney-client privilege there is ample legal authority to support the position of that such privilege does in fact extend indefinitely, so an analogy could also be inferred regarding the duration of the confidentiality duty that the Agent has with the Seller, to the extent that said duty extends indefinitely.
This, in short, appears to be the position taken by the Real Estate Council of British Columbia in this matter.
Clearly, whether the duty of confidentiality arising from a Listing Agreement survives contract termination is problematic for the Real Estate profession in terms of practical applications. If, for example, a listing with Brokerage A expires and the Seller goes back to listing with Brokerage B, if there is a continuing duty of confidentiality on the part of Brokerage A, in the absence of express consent by the Seller or Real Estate Agent of Brokerage A would not be able to act as Buyer’s Agent for the purchase of Seller’s property, if Brokerage B were to re-register it. All of which, therefore, would go against all the rules of professional cooperation between real estate companies and their representatives. In fact, this process could potentially destabilize the entire system base of the Multiple Listing Service.
In the absence of specific guidelines, until this whole matter is clarified, perhaps the best course of action for real estate firms and licensees when asked by an attorney to provide information that is confidential is to reply that the brokerage will seek consent. necessary. of the client and, if that consent is not obtained, that the lawyer will have to take the necessary legal measures to compel the disclosure of said information.