It is not unusual for agents to be instructed to market a site for a seller and to secure a buyer from their own contact book. In some cases, the agent may also anticipate, or accept, instructions from the buyer in relation to the future sale of that land. Northampton Regional Livestock Centre Co Ltd v Cowling [2013] EWHC 30 (QB); [2014] PLSCS 30 provides valuable guidance as to the duties of agents in such circumstances.
The proceedings arose out of the sale of a cattle market, which fell into disuse following the foot and mouth crisis. The company that owned the site had hoped to obtain planning permission for other uses, but was frustrated in its attempts to do so by strong local opposition to its plans. In the meantime, its debts mounted and the financial position of the company became ever more stretched.
The company instructed an agent who secured a buyer for the site, who promised to instruct the agent on any subsequent sale on the basis that he would receive a third of any uplift in value. Completion of the sale to the buyer took place six months later. During that period, a third party arrived unexpectedly on the scene. It took the site off the buyer’s hands for a price that was well above the rate that the market considered sensible. As a result, the agent became entitled to £744,000. In due course, questions were asked and litigation ensued.
The court did not pull any punches. An agent owes a fiduciary duty to his client. In addition, the RICS Manual of Estate Agency Law and Practice states in strong terms that acting for both the buyer and seller creates a conflict of interest. The judge accepted the advantages that can accrue from instructing an agent who uses his skill and contacts to bring buyers and sellers together. However, an agent who is acting for both parties, or soliciting instructions to do so, could provide the buyer with commercially sensitive information that will enable it to negotiate a lower price for the land.
The key to resolving the conflict between an agent’s own interests and his fiduciary duties to his clients is to make a full disclosure to all concerned. The burden of proving that his clients have consented to the arrangement rests on the agent. It is not a defence to prove that permission would have been given, had it been requested. Nor is it sufficient merely to disclose an interest, or to say something that would put the agent’s principals on enquiry. The judge advised agents to disclose the amount or likely amount or percentage of any commission (or the factors that will determine its calculation and whether it will be a percentage or a fixed sum). This should be done in writing, in terms that make it clear that the agent is asking for consent from those instructing him.
The company knew that their agent had a relationship with the buyer. However, the agent did not ask the company for permission to share information with the buyer or disclose the commission that he was expecting to receive. Consequently he had not obtained fully informed consent for his actions and was liable to return the fee paid to him by the company, and to account to the company for the commission paid by the buyer as well.
Allyson Colby is a property law consultant
