What is Dual Agency?
Previously on our blog, we discussed the importance of understanding the relationship between an agent and a principal. Knowing the law that applies to principal-agent relationships is particularly important for business owners, so that they can prepare for and mitigate against potential legal liabilities that can arise from an agent’s actions. Agency laws also establish what fiduciary duties can arise from an agent-principal relationship. It is particularly important to be familiar with fiduciary duties in a “dual-agency” situation.
What is a Dual Agency?
Dual agency exists when an agent represents both parties to a transaction. This relationship commonly arises in real estate transactions, where a real estate agent represents both the buyer and the seller, often to reduce each party’s commission. Because a real estate broker owes fiduciary duties to their other clients, there is potential conflict of interest and breach of fiduciary duty when one agent represents both parties to a transaction. However, in many states, including California, dual representation that would otherwise constitute a conflict of interest is permitted when both principals knowingly consent to the dual representation. Where such transactions involve residential real estate comprising of one to four dwelling units, a written statutory disclosure form is required (California Civil Code § 2079.16). In other situations, such as commercial or industrial real estate transactions, an agent must also disclose all facts which reasonably affect the judgment of each party in permitting the dual representation. The information required to be disclosed alerts the parties to the potentially harmful consequences of dual representation, enabling them to make an informed judgment. A dual agency relationship, can be advantageous, but it is often in the best interest of the real estate brokers and sales agents and may not be suited for the parties to a real estate transaction.
A recent California case suggests that courts are looking at the dual agency relationship more closely. In Horiike v. Coldwell Banker, 225 Cal. App. 4th 427 (2014), a real estate broker served as a dual agent for a buyer and a seller. This case did not involve one real estate agent representing the buyer and seller, but rather, different agents from different offices of the same firm representing the two parties. As with law firms, even though different agents at different offices may be working with different clients as their agent, when a single firm represents multiple parties the firm and all of its employees owe each party a fiduciary duty. Thus, the court held that even when a different salesperson with the broker represents each party, fiduciary duties are not diminished. The firm owed a fiduciary duty to both the buyer and the seller, and therefore each salesperson owed a fiduciary duty to both the buyer and the seller.
In any business transaction, it is always best to consult with an attorney who is representing and looking to protect your interests. It may turn out that having one agent representing both the buyer and seller in a transaction creates a direct conflict of interest. An attorney can help you spot this concern and resolve it.
Ezer Williamson Law provides a wide range of both transactional and litigation services to individuals and businesses. We have successfully prosecuted and defended various types of business and property claims. Contact us at (310) 277-7747 to see how we can help you with your business law concerns.