Common Law, Commercial Agents and any Fiduciary Duties of Estate/Letting Agencies

There are many situations which require an intermediary when it comes to a transaction between two parties whether it be a business to business or individual to individual. This article will consider the common law of agency, Commercial Agents and with particular consideration to the rights and duties of estate/ letting agents acting between a landlord as the principle, and a tenant, both using an agent to act as the ‘middleman’.

There are rights and duties on both sides of the coin but usually we consider the agent to be clear of any obligation or liability because they are acting on behalf of the principle. This isn’t strictly true and there is a body of case law which deals with situations when it is the agent or intermediary that has been involved in dealings between the other two parties.

The legislative aspect of this obligations is set out in the Commercial Agents Directive (86/653/EC) (OJ 1986 L382/17) (The ‘Directive’). The only stumbling block when considering landlord and tenant using an agent is that this has a focus on goods rather than services and a ‘letting agent’ will only really be able to act on behalf of the principal. This means that they will be given status as a ‘Limited Agent’.

The common law definition of an agent essentially provides it as a person that has the power to create, change or terminate the legal relations of another, namely the principal. “The relationship of principal and agent can only be established by the consent of the principal and the agent. They will be held to have consented if they had agreed to what amounts in law to such a relationship, even if they do not recognise it themselves and even if they have professed to disclaim it … But the consent must have been given by each of them, either expressly or by implication from the words and conduct”. (Lord Pearson in Garnac Grain Co Inc v HMF Faure and Fairclough Ltd [1968] AC 1130.)

However, the common law definition does not allow for an estate or letting agent because of the legal powers are restricted or limited for an estate agent because it refers to an intermediary that has been granted a limited authority to represent the principal, without any authority to change the legal position of the principal. An estate agent or letting agent does not have the power to enter into legally binding commitments on behalf of the principal. This means that it could be reasoned that there is little risk for the agent because as soon as any contractual agreement is made between the principal and individual, the agent would drop off the chain. Unless, it could be argued that there is an on-going fiduciary duty owed such as with a letting agent which will owe a duty to both parties.

The Provision of Services Regulations 2009 (PSR) factors this type of agent more so that that of the common law approach and typical application of an agent. The PSR considers the agent as a ‘service provider when acting for the principal or landlord. In fact, the government has set out the services which would fall under PSR and specifically mentions either business to business or business to consumer services such as estate agents and letting agents are included in this definition.

With this in mind, the agent will owe a fiduciary duty (FD) when dealing with the principal or on behalf of the principal with an individual or tenant. The definition of a FD with the application of the above would be when an individual (the Agent) in whom another has placed the utmost trust and confidence to manage and protect property or money (the principal). If the agent is in breach on this duty either by failing to uphold a standard of care in looking out for the ‘property’ for example, then it could be held liable. This would be the same if it has been put in a position to look out for the interest of the principal of whom has a duty to its ‘tenant’ for example and then there is a breach of this duty, even though it was due to the negligence of the agent then the agent has in turn failed in its fiduciary duty towards the principal.

If you have been subject to any issues where you are struggling to determine who is at fault or if both can be held liable in some way, then contact Lawdit. You may be a principal and are in a situation where you feel the agent has failed in its fiduciary duty and are hiding behind being a ‘limited agent’ and were only acting on your instruction. It may that you own an agency and would like some advice on your position after a dispute has arisen. We have a specialist team who can assist you in your questions and hopefully advise you moving forward.

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