Although not a definitive guide, we
shall initially consider the most important of the duties imposed upon
agents. In the final section of the article, the rights of the agent are
examined.
Duty
of Obedience
Express instructions are paramount
and any agent disobeying these will be automatically liable for any loss which
is caused to the principal. This duty takes precedence over the duty to
exercise all reasonable care and skill. Two important issues stem from this
point of law. Firstly, it is wise to ask for all significant instructions
to be given in writing, both at the initial undertaking and throughout the
management of a property. Verbal instructions are more prone to ambiguity
and can be forgotten. Secondly, the firm's management agreement should define
the professional services provided and what actions will be taken in certain
situations. In this way, the definition of 'reasonable care and skill'
will be less open to interpretation by any aggrieved client. The only valid
excuse for disobeying such express instructions are that they are unlawful, for
example where your principal instructed you to deal with a firm in a country
the UK was at war with.
This duty assumes that the
instructions are capable of only one interpretation. If they are
ambiguous and the agent acts upon a reasonable interpretation she is not liable
merely if it happens to be the incorrect one.
Agents Discretion
The instructions may be actually
intended to allow the agent a degree of discretion. If so the agent
will not be liable provided the discretion is exercised in a fair and
reasonable manner2. Clearly as Murdoch points out in his
recent book on the subject of agency, "At this point the agent's duty of
obedience effectively merges with the duty to exercise reasonable care and
skill" (Law of Estate Agencies 3rd ed. 1994). It is difficult to give
an example here because what is fair and reasonable will depend on the
facts of the particular case. In such a case where it is adjudged that
the discretion was exercised in the wrong way the agent will be liable for the
losses to the principal, but it will not necessarily be a breach of contract or
a reason for repudiation of the contract.
Duty
of Care and Skill
An agent is under a duty to exercise
reasonable care and skill which will be examined in the light of all the
particular circumstances of the case. From a professional liability
point of view, this duty is one of the most important to consider. It
holds the highest penalty since professional negligence claims can be costly in
time and any awards for damages made if a matter was to go to court. An agent
or any firm involved in the management of property should not lose sight of the
extent of the risks and the value of capital at stake. Repairs to a
property damaged by water escape following frozen or burst pipes can total
several tens of thousands of pounds. A faulty gas installation could
result in a fatality. The duty of care and skill applies to a firm's
obligations to both the landlord (when managing the property as agent) and
tenants. The Supply of Goods and Services Act 1982 section 13 implies
this duty into all contracts as a term rather than a condition.
N.B. This may override exclusion
clause in a firm's standard terms and conditions.
This means it renders the agent liable to pay for loss suffered by the principal - it does not inevitably disentitle the agent to payment. This will depend on the seriousness of the agent's breach. This duty is subordinate to the duty of obedience so the agent cannot disobey an instruction by claiming to have acted in the principal's best interests. This of course can work in the agent's favour. If the agent carries out the principal's imprudent instructions to the detriment of the principal the agent will not normally be liable in negligence3. It has long been settled that, where an estate agent or letting agent is instructed to find a prospective tenant for property owned by his client, he must use reasonable diligence to ascertain that the person whom he introduces is a 'proper' tenant4. If the agent fails in this duty, he may well be liable to his client, not only for loss of rent, but also for any damage which the tenant does to the premises5.
In Brutton v Alfred Savill, Curtis
& Henson (1971), for example, an office junior employed by the agents
allowed a prospective tenant to take possession of premises without payment of
a deposit or any rent in advance because he said that he had forgotten his
cheque book. The tenant subsequently defaulted on rent payments and legal
proceedings were required to regain possession. The landlady lost some
£770 in unpaid rent and the cost of legal proceedings. It was held that,
since the normal worldly estate agent would not have been taken in by this
simple confidence trick, the young employee's gullibility amounted to
negligence, and the defendants were therefore liable to their client for this
loss.
In Hellings v Parker Breslin
Estates [1994], the landlords wished to let a flat until such time as
it could be resold. They were concerned that possession could be obtained
at the end of the granted term. The landlords then proceeded to let the
flat through the agents having explained the situation in full. In 1982,
the agent granted a tenancy to a Miss B but later became dissatisfied with the
tenant who had fallen in arrears with the rent. When possession
proceedings were brought, it became clear to the owners that it was not going
to be possible to recover the flat with vacant possession; Case 11 of the Rent
Act did not apply unless the dwelling-house was originally occupied by the
landlord as his residence and "is required as a residence for the
owner-occupier ... ". The judge in this case held that failure by
the agent to explain the circumstances under which possession could have been
obtained under Case 11 amounted to a failure of skill in their duty of care to
their clients. With the majority of landlords and firms now using the assured
shorthold tenancy, there are fewer pitfalls. Yet agents should still take
care, especially when dealing with non-AST tenancies where the protection
afforded to the landlord can be substantially reduced.
Repair
and Disrepair
Where an agent is employed to manage
the property, the agent will normally be responsible for instructing tradesmen
to carry out necessary repairs. Although, in law, the agent is not
generally responsible for substandard work of contractors, an agent could be
liable if the workmen were employed directly (i.e. as the agent's employees),
or incorrect instructions were given to the subcontractor. Equally, there
are potential liabilities to a landlord for disrepair and an absentee landlord
relies on his agent to be diligent in performing these duties. If a
tenant brought an action against a landlord in this context, the landlord might
well sue the agent in turn for negligence.
Clearly then, the agent also needs
to be aware of the duty of care owed by the landlord to the tenant when
managing such issues. Failure to take expedient action may cause problems
for landlord and agent as a result.
Landlords have a general duty of
care when carrying out work to a property so as to avoid defects or damage to
the property and danger of injury to the occupier6. The
landlord should use reasonable materials to ensure that any work done is
effective7. When a property is built or altered or its use
changed there is usually an obligation to comply with building
regulations. A person who is harmed by a failure to comply with the
regulations may have an action in negligence unless the regulations state
otherwise8.
It would be impossible to cover all
eventualities within a few pages and in many situations, the extent of the
agent's duty of care will be far from clear. According to Murdoch9,
"Where an agent is engaged in a particular profession, it is by the
standards of that profession that he will be judged". There is more
in this generality than meets the eye; it means that a voluntary code of
practice (although not legally binding directly) could easily be produced in
court to evidence what is to be considered to be the "standards of the
profession". The RICS Code of Practice for property management,
currently in a draft stage, could be an example of this.
One topical example of this nature
of this duty of care and skill is where the agent had employed a gas engineer
to service and inspect a boiler, the agent should take care that a skilled
engineer is appointed. If the repaired or serviced appliance subsequently
became unsafe and it transpired that the tradesman was not professionally
competent, then the agent could be held liable in part for not taking
reasonable care when hiring him. (The fitter would also be criminally
liable for working on a gas appliance without appropriate qualifications).
In this situation, the measure of competence is fairly straightforward; the gas
fitter must by law be CORGI registered. It is a simple and recommended
procedure for an agent to verify this.
A landlord (or agent) can be in
breach of the duty of care if he fails to act or respond promptly to a reported
disrepair as we can see in the following case:
McCauley v Bristol City Council (1991)
Tenants reported a defective garden step. The Council as landlord failed to carry out repairs. The tenant fell and broke her ankle. The council were held to be in breach of duty of care. Tenant was awarded £4,500 damages.
McCauley v Bristol City Council (1991)
Tenants reported a defective garden step. The Council as landlord failed to carry out repairs. The tenant fell and broke her ankle. The council were held to be in breach of duty of care. Tenant was awarded £4,500 damages.
Employed for professional expertise
It should be noted however that
where an agent is employed for her or his particular professional expertise
there may well be an implied obligation to warn the principal that certain
instructions are clearly unwise. For example where a letting agent
is instructed to disregard the provisions of the Furniture and Furnishing
Regulations 1988 and to buy furniture which does not comply with the
regulations. The agent in such a case should refuse to carry out this
instruction in any event as it would be unlawful.
Duty
of Loyalty
This arises automatically out of the
fiduciary nature of the relationship between agent and principal.
The underlying principal is that the agent must not allow personal interest or
the interest of a third party to come into conflict with the interests of the
principal unless the principal has full knowledge of the fact and gives
consent. This might apply, for example,
where an agent was letting a property to a friend or relation. The agent
has a conflict of interest and it is sensible for the agent to advise his
client of the circumstances and obtain permission to proceed. Where an agent
has failed to disclose his personal interest, the principal may choose to set
aside the transaction or to affirm it and claim the profit made by the agent. Furthermore,
the agent should not take secret profits (which are deemed to include bribes
and commissions) without the prior knowledge and authorisation of the
principal. The implication of this duty is that agents should declare any
commissions that may be earned within their agency agreement or terms and
conditions.
Duty
of Personal Performance
As a general rule an agent may not
entrust performance of the agency to any other person10. In
Allam v Europa Poster Services 1968 the judge said that,
..where the principal does place
confidence in the agent... (acts).. must be done by the agent personally unless
either expressly or inferentially he is authorised to employ a subagent or to
delegate the function to another.
Whether or not an agent is entitled to delegate depends on the scope of the agent's authority. For example a principal who appoints an agent to carry out certain tasks knowing that the agent does not intend to act personally will be taken to have authorised the appointment of a subagent11. Authority may also be implied on the basis of what is usual in a particular trade or profession.
Duty
to Account
An agent is obliged to pay over or
otherwise account for all monies in his possession where such monies have been
received from the principal; that which he receives from a third party to hand
over to the principal, and that which he is deemed to receive on behalf of the
principal (e.g. a secret profit). In connection with the agent's duty to
account, it has been held that it is his duty to keep accurate accounts of all
his dealings on behalf of the principal. If he does not, everything which
is consistent with the proved facts is presumed against him12. In
accounting for such monies received, the agent may deduct whatever is due to
him by way of commission and expenses13.
THE RIGHTS OF THE AGENT
Remuneration
Remuneration may include either salary
or wages of a person who is employed full time in the principal's business or
the fees or commission charged by an independent professional. The
entitlement will depend on the terms of the agency agreement. If there is no
express term, a right will be implied that a professional will be paid a
reasonable sum for services rendered. No-one in business should rely on
an implied term as to payment as the proving of what is a
"reasonable" sum can be fraught with difficulties. If however
you have been acting for a principal for a considerable number of years and you
are asked to take on a transaction which is the same as previous transactions,
and those transactions were paid in a way common to all of them, it will not be
fatal to such a claim that the present transaction should be paid at the same
rate, particularly where there has been no time for the formalities to be
observed. This is a good example of the use of the custom and practice
argument.
An agent will not be able to claim
remuneration in respect of any unauthorized transaction unless the principal
ratifies it at a later stage. Neither will remuneration be payable where
the agent has been guilty of a breach of duty.
Reimbursement
and Indemnity
The general rule is that the agent
is entitled to be indemnified by the principal against any losses and
liabilities, and to be reimbursed for any expenses which are incurred in acting
on the principal's behalf. An agent who incurs losses or liabilities in
performing an unauthorised act cannot claim reimbursement or indemnity in
respect of these. Nor is an agent entitled to an indemnity for any losses
which result from the agent's own failure to obey the principal's instructions14,
negligence15, or other default16. Also, such
indemnity does not override statutory obligations. For example an agent would
not be indemnified where the agent was prosecuted under the Furniture and
Furnishings Regulations.
Lien
The agent may be legally entitled to
exercise a lien i.e. retain possession of the principal's goods until debts to
the agent are paid. An agent is not in possession of goods if the goods
are furniture in a flat or house. The valid exercise of a lien by an
agent is only possible where certain conditions are met and although it is
unlikely that a letting agent would have possession of goods they are detailed
below for the sake of completeness.1. The agent must be in actual or
constructive possession of the goods in question. Constructive possession
can be for example, where the agent has stored the goods elsewhere than on her
premises.
2. The agent's possession of the goods must be both lawful and authorized. Anything obtained by misrepresentation is not lawful and authorized.
3. The agent must have obtained possession of the goods in the same capacity as that in which the lien is claimed. i.e. cannot be used to claim debts incurred before the commencement of the agency.
4. The circumstances in which the agent obtained the goods must not be inconsistent with a lien. This will be the case, for example, where the agent is only given possession of the goods for a specific or limited purpose such as where the agent is arranging carriage of the goods rather than being the carrier.
Third
Parties
In contract law the general rule is
that where an agent enters into a contract on behalf of a principal and there
is a dispute on that contract the agent "drops out" of the contract
and the third party can sue the principal directly or vice versa.
Problems arise where the contract is not clear as to the status of all the
parties and some words have been found to be more effective than others at
describing the capacity of the person signing the contract.
Where the agent enters into a
contract without revealing the existence of a principal the agent is regarded
in law as contracting personally17. To avoid any doubt the
words "for and on behalf of" should be used where the agent enters
into a contract on the principal's behalf. Other words of explanation
such as "on account of" have been held by the courts to be
insufficient. However, the courts will take into account the context of
the whole of the contract to determine whether the words used are sufficient to
show that the person was acting as agent.
Where it is made clear that the
agent is acting as agent even where the principal is not named and the agent
signed in her own name this is sufficient to show that she intended to act as
agent.
Good Practice Guide - The best way to ensure that there is no doubt is to describe the nature of the parties in the contract and to sign as above. "If in both places the agent is referred to as agent it will be almost impossible to regard her as the contracting party but if there is no mention in either place it will be almost impossible to deny that she is the contracting party"18.
Where the tenant has signed a
tenancy agreement in good faith believing the agent to be the landlord, the
tenant can sue as if the agent were the landlord. The real landlord in
such a case is called the undisclosed principal and even if the undisclosed
principal appears at a later stage and identifies herself as the landlord the
agent is still liable19.
Evidence
of Intention
When disputes bring the matter to
court the terms and conditions of the agency is determined by the court
deciding what the intention of all the parties was at the time the contract was
entered into. As always in court the best evidence of this is the written
document(s) signed by the parties. Usual custom and practice of the trade
or profession, or of the particular parties will also be considered if
necessary as already mentioned above.
Conclusion
The message for agents is clear. Be
unequivocal in your dealings with your client or principal. Make sure you
have authority to appoint subagents. Be clear in your dealings with third
parties. A lot of the problems agents have faced in the past have been
because of sloppy and ambiguous wording in contracts themselves to subagents or
third parties. If in any doubt clear the matter up before the act is
done, using plain language and putting everything in writing where at all
possible. Otherwise you could end up in court with a judge deciding what
your intention was based upon what you signed or didn't sign, said or
didn't say... not the best way to protect yourself or get your bills paid.
References
1. Lilley v Doubleday (1881)
2. Boden v French (1851)
3. Overend, Gurney v Gibb (1872).
4. Heys v Tindall (1861) 30 LJ QB 362
5. Murray v Sturgis(1981) 260 EG 61
6. A C Billings & Son v Riden [1957] 3 All ER 1
7. Sharpe v Manchester Metropolitan DC (1982) 4 HLR 71
8. s71 Health & Safety at Work Act 1974
9. The Law of Estate agency and Auctions - Murdoch
10. De Bussche v Alt (1878)
11. De Bussche v Alt 1878) again
12. Gray v Haig (1855) 20 Beav. 219, 226
13. Dale v Sollet (1767) 4 Burr 2133
14. Ellis v Pond (1898) 1 QB 426
15. Lewis v Samuel (1846) QB 685
16. Duncan v Hill (1873) LR 8 Ex 242
17. Saxon v Blake (1861)
18. Murdoch - Law of Estate Agency and Auctions
19. Chapman v Smith (1907)
1. Lilley v Doubleday (1881)
2. Boden v French (1851)
3. Overend, Gurney v Gibb (1872).
4. Heys v Tindall (1861) 30 LJ QB 362
5. Murray v Sturgis(1981) 260 EG 61
6. A C Billings & Son v Riden [1957] 3 All ER 1
7. Sharpe v Manchester Metropolitan DC (1982) 4 HLR 71
8. s71 Health & Safety at Work Act 1974
9. The Law of Estate agency and Auctions - Murdoch
10. De Bussche v Alt (1878)
11. De Bussche v Alt 1878) again
12. Gray v Haig (1855) 20 Beav. 219, 226
13. Dale v Sollet (1767) 4 Burr 2133
14. Ellis v Pond (1898) 1 QB 426
15. Lewis v Samuel (1846) QB 685
16. Duncan v Hill (1873) LR 8 Ex 242
17. Saxon v Blake (1861)
18. Murdoch - Law of Estate Agency and Auctions
19. Chapman v Smith (1907)