06 Law of Agency (6) Chapter 6: Terminating Agency

Revocation

A client (the principal) may, at any time, fire their agent — usually by way of written notice of the revocation. The right to unilaterally revoke or terminate agency does NOT necessarily mean the client will not incur liability for that decision. If the agency agreement signed by the client contained a specific termination date, the client may be found in breach of contract. If the agency agreement was open-ended, the client simply has to reimburse the broker for any expenses incurred on behalf of the client.

Breach of Agreement: The Client

A client can breach an agreement by doing such things as being uncooperative (e.g., a seller refusing to make a home available for viewings) or failing to keep commitments (e.g., backing out on a signed offer). Depending on the degree of harm incurred, the client's agent or other parties to an agreement might have cause to pursue damages.

Breach of Agreement: Acts of Commission or Omission

Acts of commission or omission which constitute breach of duty — sometimes fiduciary duty — on the part of the agent are cause for termination of the agency relationship. As with abandonment, if an agent cannot or no longer desires to assume the responsibilities of the agency agreement, they should approach their client and pursue mutual rescission.

Accountable for Accounting

Along with the duty of confidentiality, the duty of accounting survives agency termination. License holders are required to account for all funds, records, or property that clients have entrusted to them during their agency relationship. They are to safeguard these items until they can be returned to the clients' custody. And, once these items have been handed over, the license holders are then expected to forever maintain confidentiality regarding the financial affairs of the client.

Renunciation

An agent may, at any time, decide to leave an agency relationship. The correct term for this is renunciation. An agent will usually give written notice of the renunciation, and the agent could be liable for damages if renouncing a contract with a specific termination date. (If the agency agreement is open-ended, a broker can usually renounce the agreement without liability.) More often than not, an agent has a pretty significant reason for rescinding an agency agreement.

In Real Life

As mentioned earlier, it is rare that a broker pursues damages resulting from an early termination by the client. The sheer hassle and the negative PR are two pretty strong deterrents against a broker doing this — even if the agency agreement clearly spells out the broker's right to collect. More often than not, the broker licks their wounds and moves on to their next opportunity.

Operation of Law: Bankruptcy

Bankruptcy by the seller will terminate the agency relationship. When a seller files for bankruptcy, they lose control of the property and the courts decide what will be done with it. The same holds true for foreclosed properties.

Mutual Agreement

Both parties may agree to end the agency relationship at any time. Mutual agreement or mutual rescission is the term used when both parties make this decision, mutually agreeing to end the agency relationship. In truth, the two parties will probably not decide to terminate the agency relationship on their own at exactly the same time. Usually, once the idea is brought up by one party, the second party also quickly determines that terminating agency is the best idea. When a mutual agreement to terminate does happen, both parties are released from liability for breach of contract. That is why mutual agreement is thought to be the best form of early termination of agency. And, for the protection of all parties, it is always wise to put the mutual agreement to terminate agency in writing.

Agency Coupled with an Interest: Example

Broker Matt owned 25 acres of undeveloped land just north of Oneida that he sold to Developer Joe for cash plus the right to operate as the exclusive listing agent for any lots developed for residential or commercial purposes over the next 10 years. Everything was going right according to plan for the first four years, with several projects coming to fruition to the satisfaction of both Matt and Joe. But, then, tragedy struck... or more precisely, a hockey puck struck. During a recreational league hockey game, an errant slap-shot by the opposing team knocked Matt over with such force that he banged his head on the ice and slipped into a coma lasting several months. Not wanting to derail any present or future projects, Joe began assuming all responsibilities relative to the marketing and selling of developed properties, keeping the commissions and fees that would have normally been earned by Matt. When Matt's family got wind of this, they demanded to see the books to get a clear picture of what had transpired while Matt lay oblivious to the drama. Initially, Joe resisted efforts to share anything with Matt's family. But after conferring with his real estate attorney, Joe learned that the legal concept of agency coupled with interest protected Matt's rights even while under a coma. Joe and Matt's family were able to come to an agreement as to how to proceed until Matt returned to full health, which, much to the delight of all, came about just a few short weeks later. Again, because the broker's interest in the property is greater than that of a license holder in a typical transaction, the broker would be injured by revocation to a greater degree. And because of that, the principal cannot unilateral take action that would be injurious to the broker. I think getting bonked in the noggin by a hockey puck is injury enough, don't you?

Agency Coupled with an Interest

Earlier we discussed the principle's right to terminate agency through revocation. There is a circumstance in which that right cannot be exercised. The term for this condition is known as agency coupled with an interest. This is different from situations in which an agent merely derives compensation by fufilling their agency duties during transactions. If the broker has a financial or security interest in the subject property at the center of the agency agreement, the principal or client does NOT hold the right to revocation of agency. This is because the broker's interest in the property is greater than that found in a typical transaction and, consequently, the broker would be injured by the revocation to a greater degree than they typically would in a purely agency role. Similarly, the death, incapacity, or bankruptcy of either party will not terminate an "agency coupled with interest" agreement.

There Must Be 50 Ways to Leave Your Lister

Here are just a few of the many reasons a broker might decide to renounce an agency agreement (with either sellers or buyers): Client abusive attitude Client bailing on showing appointments Client wanting to skirt Fair Housing laws Client not negotiating in good faith Whatever your reasons, Mustafa, make sure you document everything that led you to the decision to renounce the agency agreement.

Exceptions to the Rule

However, an agent cannot keep information related to material facts of the property confidential. Additionally, an agent would have to disclose confidential information under court order or subpoena. Finally, as we mentioned earlier, an agent is released from confidentiality if their client specifically instructs them to share specific information that would otherwise be confidential. (But only the information specified by the client should be shared; all other juicy details need to remain - you guessed it - confidential.) If a client ever instructs you to share what would normally be considered confidential information, get it in writing! If I ever muster up the courage to get a tattoo, "Get It in Writing!" will be the first one I get.

Breach of Agreement

If either party fails to uphold their obligations or duties as outlined in the contract, they are considered to have breached the agreement and are potentially liable for resulting damages.

Breach of Agreement: Abandonment

If the agent is not doing anything to accomplish the goals established through the creation of agency, they have breached the agreement via abandonment, and the principal can likely terminate the agreement with cause. This should never come up. If an agent cannot, or no longer desires to, assume the responsibilities of the agency agreement, they should approach their client and pursue mutual rescission.

Operation of Law: Death

If the broker dies, all listing agreements or buyer-broker agreements are null and void, and a license holder must find a new sponsoring broker in order to continue representing the client. On the other hand, if a salesperson dies, their sponsoring broker simply has to reassign a new sponsored salesperson to the relationship to act on their behalf. The signed agreements, because they were with the broker and NOT the deceased agent, remain valid and in force. If the principal dies, both the broker and the salesperson are out of luck.

Operation of Law: Destruction or Condemnation

If the subject property of the agency relationship ceases to exist, the relationship is dissolved. The land will typically survive a disaster, but the improvements on the land might not or they might be condemned (if they do manage to survive, think earthquake, flood, tornado, etc.). This is known as destruction, condemnation, or extinction of the property. While often the stuff of adventure movies, this is rarely the cause of agency termination.

Operation of Law

If there has been a change in law that affects the property involved in the agency agreement, that can be cause for termination of the relationship. While not very common, a few operation-of-law reasons for agency termination include: Destruction or condemnation Death, incapacitation, or bankruptcy Loss of broker license

Termination Fees

It is important that the termination document accurately reflects the termination charges and fees outlined in the original listing agreement (another good reason to get all of these documents in writing). Any deviation from those charges and fees should be specifically agreed to by the client and listed in the termination document.

Agreement Expiration

It is important to note that in the state of New York, some agency agreements do NOT have to contain specific expiration or termination dates. But whether they are a buyer or seller, most clients will want to include a termination date in the listing agreement or buyer-broker agreement they sign. When the parties don't agree to renew the agreement after the termination date, the agency relationship is said to have been terminated by expiration.

Formalize It with Forms

Just as it's good practice to formalize an agency relationship in writing, you should do the same when terminating an agency relationship. While the New York Department of State Division of Licensing Services does not provide forms for this, the New York State Association of REALTORS® (NYSAR) has a sample termination agreement available on their website. Review this and use it as a template, if necessary.

Operation of Law: Loss of Broker License

Regardless of the cause, the deactivation or revocation of a broker's license invalidates all active written agreements that were in place at that time. In order for a sponsored sales agent to continue working with a client of a broker whose license has been revoked, they would need to find a new sponsoring broker to work through.

examples of things that should be held in confidence even after the termination of agency

Seller motivation for selling Highest offer buyer is willing to make Lowest offer seller would consider Offer history on the property Buyer or seller financial standing

Renunciation: Brokers but not Salespersons

Since the broker is technically the agent of the principal (special agency is created at the broker level), only the broker can officially end an agency agreement with the principal. If a salesperson wanted to terminate an agency relationship and the broker did not, the broker could technically assign a different sponsored salesperson to represent the principal.

Just Between You & Me

The duty of confidentiality is a fiduciary duty that never terminates. Any confidential information that an agent learns of during an agency relationship with a principal must remain confidential forever. Of course, if the client were to instruct their agent to share information (that would otherwise be considered confidential), the agent would be free to do so.

Duties That Survive Termination

There are some duties that just won't die, Mustafa. I tried calling them "zombie duties" for a while, but unfortunately it didn't catch on in the real estate world. But do remember that the fiduciary duties of confidentiality and accounting live on long after the agency relationship has terminated. Interesting, huh? Read on for more details!

Termination Categories

When fulfillment or completion of purpose is not the cause for agency termination, it will usually fall under one of these categories: Agreement expiration Mutual agreement Revocation Renunciation Operation of law (death, incapacity, bankruptcy) Operation of law (destruction or condemnation of property) Breach of agreement

Stop Means Stop

Whether their reasons are valid or not, once a principal expresses a desire to end an agency relationship, the agent must immediately comply. MLS listings and other marketing must be discontinued, and lockboxes and yard signs need to be removed from the property.

A Rebel Without a Cause

While it's true that either party in an agency relationship can terminate the agreement at almost any time, they ought to have a good reason for doing so. Termination without cause can create liability, depending on the language of the written agency agreements. Remember: These agreements do not just create agency relationships; they also create contractual relationships. Most contracts have some protective contingencies that speak specifically to early termination.

Operation of Law: Incapacity

With respect to incapacitation of either the broker or the client, a contract is considered valid when entered into by two competent individuals. Most courts will look at contracts involving incapacitated persons as voidable by the incapacitated party. If, in the course of an agency relationship, one or both parties become incapacitated, that can be cause for agency termination.