Agent’s Duties to Landlord

Fiduciary responsibility

The fiduciary duty held by an agent contains significant obligations that run through every aspect of the agency relationship. Agents need to be clear on this. Under agency law, there are several principles and rules, which are, in essence, as follows:

The agent must perform his contractual duties and follow the landlord's instructions.
The agent must do this with 'due care and skill' appropriate to the type of work he is doing.
The agent must not delegate his duty (without the principal's consent).
The agent must not put himself in a position where his duties to the principal conflict with his interests.
The agent must not take bribes.
The agent must not take advantage of his position or his principal's property to obtain a benefit for himself, and
the agent must account (i.e. he must keep his principal's money separate from their own and hand it over, together with all relevant documents and accounts, when asked).

The fiduciary duty has been defined as:

… one party in a position of vulnerability (the landlord), places their trust in another party. It is the very highest form of care in equity or in law and requires the agent to act in the sole benefit and interest of the landlord in every single decision …

In Mothew (t/a Stapley & Co) v Bristol & West Building Society Respondent [1996] EWCA Civ 533 Millet LJ said about the fiduciary duty:

A fiduciary is someone who has undertaken to act for or on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence. The distinguishing obligation of a fiduciary is the obligation of loyalty. The principal is entitled to the single-minded loyalty of his fiduciary. This core liability has several facets. A fiduciary must act in good faith; he must not make a profit out of his trust; he must not place himself in a position where his duty and his interest may conflict; he may not act for his own benefit or the benefit of a third person without the informed consent of his principal. This is not intended to be an exhaustive list, but it is sufficient to indicate the nature of fiduciary obligations. They are the defining characteristics of the fiduciary.

This is now explained in further detail below.

Authority

Limit of authority

The agent's authority can never extend beyond the principal's power to act on his behalf. The principal will not be liable for the agent's actions where the agent has performed beyond the control given to the agent. Where the agent's authority is general, the power will only extend to necessary measures.

Similarly, if a landlord has given authority to find a prospective tenant only, but the agent enters into a tenancy agreement, that tenancy will not bind the landlord. The landlord could not evict the tenant without a court order, but they will be entitled to recover these costs and damages from the agent. The tenant may also have a claim against the agent who acted outside of the landlord's limits.

Discretion

The agent is entitled to use reasonable discretion without express authority. If the landlord has not expressly excluded applications from a tenant's claiming benefits, the agent may or may not make such an exclusion where it seems in the landlord's best interest. If a landlord provides ambiguous instructions, the agent may be able to justify his actions as long as he acted in good faith, even though the outcome may not be what the landlord wanted.

Where there is an expressed limit, the agent may not exercise discretion to go outside such limits. If a landlord says "No Local Housing Allowance", then the agent has no authority to let such a tenant knowingly.

Outside of the law

An authority the landlord gives to break the law is not enforceable against the agent. For instance, a landlord giving instructions which would place an agent in breach of the Equality Act would find these unenforceable. In such an instance, the agent is within his rights to, and should, refuse to act that way.

Verbal authority

Verbal authority is a common practice, and the extent depends upon the questions of fact at the time. The interpretation of that authority depends upon the circumstances at the time, the common practice in such a situation and the history of the parties' dealings to date. Unless expressly stated, the verbal authority would not permit unusual risks or doing anything out of the ordinary; in particular, it would not permit wholesale change of written business terms.

A letting agent is, in normal circumstances, regarded as the 'professional' in the relationship. There is an onus on the agent's part to incorporate all reasonable regulations, practices and features of his profession into his dealings with the landlord, even if they are not expressly set out in writing, or regardless of whether or not the landlord is aware of such matters.

Where a landlord gives verbal authority, mainly where it varies established procedures between the parties, the agent should always seek to confirm such power in writing.

Authority implied between the parties

The implied authority covers all matters subordinate but necessary to carry out anything expressly agreed between the parties. However, there is no implied authority for the agent to carry out anything beyond the scope of his regular business. Without express consent, there is no implied authority to grant a new tenancy to an existing tenant or to find a new tenant when the property becomes vacant. The agent must check that it is okay to re-let or have included such consent in terms of business already signed. Similarly, an agent has no implied authority to grant credit or write off rent arrears.

Signing the tenancy agreement or other document

The common law understanding is that a document is sufficiently signed if someone signs with someone else's authority. In this case, the agent's signature is the principal's. Such authority need not be evidenced in writing except where the signature is required for a deed.

Delegation

In the absence of express authority, the agent has no power to delegate any of his duties which require the agent's skill and competence. Authority may be implied for a function which requires no such skill. For instance, an agent has no implied authority to instruct another agent to advertise or assist in finding a tenant. This rule would not apply if the landlord knew of the agent's intention at the instruction time or where unforeseen circumstances render it necessary.

The agent's duties, responsibilities and rights

The law of agency implies specific duties and obligations upon the agent. The following is a guide to the most important:

Duty of care and skill

In his book Law of Estates, Murdoch states, "where an agent is engaged in a particular profession, it is by the standards of that profession that he will be judged.” The RICS Rent Only Residential Management Code is binding upon RICS members. Still, it is often quoted in court as being the 'standards of the profession', and whilst not binding on every letting agent, the standards it sets are accepted in court as the reasonable standards to which those engaged in property letting and management should work.

In the agency relationship, the landlord is entitled to assume the agent is professionally competent and aware of the business's laws and regulations. So far as negligence and professional liability are concerned, they are the most significant areas, and the onus is always upon the agent to show that he acted with due care, diligence, and skill. This whole area will always override the terms of business.

For instance, if an agent lets a property without verifying the tenant's ID or taking references, they could face a claim for lack of care because a landlord can easily show that this is a standard business practice.

The duty of care extends to all aspects of managing the property. A landlord can assume that his agent will employ suitably qualified tradespeople for work on the property and that tradespeople hold the requisite qualifications and are insured. This applies to the agent's employees as well as subcontractors.

Section 13 of The Supply of Goods and Services Act, 1982, implies a duty of care in all agency contracts as a term rather than a condition. This means that a breach of the duty of care will render the agent liable for loss suffered by the principal. Suppose an agent does not take all reasonable steps to ascertain the tenant's suitability. In that case, they could be liable to the landlord for the loss of rent and all the damage the tenant causes to the property.

However, the duty of care is subordinate to obedience (see below). Suppose a landlord lowers his expectation of the agent's responsibility. In that case, the agent cannot usually be held liable for a breach of duty of care as long as they faithfully follow the landlord's reasonable instructions.

Obedience

The agent is bound to act within the instructions of his principal as long as those instructions are within the law. The agent is simply the agent, and the responsibility rests with the landlord.

An agent can disobey the landlord only if the instructions are unlawful. More likely, however, instructions will be ambiguous.

An agent who acts upon a reasonable interpretation of the landlord's ambiguous instructions will not be liable for breach of duty of obedience just because it was the wrong interpretation. Here, a close relationship exists between obedience and duty of care and skill. The latter will override if the agent can show that he acted in the landlord's best interest in interpreting ambiguous instructions.

Loyalty

An agent always holds a fiduciary responsibility towards their principal. An agent must never allow personal interest or the interest of a third party to conflict with the interests of his principal unless the principal has full knowledge and gives consent. In other words, the agent must always do whatever is in the landlord's best interests.

An agent (or a member of staff) who lets a property to a friend or family member and does not tell the landlord may breach a duty of loyalty. Similarly, an agent must not make secret profits; if a contractor pays a commission, the agent is not entitled to keep that money without the landlord's approval. Where an agent has failed to disclose a personal interest, the principal may choose to set the transaction aside or to affirm it, and he may claim the profit or undisclosed profit made.

Knowledge about the principal and his affairs is confidential, and an agent must make no disclosures to third parties about the landlord (apart from certain legal obligations to disclose information, for example, about the tax or housing benefits) without his consent or use any information to the agent's advantage.

To account

This may seem obvious, but an agent must account for and be able to pay all money in their possession where such money has been paid by or received by the landlord. This is not limited to rent but may include a refund of taxation, commissions, interest for late rent, retentions from deposits or undisclosed profits where the agent is not entitled to retain these.

Performance

Instructions are specific to the agent. An agent is not automatically entitled to delegate without his principal's consent. For instance, unless expressly authorised, an agent should not (without permission) engage the services of an inventory clerk or an external check-in/out clerk or a sub-agent.

Disclosure

The agent must not hold themselves out to be the principal. An agent must never let a property in his name or his agency's name unless he is the owner. It is also essential to inform all subcontractors that this is an agency instruction. Failure to disclose this will likely render the agent liable for the costs incurred.

Fees and secret profits

It cannot be stressed enough that any fees or other income received due to the landlord's business (the principal) must only be accepted after the client's informed consent. Informed consent is a higher test than just consent, meaning what is being consented to must be clear and understood.

In Rhodes v Macalister CA [1923], the agent was acting for a prospective buyer seeking mineral rights. The agent said appropriate properties or land could be purchased for between £8,000 and £10,000. The prospective buyer agreed to pay the agent the difference between the purchase price and £9,000. The agent found a suitable property for £6,625.00 and claimed the difference of £2,375.00 from the purchaser. However, secretly, the agent had also done a deal with the seller, who agreed to pay the agent a commission upon selling the property.

The purchaser successfully claimed against the agency despite not suffering any actual loss (after all, it still only cost the purchaser the agreed £9,000). Not only was the purchaser entitled to the commission that the agent had secretly received from the seller, but also the agent was not entitled to be paid for the work in finding the property in the first place and so had to give back the £2,375.00.

Scrutton LJ said (highlights added):

I agree with the judgment that has just been delivered and I only propose to re-state it in my own words because I think it is of very great importance that the principle upon which we are acting should be thoroughly understood, …
The law I take to be this: that an agent must not take remuneration from the other side without both disclosure to and consent from his principal. If he does take such remuneration he acts so adversely to this employer that he forfeits all remuneration from the employer, although the employer takes the benefit and has not suffered a loss by it …
… I decide it on the broad principle that whether it causes damage or not, when you are employed by one [person] for payment to negotiate with another [person], to take payment from that other [person] without disclosing it to your employer is a dishonest act. It does not matter that the employer takes the benefit of his contract with the vendor; that has no effect whatsoever on the contract with the agent, and it does not matter that damage is not shown. The result may actually be that the employer makes money out of the fact that the agent has taken commission.
In this case, therefore, it appears that as one of the two joint agents has, in breach of his duty, taken commission from the other side, he forfeits, and they both forfeit, all right to remuneration from their employer. The more that principle is enforced, the better for the honesty of commercial transactions. I have only repeated what my Lord has said because it cannot be repeated too often … in matters of agency, they must act with strict honesty.

This case can be seen regularly in a landlord and agent situation where the landlord is the principal, for example:

An agent might take a percentage of an invoice for works carried out at the property for the principal. For example, a gas safety check might be charged to the landlord at £75.00, but the gas engineer only paid £55.00 by the agent. In this case, the agent is receiving £20.00 profit, which may only be accepted with the "informed consent" of the principal landlord. If not, the £20.00 belongs to the landlord. Moreover, if there is no informed consent, the agent is not entitled to be paid for arranging the gas safety certificate in the first place and will have to refund that amount.

To avoid doubt, if there is an explicit agreement between the landlord and the agent agreeing that £20.00 will be added to the cost of a gas safety certificate, those charges can be made. It is a failure to disclose and a failure to obtain informed consent that becomes a problem for the agent.

Agents' rights

The following is a guide to the most important:

Remuneration. The agent is entitled to charge a fee for the work he does for his principal as an independent professional. The entitlement will depend upon the terms of the agency agreement. If there is no express term, a right is implied that the agent can charge a reasonable sum for the services provided, which will depend upon common practice. However, no agent should rely upon this as the definition of what is appropriate in all circumstances has been known to lead to expensive litigation.
Indemnity. Generally, a principal is bound to indemnify the agent against any losses and liabilities incurred on the principal's behalf. This relates to authorised work and only where the agent has acted lawfully. For instance, an agent cannot seek an indemnity from the landlord for a breach of the gas safety regulations, even if the breach was with the principal's knowledge and consent.
Lien. The agent may have the right to exercise a lien (retain the principal's money or possessions) until debts due to the agent are paid.

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