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The Duty Of Confidentiality In Real Estate: An Essential Obligation

CEO Khai Intela
Image Courtesy of Saigonintela.vn In the realm of real estate, confidentiality is not just a courtesy, but a fundamental duty. A Listing Agreement sets the stage for the relationship between a property owner (the Principal)...

The Duty Of Confidentiality Image Courtesy of Saigonintela.vn

In the realm of real estate, confidentiality is not just a courtesy, but a fundamental duty. A Listing Agreement sets the stage for the relationship between a property owner (the Principal) and a licensed real estate firm (the Agent). This agreement outlines the Agent's commitment to finding a qualified Buyer within a specific timeframe. While the contract mandates good faith and fair dealings, it also implies a duty of confidentiality. This obligation, which carries legal consequences, extends beyond the expiration or termination of the agreement.

A Covenant of Trust and Responsibility

As in any contract, an implied covenant of good faith and fair dealings exists in a Listing Agreement. This covenant ensures that both parties treat each other fairly and honor their responsibilities. In addition to this covenant, the relationship between the Principal and the Agent warrants a duty of confidentiality. This duty obliges the Agent, acting exclusively for the Seller or the Buyer, to keep certain information confidential. A breach of this duty can result in legal liability, both in contract law and, under certain circumstances, in tort law as well.

The Duty of Confidentiality: A Continuing Obligation

Recent cases have shed light on the scope of the duty of confidentiality in real estate. The Real Estate Council of British Columbia, an authority responsible for protecting the public's interest in real estate matters, reprimanded licensees and a real estate firm for breaching a continuing duty of confidentiality owed to a Seller. Even after the listing had expired, the duty of confidentiality remained intact.

A Test Case in Real Estate Confidentiality

In the said case, the property was listed for sale for an extended period, and the price was reduced twice before ultimately not selling. Following the expiration of the listing, the Seller entered into three separate fee agreements with the real estate firm. The Seller declined agency representation, and the firm was identified as the Buyer's Agent in these fee agreements. Subsequently, a lawsuit related to the property was filed against the Seller.

The Battle over Confidentiality

The Plaintiff's lawyer approached the real estate firm, requesting Affidavits containing information about the property listing. The lawyer made it clear that if the firm did not provide the requested Affidavits voluntarily, legal action would be taken to compel the disclosure. Fearing the consequences, the real estate firm promptly complied.

Unbeknownst to the parties involved, the Affidavits were never used in court. However, the Seller filed a complaint with the Real Estate Council, alleging a breach of confidentiality. The firm believed that the duty of confidentiality ended with the termination of the Listing Agreement. They also argued that even if the duty extended, it would not limit the evidence given under a subpoena or in a court process. Additionally, the realty company pointed out that there is no realtor-client privilege in situations like this.

The Council Upholds the Duty of Confidentiality

The Real Estate Council rejected the firm's argument, confirming that a continuing duty of confidentiality exists beyond the Listing Agreement. The Council found the firm, as well as the licensees, in breach of this duty. This decision has significant implications for the real estate profession regarding practical applications.

Protecting Client Information

While the duty of confidentiality can be compared to attorney-client privilege, there is no formal realtor-client privilege. However, during the existence of a Listing Agreement, confidential information disclosed to a Real Estate Board for publication under a Multiple Listings Service agreement may enjoy protection. The duration of the duty of confidentiality owed by the Agent to the Seller remains a subject of debate. Nevertheless, legal authority suggests that this duty extends indefinitely, similar to the attorney-client privilege.

Preserving the Integrity of the Real Estate Profession

The continuing duty of confidentiality, if recognized, impacts the cooperation between real estate firms and their representatives. If a listing expires with Brokerage A, and the Seller relists with Brokerage B, a Realtor from Brokerage A, without express consent from the Seller, cannot act as a Buyer's Agent for the purchase of the Seller's property. This scenario contradicts the rules of professional cooperation among real estate firms and could potentially disrupt the Multiple Listing Service system.

Transparency and Compliance

In light of these uncertainties, real estate firms and licensees must tread carefully when faced with requests for confidential information from lawyers. Until specific guidelines are established, the best course of action is to seek consent from the client and, if denied, inform the lawyer that legal action may be necessary to compel disclosure.

The duty of confidentiality in real estate is a critical obligation that safeguards the interests of all parties involved. Agents must understand and respect this duty, ensuring that their clients' confidential information remains protected throughout the agency relationship and beyond.