The Law of Agency - legal duties of an agent
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 ObedienceExpress 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.
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 SkillAn 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 , 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.
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 LoyaltyThis 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 PerformanceAs 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 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 unauthorised 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.
LienThe 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 authorised. Anything obtained by misrepresentation is not lawful and authorised.
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 PartiesIn 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.
ConclusionThe 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.
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  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)