Late last year, we reported that starting on January 1, 2015, commercial real estate brokers and salespeople in California would have to comply with the agency disclosure requirements that previously only applied to residential brokers. This change in the law was caused by a bill called SB 1171 that changed the legal definition of “real property.” However, a recent court decision may affect how this new law is interpreted.
What Does this Recent Decision Mean?
As a part of the new law, commercial agents are required to check one of three possible boxes on the disclosure form. The three options are that:
The agent represents only the landlord/seller;
The agent represents only the tenant/buyer; or,
The agent is a dual agent representing both the landlord/seller and the tenant/buyer.
On its face, it seems like picking the appropriate box should be a relatively straight forward decisions. But agents and brokers in this position need to be fully aware of what counts as being a “dual agent” before they can choose correctly. And that is where this court decision comes into play.
What the Court Held in Horiike v. Coldwell Banker
The case is Horiike v. Coldwell Banker Residential Brokerage Co. In this case, the California State Court of Appeals ruled that commercial real estate professionals working for the same corporate broker are acting as “dual agents” when the listing corporate broker is the same as the selling agent’s corporate broker. In other words, even though the seller and buyer may be working with their own individual brokers, if those brokers are connected to the same corporate agent, then they both need to check the “dual agency” disclosure box.
This is About More than Checking a Box
Of course, this is not just about which box these professionals have to check on the disclosure forms. Being a dual agent means that these agents have fiduciary duties, not just to the party they have been working with, but instead, to both parties. There is also the issue of confidentiality. Since in these cases the brokers will owe duties to both sides of the transaction, the broker cannot share confidential information she or he learns about one party to the other party. On the flip side, when it comes to non-confidential but material information, there is a fiduciary obligation to disclose that information. These duties are reflected in the Court’s language in Horiike when it says: a “broker’s fiduciary duty to [her or] his client requires the highest good faith and undivided service and loyalty.” Dual agents have a fiduciary duty to act with the utmost care, integrity, honesty, and loyalty when it comes to both the seller and the buyer. This means that real estate professionals who find themselves in this dual agent position need not only consider their paperwork, but need also to consider their duties to their clients.