Legally Speaking - May 2007 (407)
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Legally Speaking (407, May 2007)

 

Number 407, May 2007

Licensee Purchasing Property Found to Have Fiduciary Duties to Sellers

In a case where a licensee purchased property in her own name, a Supreme Court judge surprisingly found the licensee owed a fiduciary duty of disclosure to the sellers.

The sellers had listed their condominium at $529,000. The licensee submitted an offer to purchase the condominium for $517,500, accompanied by the required written disclosure that she was a licensee. It wasn’t clear from the disclosure document whether the licensee had disclosed an intention to keep the condominium for personal, rental or other use or resell it. Although the evidence of the parties at trial conflicted, the judge found as a fact that the licensee had, from the outset, intended to resell the property but had verbally advised the sellers that she intended to keep the property for rental purposes.

The deal closed at $517,500 and, six days later, after painting the condominium and installing new hardwood floors, the licensee listed the property for sale at $639,000. The property eventually sold for $613,000.

The sellers became angry upon learning of the resale and sued the licensee. That the court found in favour of the sellers and ordered the licensee to pay them the profit she made on the resale is not surprising. What is surprising is that the judge concluded liability arose because the licensee owed a fiduciary duty to the sellers; they placed a degree of trust in the licensee and relied upon her assertions as to her intention to resell. The sellers claimed that, if they knew the licensee intended to resell, they would have concluded the market value was greater than the asking price and wouldn’t have accepted the licensee’s offer. Interestingly, no mention was made of the reliance, or lack of reliance, the sellers placed upon their own agent—the listing brokerage—to advise them on market value.

In addition to her findings with respect to the licensee, the judge suggested a fiduciary duty between a buyer’s agent and a seller might arise when the seller places a degree of trust in the information provided by the buyer’s agent. In support of this proposition, the judge cited several cases that were presented at the trial. All of the cases cited, however, arose under subagency, where all licensees acting for buyers were subagents for the seller. The court did not consider whether those cases would apply in the same manner in the current assumed buyer agency system, where buyers’ agents clearly don’t have an agency relationship with sellers. While it can’t be said that a fiduciary obligation can never arise between a seller and a licensee acting for a buyer, it’s much less likely to arise under the assumed buyer agency system than under the subagency system, which existed prior to 1994.

In the end, the judge found that, even if she was wrong with respect to her conclusions about fiduciary duty, the sellers were still entitled to the result on the basis that the licensee had made a fraudulent misrepresentation (as to her intention to resell), which the sellers had acted upon to their detriment.

A fiduciary relationship won’t usually arise between a buyer and a seller or between a buyer’s agent and a seller represented by their own agent. Even so, licensees must always be careful to provide accurate information regardless of whether or not a fiduciary relationship exists.

Brian Taylor
Bull, Housser & Tupper LLP

 
1.
Westrheim et al. v. Gao et al., 2007 BCSC 274.
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