In general, neither an agent nor a principal ever really wants to “fire” somebody for not meeting their expectations or needs, however, sometimes because of poor performance, or other unanticipated events, an agent or principal may wish to terminate an agency relationship. When it comes to termination of agency, there are some considerations that should be understood before attempting to part ways. There are seven different justifications for agency termination identified in this section. The first three have to do with performance based issues.
That is, activities or lacking activity of one of the parties involved in the agency. The remaining four justifications arise from operations of law (outcomes resulting from outside of the individual performance of a party). Essentially, there are three fundamental ways in which the parties involved in a transaction may end an agency relationship based on the actions (or lacking performance) of a contributing party:
- Mutual Consensus
- Principal Cancel
- Agent Cancel
The broker had a listing agreement on Lot A. One year after the expiration of this listing the broker purchased adjoining Lot B. The broker wants to develop Lot B. The owner of Lot A is contending that his consent is required to any development of Lot B by the broker because of the previous agency relationship. Can the broker develop Lot B without the consent of the owner of Lot A?
Yes. The general rule is that the agency relationship terminates when the listing agreement expires. Therefore, unless the broker is using confidential information acquired during the listing of Lot A, the consent of the owner of Lot A is not required for the development of Lot B by the broker.
Arizona REALTOR® Digest April 2002; Reviewed May 2004
Suppose a brokerage was contracted for six months, and after attempting to sell the property for the first three months of the six-month period the seller has become discouraged. His discouragement is based on the idea that his asking price is not being met and the agent representing him does not think it’s possible that the asking price will be met because of worsening market conditions. After discussing the likelihood that the property will not sell at the principal’s asking price, both parties agree to end the agency. When both the principal and the agent agree to terminate an agency relationship, it can be done so at any time, however, even if the agreement was not started with a written document, it should be ended with one. Written documentation helps prevent against any future liabilities on behalf of the agent in the event the principal makes a claim against the agent in the future.
Suppose that in an established listing agreement there was a written stipulation that the agent would post a FOR SALE sign in the yard of the selling property with color printed images of the house that potential buyers could take with them when they leave. However, after the first few weeks of listing the property, the For Sale sign was stolen and was never replaced.
The agent seemed to avoid telephone calls and emails from the principal, and the property was not shown once. Additionally, the principal did not receive any updates or feedback on the selling status. Given the agent’s lackluster performance, the principal may revoke the agency relationship by terminating the agreement. Principals may cancel an agency relationship whenever they wish, however, if doing so breaches a contractual agreement, the principal may be held responsible for damages incurred by the agent resulting from the breach. If for instance, a seller will not consider a purchase offer brought by the listing agent based on the race or religion of the third party, the broker may sue for a commission that would have been otherwise due.
Suppose the roles were switched. Instead, in an established listing agreement there was a stipulation that the principal would provide a suitable environment at his property whenever it was being shown to prospective buyers, however, each time the agent brought over a potential buyer, the property was messy and unkempt and filthy.
Additionally, the principal did not respond to telephone calls and emails sent by the agent. After several weeks with no attempt made by the principal to correct the issues, the agent has the right to revoke the agency relationship by terminating the agreement. Brokers may cancel an agency relationship whenever they wish; however, if doing so breaches a contractual arrangement, the agent may be held responsible for damages incurred by the buyer resulting from the breach. This represents another important reason to have agency agreements identified in writing with authorization signatures from each party.
Confidential Information Remains Confidential After Termination of Agency Relationship
The Broker listed a property for the seller but was unable to sell the property. When the Broker’s listing expired, the seller re-listed the property with another brokerage firm. The Broker possesses confidential information about the seller, which was acquired while the Broker represented the seller. May the Broker disclose the confidential information about the seller?
Arizona courts follow the Restatement of Law if its view “is logical, furthers the interests of justice, is consistent with Arizona law and policy, and has been acknowledged elsewhere.” Ramirez v. Health Partners of Southern Arizona, 193 Ariz. 325, 972 P.2d 658 (App. 1998). According to the Restatement (Second) of Agency:
§396 Using Confidential Information After Termination of Agency
Unless otherwise agreed, after the termination of the agency, the agent:
(b) has a duty to the principal not to use or to disclose to third persons, on his own account or on account of others, in competition with the principal or to his injury, trade secrets, written lists of names, or other similar confidential matters given to him only for the principal’s use or acquired by the agent in violation of duty. The agent is entitled to use general information concerning the method of business of the principal and the names of the customers retained in his memory, if not acquired in violation of his duty as agent;
(d) has a duty to the principal not to take advantage of a still subsisting confidential relation created during the prior agency relation. (Emphasis added).
The Comment on subsection (d) of § 396 also states in pertinent part that “one who customarily buys or sells property through a broker can properly assume that the broker will keep confidential information given him in matters connected with dealings in such property, although not in connection with a transaction in which he is employed.” Therefore, the Broker’s duty of confidentiality to the seller would preclude the Broker from disclosing the confidential information about the seller even after termination of the agency relationship, unless the Broker obtains the seller’s consent.