Consequences of Breach of Fiduciary Duty #411

An agent’s duty of full disclosure to their client and the consequences of a breach of that duty were the subject of a recent lawsuit concerning deficiencies in a new townhouse in a development near Squamish.¹

The owner/developer and the buyer of the unit were represented by separate REALTORS® from the same brokerage. The seller, buyer and brokerage all entered into a limited dual agency agreement.

The buyer believed the unit would have granite countertops and a crawlspace with a forced air heating system. A few days before closing, she learned the unit contained laminate countertops and baseboard heating. The buyer completed the transaction, replaced the laminate countertops with granite and sued the owner/developer and brokerage.

The REALTOR® working with the seller had prepared a draft feature sheet, which indicated granite countertops. Preliminary plans posted on the brokerage’s website indicated the heating system would be forced air. The feature sheet and plans were provided to the buyer through the REALTOR® working with the buyer.

The court found the information about the countertops and heating system in the feature sheet and plans were negligent misstatements. Since the value of the unit had risen substantially since closing, no damages could be awarded for negligent misrepresentation because the buyer hadn’t suffered any loss.

All parties agreed the brokerage and REALTORS® were acting as limited dual agents and owed limited fiduciary duties to both the buyer and seller. The court found the limited dual agency agreement didn’t limit an agent’s duty of full disclosure to their client (except with respect to price, motivation and personal information).

The REALTOR® working with the seller acknowledged he knew of the replacement of the forced air system with baseboard heating, but didn’t see the need to alter the plans distributed or posted on the brokerage’s website because, in his view, the change was a benefit to buyers. The court found that was a fundamental misconception of his duty as an agent, citing a case which concluded that it was for the principal, not the agent, to decide whether a material difference in the property was important.² The court found the changes to the countertops and the heating system were material changes that should have been disclosed to the buyer.

The brokerage, through its REALTORS®, had breached its fiduciary duty to the buyer as a limited dual agent by providing her with inaccurate and misleading information. If a breach of fiduciary duty is established, damages are, at a minimum, the surrendering of profits resulting from that breach. In this case, the profit amounted to the commission received by the brokerage of $14,680.10 and the court ordered damages against the brokerage in that amount.

The court found the cost of replacing the granite countertops amounted to only $4,200 and the damages for receiving baseboard heaters, instead of forced air heating, was assessed at $1,000. However, because the court found that the brokerage had breached its fiduciary duty to its client, the brokerage was required to pay damages in the amount of the commission received rather than the actual loss suffered by the buyer. Had the losses incurred by the buyer been greater than $14,680.10, the brokerage would have been required to pay the higher amount.

This case is an important illustration of the principle that a breach of an agent’s fiduciary duty to their client can result in the loss of commission, even if the client suffers little or no actual damage.

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