What are the duties of a Fiduciary in Property Management?

A fiduciary is a person who holds a legal or ethical relationship of trust with one or more other parties (person or group of persons).

"A fiduciary is someone who has undertaken to act for and on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence." — Lord Millett, Bristol and West Building Society v Mothew[4]

As the Agent for the Property Owner, Real Property Management Humboldt (RPM) is a fiduciary for the client. Therefore, RPM has the legal and ethical responsibility to represent the best interests of the client. RPM is required to act for the sole benefit of the client in matters that evolve from the relationship, whether or not those matters are seemingly insignificant or they are significantly material. A Fiduciary Agent is held to a higher standard than that of a non-agency relationship. The Fiduciary should have a greater level of expertise when performing their duties than someone who is not familiar or experienced in property management.

The Fiduciary agreement is one of trust and there are several key components of the business relationship:

Loyalty ▪ Confidentiality ▪ Disclosure ▪ Reasonable care and diligence ▪ Accounting

Loyalty

A duty of loyalty is one of the most fundamental fiduciary duties owed by an agent to their principal. This duty obligates a real estate broker to act at all times solely in the best interests of their principal to the exclusion of all other interests, including the broker’s own self-interest. A corollary of this duty of loyalty is a duty to avoid steadfastly any conflicts of interest that might compromise or dilute the broker’s undivided loyalty to their principal’s interests.

Confidentiality

An agent is obligated to safeguard their principal’s confidence and secrets. A real estate broker, therefore, must keep confidential any information that might weaken their principal’s bargaining position if it were revealed. CAVEAT: This duty of confidentiality plainly does not include any obligation on a broker representing a property owner to withhold from a prospective tenant any known material facts concerning the condition of the principal's property or to misrepresent the condition of the property. To do so would constitute misrepresentation and would impose liability on both the broker and the principal.

Disclosure

An agent is obligated to disclose to their principal all relevant and material information that the agent knows and that pertains to the scope of the agency. The duty of disclosure obligates a real estate broker to reveal to the principal:

  • Any facts affecting the condition / value of the property.

  • The broker’s relationship to, or interest in, a prospective tenant.

  • The Broker must disclose all profits related to the Agency Relationship. The Broker must not have secret commissions, or bribes, or profits from the fiduciary position. This includes any benefits or profits which, although unrelated to the fiduciary position, came about because of an opportunity that the fiduciary position afforded. It is unnecessary that the principal would have been unable to make the profit; if the fiduciary makes a profit, by virtue of his role as fiduciary for the principal, then the fiduciary must report the profit to the principal. If the principal provides fully informed consent, then the fiduciary may keep the benefit and be absolved of any liability for what would be a breach of fiduciary duty.

  • Any other information that might affect the principal’s ability to obtain the highest price and best terms in the rental of their property.

CAVEAT: An agent’s duty of disclosure to their principal must not be confused with a real estate broker’s duty to disclose to non-principals any known material facts concerning the condition / value of the property. This duty to disclose known material facts is based upon a real estate broker’s duty to treat all persons honestly and fairly. This duty of honesty and fairness does not depend on the existence of an agency relationship.

Obedience

An agent is obligated to obey promptly and efficiently all lawful instructions of their principal. However, this duty plainly does not include an obligation to obey any unlawful instructions; for example, an instruction not to market the property to minorities or to misrepresent the condition of the property. Compliance with instructions the agent knows to be unlawful could constitute a breach of an agent’s duty of loyalty.

Reasonable care and diligence

An agent is obligated to use reasonable care and diligence in pursuing the principal’s affairs. The standard of care expected of a real estate broker is that of a competent real estate professional. By reason of their license, a real estate broker is deemed to have skill and expertise in real estate matters superior to that of the average person. As an agent representing others in their real estate dealings, a broker or salesperson is under a duty to use their superior skill and knowledge while pursuing their principal’s affairs. This duty includes an obligation to affirmatively discover facts relating to their principal’s affairs that a reasonable and prudent real estate broker would be expected to investigate. Simply put, this is the same duty any professional, such as a doctor or lawyer, owes to their patient or client.

Accounting

An agent is obligated to account for all money or property belonging to his principal that is entrusted to him. This duty compels a real estate broker to safeguard any money, deeds, or other documents entrusted to him that relate to his client’s transactions or affairs