Blog

BLOG / 04.19.18 /

Court Rules that Non-Participating Brokers Do Not Owe a Fiduciary Duty to a Brokerage Firm’s Client

It is well-established that real estate brokers owe a fiduciary duty of loyalty and to act in the best interest of their clients. Where the brokerage firm is comprised of several brokers, the client may naturally assume that both the listing broker, and the firm at large, will work in the best interest of the client’s needs and desires. A recent decision from the Westchester County Supreme Court warns clients against making this assumption.

Specifically, in 106 N. Broadway LLC v. Houlihan Lawrence, et al, a client engaged a real estate broker to assist in the sale of property for development of senior housing. The broker introduced a and the parties entered into a purchase agreement that was subject to the issuance of municipal approvals required to develop the property for this purpose. However, other brokers in the same firm who lived in the vicinity of the property allegedly interfered with the transaction by voicing opposition to the project at municipal agencies and encouraging others to do so. According to the purchaser, such opposition made it unlikely the rezoning and development would be approved.

The Court granted the brokerage firm’s motion to dismiss the complaint. While the listing broker clearly had a duty of loyalty to the client, other “non-participating” brokers, i.e., brokers who did not participate in the transaction, were not bound by the same duty. This is particularly so where the brokerage contract identified other agents in the same firm as “outside brokers”.

Sellers and prospective purchasers of real property should be mindful not to assume that one agent’s duty is imputed to other brokers in the same firm unless, at the very least, the brokerage contract is drafted properly to address this point. While the facts in this case, may be unusual, they do give clients reason to address this issue in the terms and conditions of a brokerage contract.