Real estate agents are obligated to inform clients when information has not been obtained!
In a case handled by attorney Florian Daniel on behalf of the aggrieved party (the brokerage client), the brokerage firm (defendant) was found liable for breach of duty and ordered to repay the brokerage commission.
Facts of the Case
A contractual relationship existed between the parties – a brokerage agreement within the meaning of § 652 of the German Civil Code (BGB). Through the broker’s mediation, a sublease agreement was concluded between the plaintiff and a third party.
Decision
The court found a breach of duty in the fact that the defendant (real estate agent) failed to investigate the circumstances underlying the (brokered) contractual relationship or, at the very least, failed to point out that no such investigation had been conducted.
This is because the real estate agent is bound to the client by a special fiduciary relationship as the client’s representative, from which certain ancillary duties arise for the agent in the performance of his or her tasks.While a broker may, in principle, pass on information received without verifying it, the broker must have obtained and scrutinized such information with due diligence. The broker must not (of course) provide any information that is obviously incorrect, implausible, or otherwise questionable. Otherwise, the broker is under no obligation to conduct investigations and may, in principle, rely on the information provided by the seller or landlord.
Specific Circumstances Are Decisive
However, based on the specific circumstances of the case underlying the judgment, the real estate agent was obligated to conduct an investigation or, at the very least, should have pointed out to the plaintiff that information regarding the contractual relationships had not been obtained. This is because, given the specific structure of the contract (the owner leases to the primary tenant, whose partner – who is not listed in the primary lease agreement – acts as the landlord and signs the sublease agreement in her own name; without the necessary authorization), it should have been obvious to the real estate agent to inquire and obtain further information, or at least to point out these circumstances and the fact that the contractual relationships had not been verified. This was all the more true given that the plaintiff had made it clear to the defendant real estate agent that he intended to live in the property on a permanent basis.
The damages – after the plaintiff was given notice by the owner shortly after moving in and was subsequently sued for surrender of the apartment – included, among other things, the (wasted) real estate commission paid. This is because the plaintiff would not have entered into the (sub)lease agreement had he been aware of the specific circumstances. Accordingly, the plaintiff was to be placed in the same position as if he had not entered into the sublease agreement.
Comment
The real estate client is entitled to receive sufficient information from the real estate agent to enable him to form a comprehensive picture of the specific circumstances. Only when the client has received at least the information from the real estate agent that the agent did not conduct further inquiries (despite certain indications or inconsistencies) does the client have the opportunity to obtain – if necessary – the information required for his own decision-making. For only then would the plaintiff have been placed in a position that – based on the knowledge that the background had not been investigated – would have allowed him to conduct his own research. However, because the transaction and the real estate agent’s activities appeared entirely routine from the outside, the plaintiff could not even suspect that the contractual structure – similar to the risk associated with a chain of copyright ownership – was flawed and thus in danger of collapsing.
Case law is now shifting toward imposing heightened duties of scrutiny and enhanced advisory obligations on real estate agents, thereby reflecting the changing nature of the profession – moving away from the role of a mere listing or brokerage agent toward that of a service provider.
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