The real estate market thrives on transparency and trust, and agents must not allow any personal interest to conflict with those of their clients.
Moreover, they should make a full disclosure to their clients of all relevant facts which may amount to any conflict or potential conflict of interests, so as to allow their clients to decide whether to proceed with the proposed transaction or with their appointment as agents.
Generally speaking, an estate agent should not purchase or rent property from a client, sell or let his or her own property to a client unless he or she has made a full disclosure of all the relevant facts. This should be made before entering into any agreement, and having obtained the client’s informed consent to such a transaction.
Under the respective clause of the prescribed Estate Agency Agreements, the person (“Person”) signing the agreement on behalf of the estate agency must disclose whether certain parties have a pecuniary or other beneficial interest in the property concerned.
Such parties include (1) the Person or his nominee; or (2) the Person’s or his nominee’s specified relative (meaning his spouse, parent, child, brother or sister); or (3) the estate agency or any employee, substantial shareholder, partner, or director of the estate agency.
Particulars of such interests (if any) must be specified in Schedule 3 (applicable to Form 3 and Form 5) and Schedule 4 (applicable to Form 4 and Form 6) of the Agreements.
Moreover, under the Code of Ethics issued by the Estate Agents Authority (“EAA”), estate agents and salespersons should avoid accepting an appointment involving a property in which they have a beneficial interest.
Where they act for both sides of a transaction, estate agents should also disclose to their clients the dual agency relationship and any pecuniary or other beneficial interests they may have or receive in the transaction.
Here, I would like to illustrate two non-compliance cases.
A tenant learnt that the lease for his friend’s flat would soon expire, and he wanted to rent the flat after his friend vacated the place. His friend asked him to contact an estate agent (whose Chinese name was unknown to the tenant) to arrange for it.
Over the phone, the estate agent claimed that the landlord resided overseas and she had full authority to handle the leasing of the flat. After a brief negotiation of the lease terms, the tenant decided to rent the flat for two years.
The estate agent then arranged for the tenant to sign the tenancy agreement. When the tenant met the estate agent, the latter took out a tenancy agreement which had already been signed by the landlord and the name of the landlord stated in the tenancy agreement was in Chinese only.
Throughout the meeting, the estate agent did not reveal her Chinese name, nor did she give the tenant her business card, or when entering into an estate agency agreement with the tenant.
The tenant signed an agreement to rent the flat for two years and arranged for the same estate agent to renew the tenancy upon expiry of the initial term. On both occasions, the tenant paid commission to the estate agent, who issued receipts in the name of an estate agency.
The tenant subsequently found out that the name of the landlord in both tenancy agreements was in fact the estate agent’s Chinese name. A land search of the flat revealed that the estate agent was the registered owner and a search on the licence register of the EAA revealed that she was the sole proprietor of the estate agency named in the commission receipts.
The EAA’s Disciplinary Committee was of the view that the estate agent failed to disclose her interest in the flat to her client. She thus failed to comply with paragraph 3.6.1 of the Code of Ethics.
The committee decided to reprimand the estate agent and suspend her licence for one month. Also, a condition was attached to her licence requiring her to obtain 10 points under the EAA’s Continuing Professional Development (CPD) scheme in 12 months.
In another case, an estate agent was alleged to have concluded a deal with her vendor clients without disclosing her relationship with the purchaser company.
The estate agent was the sole proprietor of an estate agency. The vendors of a property put their property on sale through her firm, and she then introduced a purchaser to the vendors. After negotiations, the vendors agreed to sell the property for HK$5.48 million (US$720,560).
Before signing the provisional sale and purchase agreement, the estate agent told the vendors that the purchaser would use a company (“ABC Limited”) to purchase the property. The purchaser was in fact the estate agent’s husband, and the two were the directors and shareholders of ABC Limited.
The EAA’s Disciplinary Committee found that the estate agent had failed to disclose her relationship with the purchaser to the vendors. Hence, she was in breach of paragraph 3.6.2 of the Code of Ethics.
Given the circumstances, the licence of the estate agent was suspended for three months and she was also required to obtain 20 points under the CPD scheme within two years.
Estate agents must bear in mind that they must disclose any pecuniary or other beneficial interests they have or may have in relation to the property or the property transaction to their clients. Otherwise, they could be in breach of the fiduciary duty they owe to their clients and may be disciplined by the EAA.
(17 March 2020)