06/12/2014

Join Me at the Annapolis YBAA University

I will be presenting on the topic of dual agency and buyer’s brokers at the YBAA University on July 22, 2014 in my hometown of Annapolis.  As you know, dual agency remains common in brokered boat deals, although there are increasingly individuals and companies that focus on and advertise as Buyer’s Brokers.  

In contrast to real estate, however, there is little to no current regulation of buyer’s brokers or brokers that serve as dual agents in the yacht context.  I hope that my talk can be interactive and address Member's thoughts on this issue as well as mine, so if you have questions or subtopics that you would like to see discussed in the presentation (or in a future YBAA article), please send them to me by email at dschwenk@baylawllc.com.  

For now, here is a little bit of background on the topic.

First, both FYBA and YBAA currently have a paragraph in their Purchase & Sale agreements that allow for dual representation.  The Florida contract adds that the dual broker must share material facts, but cannot share information concerning the parties’ asking and selling prices and the YBAA contract alludes to something similar.  This is obviously a delicate balance for any person, but at the same time, it has been a standard feature of the boat brokerage business for as long as I am aware and might be looked at by a Court as simply the nature of the business.  

Things are very different in the world of real property.  Maryland, for example expressly forbids any single person from acting as agent for both seller and buyer.  “Except as otherwise provided, [a real estate agent] may not act as a dual agent in this State.”  The exceptions allow for dual agency only when the buyer and seller each have an individual in the broker’s office assigned to them as their confidential designee and if there are disclosures made and written consent obtained.  The assignment of the individual representatives must be in writing, and the consent to dual agency must disclose items including: 1) compensation; 2) the seller and buyer’s adverse interests; 3) conflicting loyalties; 4) that the seller or buyer may designate facts which cannot be disclosed; 5) known price information; and 6) that the party does not have to consent to dual representation.  Florida law bans dual agency in real estate altogether: “Disclosed dual agency as an authorized form of representation by a real estate licensee in this state is expressly revoked;”  Fla. Stat. Ann. § 475.272.  (It does allow for a “transactional broker” which is defined as a broker with no fiduciary duties to any party -- no cases have really tested the meaning of the term, though.)

The statutory provisions are relatively recent.  There are longstanding cases that shine a very doubtful light on the advisability of dual agency, at least without meaningful disclosure and written consent.  These cases apply to all dual agency, although they most often arise in real estate cases.  “Absent the knowing consent of the parties to a real estate transaction, the broker's fiduciary relationship with his client precludes a “dual agency,” that is, the same broker representing both sides in the transaction. This is so because, ordinarily, the interests of the parties on the two sides of such a transaction are diametrically opposed. “The principle ... is that a broker cannot act for both a seller and purchaser without the full knowledge and consent of each, because their interests are in conflict. That is undeniably the law....”   Wilkens Square, LLLP v. W.C. Pinkard & Co., Inc., 189 Md. App. 256, 268, (2009) (quoting Blake v. Stump, 73 Md. 160, 172, 20 A. 788 (1890)).

I hope that my presentation in July can cover both pros and cons of using a Buyer’s Broker agreement and entering into a dual agency relationship.  My personal view right now (in early June before I seriously study the topic) is that there are some very good reasons to draft and use a Buyer’s Broker agreement, and good reasons to represent either the seller or the buyer, but not both.  First, the formal nature of the writing may prevent a buyer with whom a broker spends time from simply leaving and buying a boat through the listing broker.  Second, by discouraging dual brokerage, one might encourage greater cooperation among brokers and discourage cherry picking customers.  Third, having each broker in a more defined role may diminish boats being sold to unwitting customers with defects -- which is great in the short term for the listing broker, but terrible for the industry as a whole.  Finally, a contract can be used by the Buyer’s Broker to limit the kinds of claims that a Buyer can make against the broker if things turn out poorly.  

I am sure that your combined wisdom and experience will generate many other good points, and I look forward to a rich discussion on the topic.