Discuss the nature of relationship between a land owner and an estate agent.
(20 marks, 2018 Q6)
Read Law of Agency in Malaysia.
Land owner and an estate agent can be related to each other as in agency contract. There can be two types of relationships:
(Assuming that the question asks about agency contract, thus the relationship of principal to agent and third party. In real life, the land owner can have other types of relationships with the estate agent. They can be friends, partners, or even enemies.)
- Land owner as principal.
- Land owner as third party.
Part X of Contracts Act, 1950 list out the relationship of Agent and Principal.
S.135 "Agent" and "Principal".
An "agent" is a person employed to do any act for another or to represent another in dealings with third persons. The person for whom such act is done, or who is so represented, is called the "principal".
This "principal" can be the landowner, or the buyer/tenant who appointed the agent.
What is interesting about Agency Contract which differs from general contract is agency contract does not need consideration, whereas in general contract, consideration is an essential factor for a binding contract.
S.138 Consideration not necessary.
No consideration is necessary to create an agency.
So, if land owner is the principal, the estate agent does not need to have a consideration with this principal to have his agency contract valid. This means estate agent can still represent this landowner without any agreement of land owner paying him any fee for his work.
Of course, payment of fee for the work done does not make the agency contract void or voidable.
In short, an estate agent's relationship with his principal is to enter into a binding contract with third party on behalf of this principal according to the instruction given. In so doing, the agent must protect the interest and follow the instruction of the principal. The agent owes to his principal fiduciary duty.
1. Land owner as principal
In this case, Land owner appoints the estate agent to represent him to carry out instruction. This instruction can be sale or lease of his property to a prospective third party. In a typical real estate advertisement, the estate agent is appointed (by type of appointment - exclusive or ad hoc, etc) to carry out selling or leasing of the property of his principal (land owner).
The relationship of land owner to this agent is Principal to Agent. The agent has to protect the interest of the principal and owes to his principal fiduciary duty. During any negotiation with a third party, the agent would put the priority of his principal in protecting his rights, rather than the interest of the third party. In other words, his main focus is to get the instruction done with the best outcome, be it of higher price, quicker execution, or cost saving and reduction of risk in dealing.
2. Land owner as third party
This is the case when a buyer or tenant appointed the estate agent to source for property. Therefore, the estate agent found this land owner who has suitable property for his principal - buyer or tenant. In this case, the relationship of this land owner to the estate agent is a third party. The estate agent has duty to his principal to deal with this third party, but does not act to protect this third party. In fact, he owes his duty to the buyer or tenant principal and not this land owner. He will negotiate for the best deal for his buyer or tenant.
S.135 & 138 Contracts Act, 1950.