On August 15, 2014, Governor Brown signed into law a new real estate broker agency bill. Senate Bill 1171, which is effective January 1, 2015, expands the disclosure law that previously applied only to one-to-four unit residential sales and leases. It requires commercial brokers to disclose, in a written statement and at the earliest possible opportunity, their agency relationship with the participants in a commercial sales transaction, and in all leases having a term greater than one year. 

Under the new law, a broker must disclose whether he is the exclusive agent for the buyer or the seller, the landlord or the tenant, or whether he is representing the interests of both parties. The broker must also disclose any past business dealings with any of the parties. In practice this means an Agency Law Disclosure form should be included as an attachment to all listing agreements and letters of intent (LOI). This will advise parties whether the individual agent handling the transaction is a dual agent, is their agent exclusively, or is the exclusive agent of the other party in the transaction with no duty to give advice or act on their behalf. 

In California there are two categories of broker obligations which arise in a real estate sale or leasing transaction:

• The general duties owed by each broker and their agents to all owners and users in the transaction, requiring them to be honest and avoid deceitful / misleading conduct with those who are not their clients; and

• The fiduciary duties owed by a broker and their agents to their client.

A failure to timely conform to the new disclosure requirements has consequences. If the owner’s broker doesn’t provide the owner with the Agency Law Disclosure form prior to entering into the listing agreement for the sale or lease of a property, the broker stands to lose his fee if challenged by the owner prior to closing. The loss of the fee cannot be avoided by a later disclosure made as an addendum to an LOI, purchase agreement, lease agreement or escrow instructions. The owner has the right to cancel the listing, and thus the agency, at any time.