Insurance & Real Estate Law

Termination of Agency

Once it has been determined that an agency agreement exists, it can be terminated by the acts of the parties or by operation of law.

Termination by Acts of the Parties

Termination of an agency agreement by acts of the parties can be accomplished by either party or by both parties. If both parties agree to terminate the agency agreement, it is simple to agree to the termination by mutual consent. The termination can also be accomplished by completion of the agency objective (i.e., the property being sold) or by expiration of the stipulated of time as set out in the listing agreement or agency contract.

Termination by One Party

Termination of the contract by one of the parties tends to be more complicated. A principal may unilaterally revoke the agency or listing agreement at any time if there is cause to do so but may be exposed to contractual liability if he or she is in default under the agreement. If there is no cause to terminate the brokerage service agreement or the reasonable value of services and reimbursement for expenses. Conversely, the agent may be able to renounce the contract if the agent feels that the principal is not helping to complete the agency objective. The agent may be liable for damages if there is no just cause to terminate the contract. In both cases, what is “just cause” is a fact question that has to be determined by a court.

Termination by Operation of Law

Termination of the agency relationship by operation of law occurs upon the death of either the principal or the agent, insanity of either party or change of law. Since the agency contract is a contract for personal services and is often purely unilateral, the death of either party terminates the obligations of either party. This can always be modified, however, if the broker is a corporation, the seller is a corporation, or either is an entity rather than a natural person (i.e., a trust or limited partnership). Similarly, insanity of either party limits the contractual capacity of either party to the point that the principal-agent relationship cannot be completed. Determinations and definitions of sanity are difficult to determine. If a change of law or supervening illegality makes a contract become illegal, any contract that is illegal is void. An excellent example of this arose recently. The listing broker earned a substantial commission by negotiation the sale of several savings and loans. While the transaction was pending, however, Congress made the payment of commissions to brokers for this type of sale illegal. The broker was then denied the commission because of supervening illegality. It was legal initially, but it became illegal during the pendency of the transaction.

Once the confidential relationship is established, it cannot just be disregarded or ignored. If the agent takes advantage of the principal because of insider information, or if the agent advises someone else to do so, the fiduciary duty has been breached. Therefore, even the agency terminates, the fiduciary duty may not end, for instance, a broker cannot become a principal on the same transaction and shed fiduciary obligations. The agency relationship is presumed to continue once it is established. The agency liabilities may continue far beyond the termination of the agency relationship.