Does a letting agent have a duty of disclosure when accepting commissions – for instance, from tradespeople or firms which pay when agents sign tenants up to utilities?

Duty of disclosure is much clearer for sales agents, but of course letting agents are not, legally, estate agents.

Furthermore, the recent Competition and Markets Authority guidance to “lettings professionals” is silent on the matter.

However, Eye asked ARLA managing director David Cox about the duty of disclosure and we were interested to get a full and very helpful reply from the ARLA helpline.

The reply makes it clear: letting agents DO have a duty to disclose a commission (although not the actual amount). If there is a failure to disclose, then the client (ie, the landlord) can claim back all the money that the agent has made while acting for him or her.

The full answer from the ARLA helpline is here, and revolves around a case relating to agency over 90 years ago.

Rhodes v Macallister CA 1923

The above case in simple terms is concerned with the fiduciary duty of an agent to his principal.

In this matter the agent agreed to find a seller of mineral rights on behalf of his principal but failed to disclose the fact that the seller was paying him a commission. The agent was paid by his principal for the work.

The matter ended up in the Court of Appeal where the Court found in favour of the principal.

The leading judgement from Lush J in the matter stated that it made no difference to the agent’s position that his principal suffered no damage or may even have obtained an advantage. The judgement went on to say that the simple remedy for an honourable businessman was disclosure.

This meant if the agent gets remuneration or commission from both sides, it must be disclosed to the principal for whom he acts and the principal’s consent obtained for the agent to take the money.

There have been many cases since 1923 which have taken slightly different views on parts of the judgement in Rhodes v Macallister, but the basic tenet is that disclosure is paramount.

In residential lettings this would mean the following:

• The Terms of Business should contain a general clause stating that the agent may receive commission or interest while acting on behalf of a landlord.

• If fees or commission is taken from a contractor, the fact should be disclosed in the Terms of Business although it is not necessary to state the amount. If the agent failed to make the disclosure and his principal finds out, he can demand back all the money that the agent has received while acting on his behalf. A practical example is when the contractor pays the agent 10% of all the work awarded to him. The landlord would be entitled to the 10% added to all his invoices.

• If fees are paid by a prospective tenant such as half the cost of a Tenancy Agreement, then the Terms of Business should clearly state that each side pay half.

Finally, as is generally upheld in the law, transparency is imperative.