The concept of contract interference to say the least is complex. To sue someone in a court of law for tortious interference with a contract involves complicated litigation, legal arguments and evidence.
While it is possible in any type of contract, including a real estate transaction, for one party to claim an outside third party is interfering with a contract, this article is narrowly limited to agency agreements. With the busy real estate market, listing and buyer agency agreements expiring or terminating, and agents moving from one firm to another, the WRA Legal Hotline has received a variety of questions relating to what can or cannot be said and done when an agent leaves one firm and goes to another. See the gray box on page 12 relating to contact a buyer’s agent may have with the seller when the property is listed by another firm and the buyer wants the agent to aggressively pursue the property.
Tortious interference claims are complicated, and this article cannot work through all the complexities of such claims. However, this article hopefully can make you more aware of the overall concept of contract interference and help keep you out of trouble.
What is tortious interference with a contract?
Competition is part of real estate; we all know that is the case. However, what is not permitted is attempting to interfere with another’s listing or buyer agency agreement. Just because you may have contact with a buyer or seller who has a current listing or buyer agency agreement does not necessarily, automatically mean you have interfered with the other firm’s agency agreement.
Furthermore, the fact that a buyer or seller terminates early their listing or buyer agency agreement with one firm and moves to another does not mean anything nefarious has occurred. The reality is listings and buyer agency agreements get terminated; firms and agents get fired from the agreement. However, the agent’s or firm’s actions that may have resulted in that termination could lead to a claim of tortious interference with contract.
Like a lot of things in the law, this is a nuanced discussion and thus is fact-driven in its analysis. There is very little black and white when it comes to this discussion.
Elements of a claim
The elements of a tortious interference with a contract are:
- The plaintiff had a contract or a prospective contractual relationship with a third party.
- The defendant interfered with that relationship.
- The interference by the defendant was intentional.
- There was a causal connection between the interference and damages.
- The defendant was not justified or privileged to interfere.
Wisconsin has adopted the Restatement (Second) of Torts analysis for tortious interference claims. Section 766 provides, “One who intentionally and improperly interferes with the performance of a contract (except a contract to marry) between another and a third person by inducing or otherwise causing the third person not to perform the contract, is subject to liability to the other for the pecuniary loss resulting to the other from the failure of the third person to perform the contract.” Restatement (Second) of Torts § 766 (1979).
Wisconsin also recognizes two additional tortious interference claims:
- The interference with performance of a contract between another third person, and preventing the other from performing or causing performance to be more expensive or burdensome. See Restatement (Second) of Torts § 766A (1979).
- The interference with another’s prospective contract that results in the third person from not entering into or continuing or preventing the other from acquiring or continuing the prospective relation. See Restatement (Second) of Torts § 766B (1979).This claim is sometimes asserted in at-will employment situations and loss of a new job or promotion.
A person who interferes with a contract may be sued in civil court if damages can be proven.
What does tortious contract interference have to do with me?
The answer to that question depends on your actions when you leave a firm and go to another, or when buyers or sellers ask you how to get out of their current listing or buyer agency agreement with another firm.
Listing and buyer agency agreements are contracts between the buyer or seller and the firm. The firm’s agents — who are the salespeople and brokers — solicit and enter into the agreement on behalf of the firm.
Leaving a firm
The fact the agent leaves the firm does not terminate the listing or buyer agency agreement or permit the agent to take the listing with him or her to the new firm. Such a transfer of the listing or buyer agency agreement could only occur with the consent of the buyer or seller, the former firm and the new firm, either by assignment of the listing or buyer agency agreement to the new firm or by termination of the first listing or buyer agency agreement and the execution of a new listing or buyer agency agreement with the licensee’s new firm.
The buyer or seller and the firm must negotiate any listing or buyer agency agreement terminations. The WB-1 Residential Listing Contract — Exclusive Right to Sell states on lines 265-266, “Agents for the Firm do not have the authority to enter into a mutual agreement to terminate the Listing, amend the 266 commission amount or shorten the term of this Listing, without the written consent of the agent(s)’ supervising broker.” All of the WB listing and buyer agency agreements contain similar language.
For instance, lines 41-43 of the WB-42 Amendment to Listing Contract state, “CAUTION: This Listing belongs to the Firm. Agents for Firm do not have the authority to enter into a mutual agreement to terminate a listing contract, amend the commission amount or shorten the term of a listing contract, without the written consent of the Agent(s)’ supervising broker.” A similar statement occurs in the WB-47 Amendment to Buyer Agency/Tenant Representation.
A licensee who leaves one firm and goes to work for a new firm arguably has the right to inform clients and customers that he or she has transferred to a new firm, as long as this is done in a manner that does not wrongfully interfere with any contract or agency relationship that has been established between the former firm and the clients and customers.
An agent who leaves one firm and goes to work for another firm should have no further involvement with the listings that belong to the former broker. If the former firm permits the agent to stay involved with one of the firm’s listings, perhaps at the request of the buyer or seller or as a condition of the agent receiving part or all of the commission he or she would have otherwise received, the agent should be limited to administrative tasks not involving “negotiation” or other real estate practice functions.
The agent is no longer licensed with the former firm and, thus, is not licensed to act as a real estate salesperson in the former firm’s transactions, unless the agent’s new firm enters an agreement with the former firm for the agent’s participation in that transaction. The new firm is responsible for the supervision of the agent’s activities under Wis. Stat. § 452.132, and may demand that the agent’s participation in the former firm’s transaction be limited to administrative tasks and that any involvement in “negotiation” activities be strictly avoided. The new firm may even demand to be indemnified by the former firm for any liabilities or damages arising from the agent’s involvement in the transaction or closing. The new firm, however, cannot contractually alter its supervisory responsibilities with respect to the agent.
Buyer or seller wants out of the current agreement with another firm
When a buyer or seller reaches out to you and expresses a desire to end the current agency agreement with his or her current firm, you should be very careful with how you proceed. First, check with your supervising broker as to your firm’s protocol. If your supervising broker says that you can speak with the buyer or seller, this advice should come along with the warning of “don’t give them legal advice”! Do not tell the buyer or seller how to terminate the current listing. Instead, direct the buyer or seller back to his or her current agent or firm or to an attorney as to the discussion of ending the agreement. Only the firm has the authority to sever the agency relationship with its clients. The agent provides brokerage services under the authority of and on behalf of the firm.
A licensee who coaches a buyer or seller about how to terminate a listing or buyer agent agreement may be accused of giving legal advice in violation of Wisconsin license law and possibly contract interference with the other firm’s agreement. None of these are good to be accused of in your real estate practice.
One thing that is very clear is that REALTORS® cannot solicit buyers or sellers who the REALTOR® knows have an exclusive agreement with another firm.
Potential violations
A REALTOR® who coaches a seller on the termination of a listing or a buyer on termination of a buyer agency agreement may be accused of the following license law and ethical violations as well as be sued in court for damages.
Code of Ethics
Article 13 of the Code of Ethics states, “REALTORS® shall not engage in activities that constitute the unauthorized practice of law and shall recommend that legal counsel be obtained when the interest of any party to the transaction requires it.”
Article 16 of the Code of Ethics states, “REALTORS® shall not engage in any practice or take any action inconsistent with exclusive representation or exclusive brokerage relationship agreements that other REALTORS® have with clients. (Amended 1/04).”
Article 16 of the Code of Ethics provides a number of standards of practice relating to solicitation of buyers and sellers who the agent knows are engaged in exclusive representation with another firm.
Standard of Practice 16-2 “does not preclude REALTORS® from making general announcements to prospects describing their services and the terms of their availability even though some recipients may have entered into agency agreements or other exclusive relationships with another REALTORS®.
A general telephone canvass, general mailing or distribution addressed to all prospects in a given geographical area or in a given profession, business, club or organization, or other classification or group is deemed 'general' for purposes of this standard. (Amended 1/04)
Article 16 is intended to recognize two basic types of solicitations as unethical:
- First, telephone or personal solicitations of property owners who have been identified by a real estate sign, multiple listing compilation, or other information service as having exclusively listed their property with another REALTOR®.
- Second, mail or other forms of written solicitations of prospects whose properties are exclusively listed with another REALTOR® when such solicitations are not part of a general mailing but are directed specifically to property owners identified through compilations of current listings, 'for sale' or 'for rent' signs, or other sources of information required by Article 3 and Multiple Listing Service rules to be made available to other REALTORS® under offers of subagency or cooperation. (Amended 1/04)”
Standard of Practice 16-3 “does not preclude REALTORS® from contacting the client of another broker for the purpose of offering to provide, or entering into a contract to provide, a different type of real estate service unrelated to the type of service currently being provided (e.g., property management as opposed to brokerage) or from offering the same type of service for property not subject to other brokers’ exclusive agreements. However, information received through a Multiple Listing Service or any other offer of cooperation may not be used to target clients of other REALTORS® to whom such offers to provide services may be made. (Amended 1/04)”
Standard of Practice 16-13 provides that, “All dealings concerning property exclusively listed, or with buyer/tenants who are subject to an exclusive agreement shall be carried on with the client’s agent or broker, and not with the client, except with the consent of the client’s agent broker or except where such dealings are initiated by the client. (Adopted 1/93, Amended 1/98)”
Standard of Practice 16-20 provides that “REALTORS® prior to or after terminating their relationship with their current firm, shall not induce clients of their current firm to cancel exclusive contractual agreements between the client and that firm. This does not preclude REALTORS® (principals) from establishing agreements with their associated licensees governing assignability of exclusive agreements. (Adopted 1/98).”
To view the full REALTOR® Code of Ethics, visit www.wra.org/CodeOfEthics.
Wisconsin license law
Wis. Admin. Code REEB 24.06 states:
- Unauthorized practice of law prohibited. Licensees shall not engage in activities that constitute the unauthorized practice of law.
- Legal counsel not to be discouraged. Licensees shall not discourage any person from retaining an attorney.
Contract interference
A person who interferes with a contract may also be sued in civil court if damages can be proven. Unless the agent has authorization from the firm, the agent cannot prepare and execute amendments or other documents canceling the firm’s listings and buyer agency agreements.
Conclusion
While the concept of tortious interference with contract is fraught with complexity, it can readily be avoided. One easy way to remember tortious interference is that unless otherwise agreed to with your current firm, listing and buyer agency agreements belong to your firm, not you as an individual. When you go to another firm, the agreements don’t.
Negotiations with seller
In a heated real estate market with limited inventory, buyers often ask their buyer’s agents to be aggressive with contract negotiations. This is a reminder of your limitations as a REALTOR® when a property is listed with a firm under an exclusive right to sell listing agreement.
Scenario
The seller’s property is listed with Firm A. The WB-1 Residential Listing Contract — Exclusive Right to Sell expires April 17, 2017. A buyer who has a buyer’s agent is interested in the property. However, the buyer wants the buyer’s agent to be very aggressive and find a way to avoid having the listing agent and the listing firm involved in the transaction. The buyer’s agent, knowing the seller has an Exclusive Right to Sell listing with another firm, aggressively pursues negotiations and discussions with the seller — not the listing agent.
Discussion
Wis. Admin. Code § REEB 24.13(5) provides licensees may not negotiate the sale of a property directly with a seller with an exclusive right to sell listing.
Similarly, Standard of Practice 16-13 indicates in relevant part that, “All dealings concerning property exclusively listed, or with buyer/tenants who are subject to an exclusive agreement shall be carried on with the client’s representative or broker, and not with the client, except with the consent of the client’s representative or broker or except where such dealings are initiated by the client.”
This agent’s persistent negotiation with the seller and not the listing firm appears to constitute ethical and license law violations. A key Code of Ethics principle is not to deal directly with or solicit someone involved in an exclusive agency agreement with another REALTOR®.
Tortious interference test
Test your knowledge with these scenarios! Use these scenarios to determine to whether there is a possible Code of Ethics Violation, a possible contract interference claim, providing legal advice or both.
Scenario #1
The agent is leaving Firm A to go to Firm B. At the time of leaving to go to Firm B, the agent was working with the seller under a WB-1 Residential Listing Contract — Exclusive Right to Sell. The seller approached the agent and said he wanted to follow the agent to Firm B. The seller asked the agent how to get out of the listing with Firm A.
Check any of the violations that apply:
- Code of Ethics
- Contract Interference
- Providing Legal Advice
Answer: None of the above.
Discussion:
Based on the facts presented, it would appear the agent did not solicit the seller, but rather the seller reached out to the agent. Therefore, it would not appear the agent violated the Code of Ethics, Wisconsin license law or interfered with the firm’s contract.
However, the response may differ if the agent answers the seller’s questions about how to get out of their listing contract with Firm A. By answering and assisting the seller in that question, the agent could be accused of providing legal advice, which is a violation of the Code of Ethics and Wisconsin license law. Lastly, there could be a claim of tortious interference of contract.
Scenario #2
The agent is leaving Firm A to go to Firm B. At the time of leaving to go to Firm B, the agent was working with the seller under a WB-1 Residential Listing Contract — Exclusive Right to Sell. The seller approached the agent and said he wanted to follow the agent to Firm B. The agent asked the seller if the seller would like to terminate his listing with Firm A and then follow the agent to Firm B and list his property with Firm B. The seller said yes and asked what he needed to do to make that happen. The agent sent the seller a WB-45 Cancellation Agreement and Mutual Release terminating the seller’s listing agreement with Firm A.
Check any of the violations that apply:
- Code of Ethics
- Contract Interference
- Providing Legal Advice
Answer: Possibly all of the above.
Discussion
Listing agreements are entered into between the sellers and the firm — not the agent individually. The fact that the agent leaves the firm does not operate to terminate the listing and does not permit the agent to take along the listing contract to the agent’s new firm, unless there is an agreement between the agent and the firm to do so. A licensee who coaches a seller about how to terminate a listing agreement may be accused of numerous violations, such as giving legal advice in violation of Wisconsin license law and contract interference with Firm A’s listing agreement in violation of the Code of Ethics.
Only the firm has the authority to sever the agency relationship with the agent’s sellers. The agent provides brokerage services under the authority of and on behalf of the firm. Although the agent plans to leave Firm A, the agent owes a duty of loyalty to the current firm. Directing sellers to list with another firm would violate that loyalty, and could constitute tortious interference with contract. The termination provisions in the WB-approved listings require supervising broker approval to terminate or shorten the term of the listing.
Cori Lamont is Director of Corporate and Regulatory Affairs for the WRA.