Q: We represent the Buyer in a pending escrow. The local Broker who represents the Seller has just sent us a form with their Company’s logo on it entitled “General Indemnification Disclosure & Waiver.” The Seller’s Broker has already gotten the Seller to sign this form; the Seller’s Agent insists that I must get the Buyer to sign it. I have some concerns because the form states that the Buyer and Seller agree to hold the Seller’s Broker/Agent “harmless from all claims, disputes, litigation, judgment, awards, costs and attorney’s fees arising from any action taken or omitted by” the other Agent. This Agreement is not part of any settlement, claim or dispute; this has been a smooth deal and the form was just sent to us “out of the blue.”
Can the Seller’s Agent hold up the deal if the Buyer does not sign their form? Is this type of document legally enforceable? What should I tell the Buyer? Is using this type of document something that we should consider doing to limit our liability?
A: Bottom line: The Buyer is not obligated to sign the Agent’s Indemnification/Waiver document. If Brokers/Agents could legally use this type of document to insulate themselves from liability, then CAR, PRDS and SFAR would all have included it in their standard forms. These three leading real estate industry creators of forms have not done so because the document is legally defective and should not be emulated by anyone. As one pundit has noted: “Life just doesn’t work that way.”
Whenever a real estate Broker/Agent creates an “Indemnification Agreement,” “Hold Harmless” or “Waiver of Liability” document or inserts such language into another transaction document (such as an Addendum or Amendment to the Purchase Agreement) for the sole purpose of protecting themselves from being sued, they are clearly putting their own best interests above the best interests of their client, which is a violation of Article 1 of the NAR Code of Ethics to “protect and promote the interests of their client” which “obligation to the client is primary.”
Sellers and Buyers are not obligated to sign any documentation which purports to hold a Broker/ Agent harmless as a condition of entering into and/or proceeding with a transaction. Any effort by a Broker/Agent to prevent the principals from proceeding with the transaction (because one or both principals will not sign that documentation) could constitute actionable interference with the contractual rights of the principals. It could also well be argued that the Broker/Agent is breaching their fiduciary duties to their client.
Unless the Broker/Agent has provided separate consideration to the principals (i.e., sufficient money) to warrant the waiver of claims against the Broker/Agent, the document is legally unenforceable. Any document that purports to eliminate liability for unknown problems must comply with strict legal requirements proscribed by California statutory law. Any Broker/Agent who prepares this type of legally-defective document is potentially doing a bad job of practicing law without a license.
Both the California Legislature and the Appellate Courts have taken a dim view of licensed professionals attempting to limit their liability with Indemnity/Waiver of Liability Agreements; and these types of provisions are often struck down as being against “public policy”– which means that it is not in the best interests of consumers to eliminate or even curtail their ability to sue professionals who have made mistakes.
PRACTICE TIPS:
- When presented with another Broker/Agent’s Indemnity/Waiver Agreement, recognize that your clients are not obligated to sign the document.
- Advise your clients, preferably in a writing such as an email, that you recommend that they not sign the other Broker/Agent’s Indemnity/Waiver Agreement whether it is in a stand-alone form or is included in any contract or disclosure document.
- If the client indicates any willingness to “just sign it anyway,” advise your client, preferably in a writing such as an email, that you recommend that they should not even consider signing the document unless they have received a written recommendation to do so from their own qualified California real estate attorney.
- If the client refuses to follow your advice and signs the other Broker/Agent’s Indemnity/Waiver Agreement without first conferring with their own qualified California real estate attorney, document that the client is proceeding against your advice.
See Weekly Practice Tip: “How to Handle Clients Who Will Not Follow Advice?”
- Do not attempt to emulate the poorly-conceived efforts of other Brokers/Agents to try to exculpate themselves from liability without first securing proper risk management/legal advice from an attorney who understands all of the legal requirements for such documents. Creating such documentation can cause far more harm for Brokers/Agents than the perceived benefit.
WEEKLY PRACTICE TIP: DO NOT FORWARD TO CLIENTS. This Weekly Practice Tip is for the exclusive use of clients of Broker Risk Management and their agents. It may not be reproduced or distributed without the express written consent of Broker Risk Management. The advice and recommendations contained herein are not necessarily indicative of standards of care in the industry, but rather are intended to suggest good risk management practices.
© Copyright Broker Risk Management 2019 08/30/19