Yacht brokers in general are considered agents that act on behalf of a party in the sale or purchase of a yacht. This agency relationship may arise pursuant to a contract or conduct of the parties.
In a dual agency, a yacht broker is the agent for both the buyer and the seller. Yacht brokers welcome a dual agency because it usually means that they receive a higher commission from the sale and although this may seem to be a lucrative position, there are many things that the broker should know before moving forward as a dual agent since they can easily run afoul of the heightened fiduciary duties.
Why is dual agency such a tricky situation?
In short, the broker now owes fiduciary duties to both the buyer and the seller, and laws governing dual agency vary from state to state, as well as internationally.
Normally, when two brokers are involved, each broker owes a fiduciary duty only to the party he or she represents - either the buyer or the seller. As brokers, you are generally required to disclose all material facts related to the relationship, including any conflicts of interest, known to you at the time while also protecting your client’s interests. This is of course more easily accomplished when you only owe this duty to one client.
However, when a single broker represents both sides of the transaction, these duties can become quite tricky and, if not followed properly, can blow the deal and subject such broker to liability to their clients. A broker can only act as a dual agent if they have informed both the buyer and the seller of the dual agency representation, and if both of them have consented to such representation. This consent must be valid and should be made in writing so that the broker is protected and there’s no doubt as to what was disclosed.
To make the consent valid, the broker must provide the buyer and seller with a full disclosure of all relevant details that would reasonably affect their consent to the dual agency, which may include the amount of the broker’s commission, and it should also state that the buyer and the seller know and agree to the broker’s conflict of interests.
In some states in the US, clients can waive the broker’s conflict of interest and, if that is the case in your state, then you should definitely include a conflict waiver in the purchase and sale agreement signed by both the buyer and seller. This is why the IYBA Purchase and Sale Agreement has a dual agency provision, which does just that.
We also recommend that if you do not use the IYBA Purchase and Sale Agreement (the “IYBA PSA”) regularly, that at least you add the dual agency provision to your contract since it not only discloses the fact that a broker may act as a dual agent, but it also provides what the broker can or cannot disclose to the parties in this case. There should be no question as to what you can disclose to either party. This is a where a lot of brokers get into trouble.
Conflict waiver/consent obtained - now what?
Once you have obtained a valid consent, you can proceed to act as a dual agent but should still tread carefully since the nature of the relationship is such that you can easily be perceived as acting more in the interest of one party over the other, and you definitely want to avoid this. It is unfortunately, a very tough line to walk on. The broker cannot be perceived to be acting in self-interest at the expense of one of the parties.
If you have used the IYBA PSA, buyer and seller have agreed that you can act as dual agent and disclose to both parties facts known to you that materially affect the vessel’s value or desirability. What you cannot do is disclose to the seller that the buyer is willing to pay a higher price for the vessel, nor disclose to the buyer that the seller is willing to sell the yacht for a lower price. This is crucial to the fiduciary duty imposed on the dual agent.
What else should the broker do?
Part of the broker’s responsibility is to advise on insurance since buyers largely rely on brokers for this. In the wake of recent natural disasters and hurricanes, yacht insurance has become less than easy to secure and, lately, insurance companies are requiring a copy of the survey report not just to confirm the value of the vessel or the information provided, but to confirm the condition of the vessel. Insurance companies may deny coverage until certain items in the survey are taken care of or limit the vessel’s ability to move until they do. This is particularly a problem if you receive this news after the vessel has been accepted and the buyer’s deposit is at risk.
To avoid this, we strongly recommend that you advise the buyer to obtain an insurance quote, and provide a copy of the survey to the insurance, prior to the accept/reject deadline to ensure that the buyer knows, with time, of any survey issues that would exclude or limit coverage and is made aware of any expensive repairs required by the insurance, which they may not have been expecting.
As a broker, you want to make sure that the buyer is properly advised of this so that they can make the right decisions before accepting or closing on the yacht, and you want to advise them prior to their deposit being non-refundable so that they can make an informed decision on whether to proceed.
What do you do with the money?
Another area where it is easy for brokers to get into trouble is in managing deposits or other amounts received from clients. Florida law requires the broker, within three days of receipt, to deposit any funds received into a financial institution located in the state which has a net worth in excess of $5 million. A separate record of how all the money is received and disbursed must be kept and may be required to be produced at closing. Failure to abide by this law could result in being charged with a third-degree felony. After all, a broker does not want anyone claiming that he or she has engaged in a scheme to misappropriate a client’s funds!
What happens if the broker breaches one of these duties?
The buyer or seller may rescind, or cancel the contract, leaving the broker with zero commission. They could also sue the broker for the return of the broker’s commission and, in doing so, may seek to have the broker pay their legal fees. If the broker partakes in a fraudulent or dishonest act with a client’s money, they may be subject to jail time.
While acting as a dual agent can be a lucrative representation, if you decide to represent both the buyer and the seller, ALWAYS obtain both parties’ valid written consent to the dual representation. As a dual agent, remember that you now owe duties to both parties whose interests are many times in conflict, and you have a duty to look out for both sides. To do so, you should put yourself in both clients’ shoes, understand their concerns, and be as honest with them as you would want someone to be with you.
***This article is not legal advice or a legal opinion and should not be considered as such. It is an outline of a select few rules and basic principles yacht brokers should be aware of, and you should consult a lawyer to confirm the specific rules in your jurisdiction. ***
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