Leasing License Practice Exam

What happens to agency if the property is destroyed?

1. The agency remains active

2. The agency is automatically terminated

3. The agency becomes dual agency

4. Agency is transferred to the new owner

The correct answer is: The agency is automatically terminated

When a property is destroyed, the agency relationship that is connected to that property is automatically terminated. This is because the primary purpose of the agency agreement is to facilitate the leasing or sale of the specific property in question. If the property ceases to exist, the fundamental reason for the agency’s existence no longer applies, leading to the termination of the relationship. In the context of property management and leasing, the agency relies on the property's value and existence for performance. If the property is destroyed, both the agent and the principal are unable to fulfill the terms of their agreement regarding the property. Therefore, the agency cannot remain active, as there are no responsibilities to uphold or transactions to conduct related to the now non-existent property. The concepts of dual agency or transfer of agency to a new owner do not apply in this situation, as those scenarios assume the property is intact and a functioning element within the leasing or sales market. In summary, the destruction of the property leads to an automatic termination of the agency relationship associated with it.