Dual agency, a harmful conflict of interest
Tenant rep fiduciary requires the highest standard and level of care implied by federal law. If the same lawyer were to represent both sides in a case, conflict of interest is unavoidable.
The listing broker is obligated to the landlord…not the tenant
The listing broker’s primary obligation is to get the tenant to sign the lease quickly as possible because “time kills all deals”. This is an industry secret and any honest broker will tell you this. The landlord’s main focus is on maximizing the value of the building through rent, less expense, occupancy, and higher tenant obligations. A listing broker has a fiduciary responsibility to the landlord whose primary goal is increasing asset yield and value.
How is dual agency still legal in California?
Dual agency is a hot-button issue in commercial real estate. Office tenants are better served when they have their own representation. Several states have banned dual agency, however, it’s legal in California. The pitfall with dual agency is that the listing broker may be unethically influenced by the double commission. Since the dual agent receives a commission on both sides of the deal, he/she may become over-incentivized to close the deal at any cost. In this scenario, the interests of the tenant are not met. Furthermore, it is possible that a dual agent may be tempted to not disclose something relevant because he/she will lose out on the double commission.
The listing broker’s primary obligation is to negotiate the highest rent
Based on general business principles dual agency is not a sound practice because a conflict of interest is inherent. A few questions can be answered satisfactorily by both parties. This can help address conflict, however, it does not alleviate the problem. Success in a transaction is gauged by the tenant’s level of confidence with the dollars and terms that are met. The dual agent cannot focus on negotiating for the lowest price and for the highest price at the same time.
California lawmakers attempted to place limitations on dual agents which states that a dual agent “may not disclose what the other party is willing to settle for, without written consent by the seller” and vice versa. However, nothing except the price was addressed, and the ruling on confidential information remained ambiguous.
Using a tenant rep specialist is the way to go
In closing, equal allegiance is unlikely, and the leasing agent can be unfairly influenced by a lucrative long-standing relationship. It’s due to the many prior transactions. In residential sales, it’s easier to contain it, but with office buildings, the listing agent may have done the leasing for 10 to 30 other tenants. Again, sound business principles would dictate that an office tenant representation broker is the way to go.
If you find yourself in an office lease transaction in Southern California and you are wanting to be represented fairly, give one of our office tenant representation specialists a call today for a free consultation at 562-362-6500.