Commercial Tenants: What to Know About Conflicted Brokers

In a landmark case in the commercial real estate industry,?a judge called dual agencies, “inherently suspect due to the broker’s inescapable conflict of interest in representing opposing parties to a transaction.”

While one representative handling the interests of two parties would raise a red flag to most, curiously,?the practice is commonplace in commercial real estate.?The case now represents a massive shift, highlighting the fact that huge firms that handle property management and leasing usually sacrifice the tenant the best deal.??

Dual brokers and conflicts of interest are commonly observed in CRE. Unfortunately, they usually come at the tenant's expense. However, the new case decision?may?change everything.?So, if you’re a corporate tenant, landlord, or anything in between, you’ll want to read on. Common practices and ethics when it comes to commercial real estate may be experiencing a tectonic shift.?

Conflicted Brokers in Disguise?

Conflicted brokers in commercial real estate usually don’t go by that name. Obviously, no one would plainly identify themselves with a scarlet letter.?You’ll probably see them go by terms like “corporate service brokers,” “designated agencies,” or “dual agents.”?However, they all mean the same thing: a?euphemistic name for a brokerage firm, typically a big one, that represents the landlords (and like to say they’re Tenant Reps too.) However, there is an apparent conflict of interest.

Albeit quite common, dual agents bring on a serious ethical dilemma?for both parties involved. On the one hand, they are expected to serve two clients with a fiduciary duty – the landlord and tenant – while on the other hand,?how could you??

Would you choose to work with the lawyer representing the person suing you?

The issue becomes even more complex when considering that most major commercial real estate brokerages have landlords as their biggest clients; thus, giving them more influence over negotiations at the expense of tenants.?This can result in tenants not getting the best deals, as brokers may be more loyal to their biggest clients over individual tenants.?

Cut and dry: Tenants are usually at the disadvantage in this process.?

Landlords also benefit from dual agency since they don’t necessarily have to worry about competition. Remember,?one of the most efficient ways to get what you want in negotiation is to leverage the value of your tenancy against multiple landlord offers.?Corporate service brokers may skip this critical step.?So, you may see properties that your rep's company doesn't have an exclusive agreement with, but in all probability not half as many as what a True Tenant Rep would show you.?

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