Understanding the Impact of Conflicted Advice on Commercial Tenants
LPC (Australia & New Zealand)
LPC provides conflict free advice and representation to commercial occupiers operating in Australia and New Zealand.
Understanding the Impact of Conflicted Advice on Commercial Tenants
Australian commercial tenants do well to ensure their tenant representative is not conflicted when seeking new lease agreements. Regrettably, it is common practice for tenant representative firms to advise both tenants and landlords, with most of their income derived from services delivered to landlords.
A U.S. judge called dual agencies, “inherently suspect due to the broker’s inescapable conflict of interest in representing opposing parties to a transaction.”* The landmark case in the United States, demonstrated the potential risks of using an advisor representing both the tenant and the landlord in a commercial lease agreement.
Dual or double agencies occur when a real estate agent represents the landlord and tenant in the same transaction. In such cases, the agent is required to maintain an impartial position, but this is not easy when representing both sides of a lease agreement.
The risk of dual agencies is that the agent may not be able to fully represent the best interests of both parties. For instance, the agent may be unable to negotiate the most tenant-friendly terms if it means a lower rent for the landlord. Additionally, there may be a conflict of interest if the landlord offers the agent a higher commission to secure a tenant on the lease.
In the US, a landmark case highlighting the potential risks of dual agencies involved the law firm Skadden, Arps, Slate, Meagher & Flom*, which leased office space in a high-rise building in Chicago. The law firm sued its real estate agent after discovering that the agent represented the building's owner. The agent had failed to disclose this conflict of interest and had negotiated lease terms that were not favourable to the law firm.
While the Australian property market has different laws and regulations, the risks of dual agencies remain the same. For commercial tenants seeking new lease agreements, it is essential to work with agents who are fully transparent about their affiliations and who solely dedicate themselves to representing the tenant's best interests.
The Real Estate Institute of Australia (REIA) recommends that commercial tenants seek out agents who are members of their state or territory's real estate institute. These agents must abide by a code of ethics, which includes acting in the best interests of their clients.
Additionally, the REIA recommends that commercial tenants seek out agents who are experienced in commercial leasing and have a good understanding of the local property market to ensure that the tenant's needs are fully understood, and the lease agreement is negotiated to the tenant's best advantage.
"The risks of dual agencies and conflicted brokers in the Australian commercial property market are similar to those in the United States. Commercial tenants seeking new lease agreements do well to work with parties who are fully transparent about their affiliations. LPC, with no ties to landlords or agents or developers, are conflict-free tenant representatives that ensure your interests as a tenant are protected during lease negotiations and transactions", says LPC Director Julian Kurath.
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* Skadden, Arps, Slate, Meagher & Flom LLP v. Pacific Century Place (USA)
LPC Offices across ANZ:
Director and equity shareholder at LPC Australia
1 年Most organisations that represent both landlords and tenants derive the bulk of their revenue from landlords. Logic would therefore suggest how can they truly independently represent the best interest of the tenant/occupier. In my opinion they can’t.