Avoiding Conflicts of Interest in Lease Transactions – Part III

In the last of this three part series, I will be offering some tips on how to tenants can address the issue of conflict of interest. 

#1 AVOID

Conflict of interest can be best managed by avoiding it all together.  How?  One simple solution would be to engage the services of a boutique commercial real estate advisor rather than a full-service real estate broker.   Simply put, a boutique commercial real estate firm will focus on a specific segment of the market (i.e. representing only tenants) a while a full-service real estate broker will target a much broader client base including both landlords and tenants.   For example, White Space Advisors, Inc. was established  as solely a tenant representation specialist to specifically to avoid such conflict.  Other boutique firms have the same objective:  to represent clients without conflicts of interest—the only way true unbiased representation can occur.

#2 ASK

When you are at the point in your search for space that your broker is presenting the short list of properties that meet all your requirements, ask the question:  “Do you, or does your broker, have a relationship of any kind with any of the these landlords?”   It is possible he may not even know, as many full-service brokerage firms are large entities and the individual agent may not necessarily have knowledge of all his broker’s landlord clients.  Ask that he/she make the necessary inquiries that would reveal any such relationship(s).  Communicate to him/her  that it is of utmost importance that any relationship be disclosed as early on in negotiations as possible.

#3 ASSESS

If it turns out that the space that meets all of your the requirements is in fact owned by a landlord who has a contractual relationship with either your agent or broker, then it will be up to you to assess the impact of the conflict.   Rent is typically the 2nd highest expense on a company’s P&L and you want to make sure you are getting the most favorable terms possible  on your lease.  If you feel a conflict of interest is tainting negotiations, then it would be a good idea to consult with an independent third party real estate professional to provide an evaluation of the major deal points.  Many brokerage firms will provide this service as a professional courtesy to you.  If not, you can engage an independent advisors on an hourly “fee-only” basis.  The liability you stand to avoid will likely more than cover your cost for this service.

Though conflict of interest in the commercial real estate industry is rampant, tenants can minimize their exposure to the problems we have discussed by taking a proactive stance and incorporating the tips I have discussed.

*On a side-note, to demonstrate how significant the issue of conflict of interest is, one only need look as far as insurance carriers who provide errors and omissions (E&O) insurance.  I recently renewed my policy and one of the first questions on the renewal applications was:  “Does the Applicant engage in dual agency transactions?”

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