If you know me, you know that I am always talking about conflicts of interest and how the commercial real estate (CRE) industry is unfairly slanted in favor of the landlord. One of the big reasons for that is that companies that lease space usually only sign a lease or lease renewal once every 5 years on average while the landlords are professional CRE owners and may sign hundreds or thousands of leases in a year.

Another example of the imbalance is allowing brokerage companies to represent both the landlord and tenant in transactions. This concept, often referred to as “dual agency” or “acting as an intermediary,” muddies the negotiation process and creates less than transparent negotiations for both sides. If a CRE brokerage company represents the tenant and the building owner, for which side is it really negotiating hard. Possibly neither.

At REATA, we champion the idea that CRE service providers should represent the tenant or the landlord, but never both. You just can’t serve two masters. Sure, it makes a lot more money for the CRE firm, but where does it leave the clients – especially the tenant.

In late 2016, the courts in California finally took note and attempted to create more transparency around the issue. In the Horiike v. Coldwell Banker Residential Brokerage Co lawsuit, the state looked into the unfair practices within the industry. And now, the California State Supreme Court has upheld a ruling that dual agents have an inherent conflict of interest. This ruling has spurred the state government to take a closer look at dual agency and modify real estate laws surrounding this issue.
This is obviously a step in the right direction to protect the rights of tenants and make it more clear who CRE firms really represent. It will take some time for the impact of California’s decision to roll out across the country, but it’s good to see the balance of power shifting.

Sadly, I had lunch with an agent from one of the largest full service CRE firms in the world recently. I asked him about the California ruling and how his firm was addressing it. He didn’t seem to know anything about it although he wouldn’t admit it. He said this issue was way overblown and it was never a real problem.
It will take a very long time to pull all the heads out of the sand.

Bob Gibbons is a Real Estate Advisor & Tenant Advocate with REATA Commercial Realty, Inc. which is a tenant advisory firm based in Plano, Texas. Bob serves companies in Plano, Frisco, McKinney, Allen, Richardson, Addison, Dallas and the surrounding areas and specializes in companies which lease or buy office and warehouse properties.