Submitted by: Don Kinney
Agent Conflict of Interest
How can a commercial agent represent both landlord and tenant?
It is quite common for the agent representing the landlord, the listing agent, to suggest that a tenant prospect use their full service firm because they know the property and the owner well. What is usually not mentioned is that the listing agent has a fiduciary responsibility to the landlord. That means that he must not disclose information detrimental to his principal, the landlord, and has a duty to look out for the best interests of that principal. It is very difficult, if not impossible, to represent a tenant with a similar promise.
For example, say there was a similar property nearby from a different landlord with more favorable terms. If the landlord s agent becomes a dual agent there is a responsibility to the tenant to act in the tenant s best interest. He is supposed to act on behalf of the landlord. How can the agent show the tenant prospect all the available properties on the market and not be in conflict with the listing agreement?
There are other areas of potential conflict. Confidential information disclosed to the agent must not be passed to another. Conversation between agents and tenants usually cover a wide range of topics, some of which could have a detrimental influence on the negotiating position of the tenant. With the possible discovery of sensitive facts about either the landlord or tenant, which party does the landlord s agent protect?
Tenant concessions that may be offered by some landlords could include items such as free rent, tenant improvements allowances, signage, and other inducements to get them as a tenant. The landlord s agent likely will not offer anywhere near what you should get. Without a tenant rep, the tenant may not be aware of concessions currently being offered locally and thereby miss valuable components that should be included.
Particularly challenging is the negotiation of the language in each lease paragraph. The tenant s attorney will represent the tenant on legal issues. Where does the tenant get meaningful support for business questions? Business advice may be required from a licensed commercial real estate professional.
Tenant representatives do not represent landlords. They perform site searches that include all available properties, filter out the best properties that meet the tenant requirements, negotiate letter of intent offers to the benefit of the tenant, and assist in the development of favorable business points of a tenant lease agreement. The tenant has a much better shot at reducing occupancy costs and getting a fair and balanced lease agreement by using a tenant rep rather than a landlord s agent.
Avoid conflicts of interest when leasing San Jose, Santa Clara, and Sunnyvale, California office, retail, and industrial property by using a tenant rep rather than a landlord s agent. You get a commercial real estate professional acting as a fiduciary in your best interests. Best of all, the tenant rep usually splits a built-in listing commission paid by the landlord, so there s no additional cost to you.
About the Author: Don Kinney of Silicon Valley Land Company specializes in office, retail, and industrial tenant representation for San Jose, Santa Clara, and Sunnyvale, California. Our goal is to help tenants get a better building and reduce occupancy costs, often by 20%, or more.