Broker Dual-Rep Conflicts of Interest May See More Lawsuits

Over the last few months, conflict of interest for brokers representing two sides in a deal has seen some serious attention in courtrooms.

JLL had to forfeit more than $800,000 in commission and interest a landlord didn’t pay on a leasing arrangement. The company, which did not reply to multiple contacts from GlobeSt.com, had represented both the landlord and the tenant in a 2018 Washington, D.C. office space lease but allegedly hadn’t followed a local law that required clear disclosure in documents.

Then there’s CBRE, which during the summer got hit with a lawsuit claiming that it represented both sides in a lease and misled the owner on the tenant’s financial condition. Responding to a question from GlobeSt.com, CBRE sent a statement saying the “plaintiffs wrongly stated that CBRE was the broker for both” and so was not subject to the same D.C. conflict of interest statute. The company would not make any further statement on the larger issue of dual representation.

Although only starting to gain attention, the issue of double-representation, and the potential problems that arise, has been around for a long time.

Kristen Conti, broker-owner at Peacock Premier Properties with 30 years in the business, tells GlobeSt.com that she once worked for a prominent name brokerage and found “the larger the firm, the more complex this is because every agent works under the broker.”

What makes the situation stand out is the contrast between what brokers and CRE lawyers have to do.

“Every state is different for law firms,” says Marc Shuster, a partner at Berger Singerman. “Florida’s pretty clear that you can get an advanced waiver from a client for representing another side in another matter. I’m often asked to represent both the money and the sponsor in a real estate deal.” If there is a conflict, he’s required to withdraw.

But brokers are generally not under the same requirements as lawyers. “They do not have the same standards and it’s why you can’t share confidential information with your broker because they could be representing the other side,” Shuster says. He adds that he’s reviewed documents that transaction brokers have sent his clients. “I can’t tell if they’re the buyer’s broker, just the seller’s, or both. And I think that opacity is intentional.”

“It started to come to light in 2016 or 17,” says Grant Pruitt, president and co-founder of Texas-based tenant representation firm Whitebox. “If you look at the revenue streams of the publicly traded real estate firms, half of their business comes from project management and property management and facilities management. A lot of that has to do with Wall Street that is looking for quarterly incremental revenue growth.” As a result, he thinks tenant representation can get short shrift.

“To be candid, most of the big real estate companies don’t drive the majority of their business off brokerage,” Pruitt adds.

“I do believe this will be more and more of an issue going forward because of this seller’s market we are just transitioning out of that has led buyers to believe they are best served by going ‘direct’ to the listing agent,” says Conti. “Many feel they will get a better deal by doing this, which is not necessarily the truth at all.”