Talk About a Broker Creating a Conflict of Interest!

In a recent commercial real estate transaction, two brokers became embroiled in claims of unprofessionalism, unethical behavior, and conflicts-of-interest. What’s your opinion?

A local broker represented a national company in offering that company’s single tenant building for a short term sublease. The sublandlord’s broker placed the space on the market, publicized the offering, and arranged appointments for prospective subtenants and brokers to visit the building.

The sublandlord’s broker hadn’t read the lease and was unaware of its details, despite the building having been on the market for over a year.  He hadn’t contacted the building owner to discuss a potential sublease. Therefore, he had no insight into the owner’s objectives and any associated obstacles the sublandlord might encounter, and was unable to answer basic questions about his offering.

Another broker, representing a tenant, contacted the sublandlord’s broker about the building. The tenant was interested in leasing a large portion of the building, but only for a longer term than the sublandlord could offer.  The sublandlord’s broker confirmed that he had no ability to offer a longer term. He claimed not to know who the owner was, stated that he did not represent the owner, and disclosed that he had never spoken with the owner.

Given the above, the tenant instructed its broker to contact the owner directly to assess the possibility of a long term direct lease between owner and tenant. Under that scenario, the owner would have to terminate a portion of the sublandlord’s lease and enter into a new lease with the tenant.

The owner confirmed that it negotiated transactions without engaging brokers to represent it and confirmed that it was not represented by a broker on the building in question. The owner advised the tenant’s broker to deal with the sublandlord’s broker if the tenant was interested in a sublease and to deal with the owner if the tenant wanted a direct lease for a longer term than what the sublandlord offered.

The sublandlord’s broker became enraged that the tenant’s broker contacted the owner directly, and made claims about the tenant’s broker’s actions being unprofessional and unethical. Then, the sublandlord’s broker demanded that the tenant’s broker deal only with the sublandlord’s broker on all transactions, including: A) a sublease; B) a combination sublease and follow-up direct lease, or; C) a direct lease with the owner.

Remember that the sublandlord’s broker did not represent the owner, but only represented the sublandlord. Yet, the sublandlord’s broker, who had a fiduciary responsibility to protect the sublandlord’s interests and accused the tenant’s broker of unethical behavior, untruthfully claimed to have authority to represent both the sublandlord and the owner.  If this were true, the sublandlord’s broker would have been involved in an obvious and blatant conflict of interest. Moreover, the suggestion by the sublandlord’s broker that the tenant’s broker should only deal through the sublandlord’s broker for all transactions at the building was merely a move designed to restrain the tenant’s ability to deal directly with the owner and achieve the best deal. Sound a bit like a restraint of trade?

My observations:

• The sublandlord’s broker created a conflict-of-interest by insisting that the tenant’s broker not deal with the owner for a direct lease, when the sublandlord’s broker only had authority to represent the sublandlord

• The sublandlord’s broker misrepresented his authority to represent both sublandlord and owner

• The sublandlord’s broker did less than a professional job of representing the sublandlord by not having read the lease; by not being aware of the terms of that lease before marketing the sublandlord’s property; by engaging in presentations and deal discussions with insufficient knowledge; and by not being aware of the owner’s objectives and any associated obstacles, or any opportunities that could be achieved on behalf of the sublandlord

• The sublandlord’s broker was only authorized to negotiate a sublease or assignment, a transaction in which the tenant was not interested. Since the tenant sought a transaction that could only be entered into by the owner, the tenant’s broker acted rightfully in the best interests of its tenant by contacting the owner directly. The claims by the sublandlord’s broker that the tenant’s broker had acted unprofessionally or unethically were false and without basis.

• The tenant’s broker could have extended a courtesy to the sublandlord’s broker by advising that the tenant had elected not to pursue a sublease and had instructed him to contact the owner directly. However, the tenant’s broker was under no obligation to do so, and by this action the tenant’s broker was not in violation of any standard of ethics or professionalism

I found this circumstance to be a fascinating twist on the commercial real estate broker industry. What do you think?

Copyright Real Estate Strategies Corporation 2009.  All Rights Reserved.

Advertisements

0 Responses to “Talk About a Broker Creating a Conflict of Interest!”



  1. Leave a Comment

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s




Enter your email address to subscribe to this blog and receive notifications of new posts by email.

Join 40 other followers

Follow Me on Twitter

Error: Twitter did not respond. Please wait a few minutes and refresh this page.



THIS WORK IS DESIGNED TO PROVIDE PRACTICAL AND USEFUL INFORMATION ON THE SUBJECT MATTER COVERED AND REPRESENTS THE OPINION OF THE AUTHOR. HOWEVER, IT IS PROVIDED WITH THE UNDERSTANDING THAT THE AUTHOR IS NOT ENGAGED IN RENDERING LEGAL, FINANCIAL, ACCOUNTING, OR OTHER PROFESSIONAL ADVICE TO THE READER. IF LEGAL, FINANCIAL, ACCOUNTING, OR OTHER PROFESSIONAL ADVICE IS REQUIRED, THE SERVICES OF A COMPETENT PROFESSIONAL SHOULD BE SOUGHT. THE AUTHOR SPECIFICALLY AND EXPRESSLY DISCLAIMS ANY LIABILITY THAT MAY BE INCURRED AS A RESULT OF THE USE OR APPLICATION OF THE INFORMATION THAT IS CONTAINED IN THIS WORK.

%d bloggers like this: