Most commercial real estate brokerage firms perform a variety of services, from landlord representation and property management to tenant representation and an attempt at project management.
Landlord services provided in conjunction with representing tenants inevitably sets the stage for a conflict of interest.
Commercial Real Estate Conflict of Interest
The core business for most “traditional” commercial real estate firms is to represent landlords, or property owners, in leasing out available space or selling the owner’s property. If you are seeking a new location and either representing yourself or have engaged a firm to help you in this endeavor, you must vet the firm properly and be aware that there is a potential for a conflict of interest.
Because most firms represent landlords, they have additional incentive and potentially double the commission to persuade you to lease one of their “listed” properties rather than a property that is a better fit for your company. Unfortunately, this is common practice as there are currently no laws against this in commercial real estate.
In the court of law, it is illegal to represent both the Plaintiff and the Defendant. So why is this acceptable in commercial real estate? It should not be, and there is action in place to prevent this in the future, however it is acceptable at the current time. But doesn’t mean you have to settle for a dual representation firm. There are several trustworthy tenant- only platforms in the market today.
You can’t get the best deal possible if your agent is representing both you and the landlord. If the agent has the listing to lease the space, their fiduciary duty is to the landlord and trying to maximize the landlord’s profit and their commission.
It goes without saying that you, the tenant, will not get the best deal or the most favorable lease terms for your new enterprise. With that in mind, it’s time to enlist the services of a dedicated tenant and buyer representation team.
Protect Yourself, Protect Your Investment
You need the industry expertise of a tenant and buyer representation team that will keep your interests at the forefront of all lease and purchase negotiations, and one who can negotiate the best terms on your behalf without the conflict of interest inherent in dual representation teams.
There are a lot of moving parts in opening a new location or even re-negotiating your current location. A firm with a strong background in commercial retail/restaurant design and commercial construction should be a major point to cross off the list when interviewing firms to assist you.