Beginning of the end for ‘Dual Agency’ in Real Estate Transactions?
In March, the Royal Institution of Chartered Surveyors (RICS), a professional organization for the commercial property industry, published a statement outlining more stringent conflict-of-interest requirements from its members worldwide in advance of a change in U.K. law that will specifically ban the practice of dual agency from January 1, 2018. Péter Takács, partner at the tenants-only advisory firm, VLK Cresa, discusses the statement and its implications forHungary.
Péter Takács, Partner, VLK Cresa
Can you briefly explain the problems caused by so-called “dual agency”?
The fundamental problem with a dual agent comes when a brokerage that is assigned to leasing a building by a landlord, solicits advisory business on the tenant side, promising to represent them. Quite often brokers say: it is good for you, as the prospective tenant, because you don’t have to pay a fee for this service. As we all know there is no such thing as a free lunch, and the landlord agent always navigates tenants towards options where they and their landlord get the best deal. There is no win-win here. That is why we think dual agency should be banned from the real estate practice. We believe that there is no space for acting for both sides. You either represent the landlord or the tenant, and do your best to get the best deal for your respective client. Luckily, companies are realizing that there is too much at stake for them not to hire their own advisor.
Why is the RICS Professional Statement on Conflicts of Interest so important?
Because it is high time for a change in how tenants are treated. This statement finally makes a long-awaited declaration that the current situation is unacceptable and it must be changed, mainly for the benefit of businesses as tenants. In the long-term it will make transactions – and the whole market – more transparent. Most property agencies deal with 80-90% landlord representation, with just one- or two-person teams – within the same company – acting on behalf of tenants. The potential risk of a conflict of interest is always present. Most agencies say they have a “Chinese Wall” between the two teams and act as ethically as possible, but tenants never really know if the broker is acting in their best interests.
The statement becomes compulsory for RICS members from January next year, but will that be enough to make a difference if other professional bodies do not follow suit?
RICS is the only professional body active in Hungary with several property agency members, so we hope they will align with the new guidelines and be accountable for clear conduct. Even if a client deals with an advisor who is not an RICS member, they should still demand that the agent act with full integrity and transparency. Education is key. Clients should ask: “Who is representing me? Is your company working for me or for the landlord?” We, as part of our practice, present a mandate letter with each assignment that makes it clear who we work for and who pays our fee. Tenants should start requesting this ASAP, if they haven’t done so yet.
The new rules will ban “dual agency” in the United Kingdom without full disclosure. Is the same thing likely anytime soon in Hungary?
It took the United Kingdom a long time, and we believe it is just a matter of time for Hungary, too. We represent Cresa in the region and we don’t see it happening overnight, but we can imagine Poland, Hungary and Czech Republic introducing regulation soon, maybe three-five years. Most tenants have to make a property decision every three-five years, but the deal still has to be the best they can get. Most companies don’t have property experts permanently on staff but they should still know how the market works, who represents them and how to get the best deal. What we eventually also hope to achieve is that a proper license will be needed to act as a commercial property broker, and a requirement to go through continuous education and periodical exams to keep that license.
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