Imagine being sued for a business issue, who are you going to call to settle the claim, the plaintiff’s attorney? Probably not, you are going to seek your own representation to understand the claim and to settle the matter to your greatest benefit. Yet every day well-meaning tenants call their landlords broker or the person on the building sign to negotiate their new lease with a minimum of knowledge of the current market or alternative options.
California law still allows Dual Agency, but the days may be numbered.
California law unfortunately allows both residential and commercial real estate brokers to represent both seller and buyer or Lessor and Lessee and to be a dual agent. While it is now true that the California commercial brokers are required to disclose which party, they represent or if they are a Dual Agent and representing both (SB 1171, effective Jan 1, 2015), dual agency is still common.
In November 2016 the California Supreme Court has challenged the ethics of Dual Agency with their ruling on the Horiike vs. Coldwell Banker case. Yet the dual agency continues as practically all the large landlord brokers in Los Angeles also represent tenants. While it is true that the agent has a fiduciary responsibility to the tenant, this case illustrates the inherent conflict of interest the brokerage house had by being on both sides of the deal.
There are several reputable real estate brokerage firms who solely represent tenants, use one.
Five reasons to use a Tenant Representative Broker
- Tenant Representative Broker is your Broker: Fiduciary responsibility is to you, the Tenant without the inherent conflict of interest with the Landlord or their brokerage firm.
- Commercial Real Estate Market lacks transparency: Commercial Real Estate (CRE) markets vary according to the economy and supply and demand. When negotiating one of your largest expense items bring expertise to the table for your benefit. Remember your landlord does this full time.
- A Tenant Representative Broker will protect your investment: The true cost of your CRE Rent is made up of several components, of course there is the rental rate per square foot and yet the methodology for determining Rentable Square Foot (RSF) is not self-evident. Passed through Common Area Operating Expenses (CAM) and even parking and HVAC usage have little transparency and are controlled by your Landlord. The time to get control of these expenses and secure the best deal possible is in the upfront Lease negotiations as this is when you have the greatest negotiating leverage. To make sure you are not overpaying use a Tenant Representative broker who is familiar with these cost areas.
- It is not just the Lease: The leasing process is time consuming and complex. There is more to the process than selecting a location and doing the financial analysis and negotiating the lease. What are the market trends in the location and will it be the right location for you in the future? Is the amount of space you need today going to work as your business expands or contracts? Should you be looking at “hoteling” the concept of nonpermanent office space used by more than one employee. While each one of these topics needs be covered in greater depth than this article affords, a good tenant broker will be familiar with how to handle these issues upfront and potentially accommodating flexibility within your lease to meet your ongoing expectations. Once again, for this and many other reasons use a Tenant Representative Broker.
- It’s not just the Broker it’s the Team: A good Tenant Representative Broker will have access to a network of trusted professional advisors such as Designers, Architects, Real Estate Attorneys and Contractors in order to facilitate a timely transaction and minimize your time involvement. Using a professional to manage the team of consultants and vendors is important, just as it is important to have a good attorney when going to court, it’s the details of execution and the experience of the team that are going to determine your best outcome.
Tenant Brokers have only client they need to satisfy.
To secure your businesses financial future and secure a lease that will be most favorable to you, take control of the situation and engage a broker who is devoted only to tenants. Tenant Representative brokers have only one client they need to satisfy, you. Although they are not the norm, there are several well established firms in this metro area that have purposely chosen to be solely Tenant Brokers and are free of any conflicts of interest.
Winton Berci is Sr. Vice President at the Los Angeles based firm Mazirow Commercial, Inc. solely a Tenant Representative Broker.