Sleeping with the Enemy Broker

By Andrew Zezas

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 For those companies who prefer not to formally engage real estate service providers because they choose not to sign representation agreements, answer me this:

"Do you enjoy sleeping with the enemy?"

That's right! The commercial real estate broker with whom you are working, the one who presents properties to you, the one to whom you have disclosed important information about your company, the one who says he'll keep your information confidential, the guy who said he'd get you the best deal...is the enemy!  He has a legal, binding, fiduciary obligation to disclose everything about you, your company, and its real estate needs to property owners, including your confidential information. He is compelled to negotiate against you on behalf of property owners, to get you to pay as high a price as possible, and to get you to agree to terms that would be more favorable to property owners.

That's right! The law of agency requires that, absent a written agreement to the contrary, a real estate broker is the agent of, and must protect the interests of, the entity from whom he or she receives compensation. Since, in most commercial real estate transactions, broker commissions are paid by landlords, without a written agreement between you and the broker stating that the broker represents you even though he'll be paid by the landlord, you're out of luck!

Surprised? You shouldn't be.  Don't take my word for this.  Ask any attorney how this really works.

But, deals are done this way all the time....right? So, why change things now?  Formally engaging a real estate professional to represent a company in acquiring real estate is not a new concept.  In fact, most commercial real estate transactions nowadays include both a landlord representative and a separate tenant representative, where the tenant representative has been formally engaged by the tenant through a written agreement. 

Don't landlords sign representation agreements with real estate brokers?  Doesn't your company sign other agreements and contracts, such as leases, purchase agreements, service plans, employment agreements, vendor contracts, and others? 

So, why not hire a real professional and protect your company's interests?  Perhaps you don't trust your broker or would not want to be bound to him.  That's an easy one!  Find the right broker...and, hire him by a written agreement that protects your company's interests. 

Then, you and your company will be protected, and you will be assured that you won't be sleeping with the enemy!

Copyright Real Estate Strategies Corporation 2011.  All Rights Reserved.

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