By Ben van der Meer
Commercial real estate brokers will soon be required to disclose potential conflicts of interest to parties in any deal they handle.
A bill signed last week by Gov. Jerry Brown, Senate Bill 1171, takes effect Jan. 1. It requires brokers to disclose prior business relationships with landlords or tenants in a deal to ensure transparency, according to a Southern California broker who pushed for the bill. Similar requirements already apply to residential real estate agents.
“It wasn’t just one situation, but years and years of seeing abuse,” said Jason Hughes, president of commercial real estate firm Hughes Marino, which works exclusively on behalf of tenants. “I’m not the type to call a business and tell them their broker is making a big mistake, but when I looked into it, I saw it was just wrong.”
Hughes asked state Sen. Ben Hueso, a San Diego Democrat, to sponsor the bill two years ago. He said many large commercial real estate firms were established to work on behalf of landlords and still do. While most brokers are honest, he said, others aren’t upfront about doing more for institutional landlord clients than tenants they’re also representing.
The law also applies to commercial real estate transactions in which a broker represents both sides of the deal. And the disclosure requirement will apply to the managing broker of a firm, not specific agents handling the deal, Hughes said.
“If a tenant still wants to use someone with a conflicted position, good for them,” he said. “My experience was that so many companies just didn’t know better.”
The California Association of Realtors opposed the bill, calling it an unnecessary complication. Commercial transactions were excluded from disclosure requirements in earlier legislation “because the relatively more sophisticated parties are adequately protected by other prohibitions on conflicts of interest and disclosures of relationships,” the association said in its legislative program for the year.
This article originally appeared on Sacramento Business Journal.
Jason Hughes is chairman, CEO, and owner of Hughes Marino, an award-winning commercial real estate company with offices across the nation. A pioneer in the field of tenant representation, Jason has exclusively represented tenants and buyers for more than 25 years. He writes about topics in commercial real estate from a tenant’s perspective on his blog, Downtown Dirt. Contact Jason at 1-844-662-6635 or email@example.com to learn more.