Imagine that you were just served with a law suit. The first thing you would likely do would be to choose a competent lawyer to represent you. Likely, you would look to hire counsel that understood your case and had successfully tried many similar cases.
But wait: you realize you have at least three choices of representation, all of whom have had a lot of success with your type of case. You can hire an attorney who almost exclusively represents plaintiffs but sometimes defendants. Or you can choose one that only represents defendants and never plaintiffs. Or maybe better yet, you can choose one who represents both sides at the same time.
If given a choice, which one would you choose?
Surprisingly, a similar quandary often faces commercial real estate tenants. And, even given a choice, many tenants do not know they have options in the kind of broker they hire. Something that may impact your decision might be that until recently commercial brokers did not have to disclose in writing whom they were representing: one party, the other or both. Although most leases include a notation regarding the broker and who represents each party or if the agent is a dual agent, that clause is typically there to protect the landlord from having multiple agents claiming a fee on that transaction.
However, in 2015 the California Legislature passed SB1170, a law that requires all commercial brokers to state in writing which party they represented or if they were acting as a duel agent on behalf of both parties. That law was challenged in March 2017, and upheld in the Horrike case.
How does this impact you as a consumer?
Commercial agents are now required to disclose, in writing by way of a 2079 Disclosure Form, (henceforth “2079”) exactly what their relationships are with their principals. The wording of the form is mandated by State law and if altered the form may be void. On one hand the wording of 2079 is clear as far as the procedures to follow as well as who needs to sign the form. who the parties are to the form. However, it is unclear as to when the parties must sign the forms.
The 2079 form clearly states it should be presented to the Principals as soon as you enter into a discussion.. And then the form states it must be presented prior to presentation of an offer. To make things even more confusing the form reads that it should be presented as soon as practical. And finally it declares that the agency shall be confirmed in the contract.
As a consumer imagine you have been working with a commercial agent for a while. You finally locate the perfect property but you notice the agent’s firm’s has a marketing sign out in front of the building. The agent insists he is not the listing agent
but rather someone else in his firm has the listing. Therefore, there would be no conflict. He promises not to divulge any parts of your conversations with the listing agent. This is exactly what the Horrike case clarified. Yes, that agent is a dual agent because his firm’s Broker holds the listing making all agents under him sub agents whether they personally procured the listing or another agent in the firm did.
When you engage an attorney or an accountant you almost certainly sign a full disclosure form before you begin working with them. Now with the requirement that all parties to a commercial leasing or sales transaction sign a 2079 disclosure form, commercial real estate is in step with other professional advisors.
A simple rule in real estate whether residential or commercial has been to be fair and honest about disclosures and representations. If you are a agent or a broker, be sure to disclose your relationship with your client immediately through a written and signed 2079. If you are a lessee or buyer and you aren’t asked to sign a 2079 form immediately upon engaging an agent, think twice before proceeding.