Will Duel Agency Be A Thing Of The Past?

The Orange County Bar recently held their annual Real Estate Legislation Update presented by Attorney Peter Wittlin.

Mr. Wittlin discussed the Appellate Court upholding “Horika v Caldwell Banker Residential (11-21-16, Cal Supreme Ct) 1 Cal 5th 1024; CR3d 1; 2016 Cal.Lexis 9428 http://law.justia.com/cases/california/supreme-court/2016/s218734.html which dealt with the issue of duel agency.

The “short version” of the decision from a non-lawyer’s understanding was that if an agent works under a third person’s broker’s license, then any agent attached to that broker becomes a subagent for all of that broker’s listings. Should another agent in the firm which we can refer to as the “non-listing” agent provides a potential buyer (tenant) for that specific property then that agent is in reality a duel agent and must disclose that fact.

This case supported SB 1171 that required in ANY commercial transactions the agents for each party are required to have their principals provide a state mandated disclosure form (2079) to be counter signed by both principals. The purpose is to protect the consumer so he/she is aware of who their agent is representing and hopefully avoid duel agency.

Simple enough? Not really.

To go a step further, AB1059 was recently introduced by Representative Gonzalez Fletcher (NOTE: it was recently pulled back for further review by the author).

If eventually passed, the bill would make it a violation for ANY commercial agent to be a duel agent. WOW! I can hear the moans and groans as well as the cheers and jubilation already.

This could be one of the most significant consumer protection bills passed. It will not only bring a greater awareness to the potential downside of consumers working with “Dual Agents” in commercial real estate but will surely create havoc in the industry itself that is often static and resists change.

It is a rather short bill (https://leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=201720180AB1059) but it certainly packs a punch.

From a consumer perspective, tenants will no longer unknowingly be put into a position where there is an actual or even perceived conflict of interest.

The down side for many on the brokerage side is it would put an end to brokerage firms who attempt to be all things to all parties. Most national firms were established as a “Landlord Representative” brokerage houses. Some firms have created several divisions including listing agents, tenant brokers, property managers and/or investment specialists.

This bill would certainly make it cut and dry. You either represent the tenant of the landlord.

Another issue to be dealt with will surely be what will in-house agents do when they get a call from a potential tenant? Now they just declare by way of the 2079 form that they are acting as a duel agent and the tenant can choose to move forward directly or go out and engage a tenant broker. One major national landlord always took the position that the consumer was best protected by having a tenant broker representing the tenant. They further stated that from their perspective the deal went smoother because agents on both sides were professionals. If you walked into their office, as the urban legend goes, and you didn’t have a broker, they would present you with a list of tenant agents to interview.

The bill is presently on hold for further review. If passed, it could have the most dynamic, and for consumers, a positive impact on the commercial real estate business. It will be interesting to follow.