AB1059 Failed: But Will Duel Agency Disappear in Commercial Real Estate?

An announcement was made today that a vote was taken in the California Assembly on AB1059.The vote was voted 5-1 in favor with 4 "not voting" Unfortunately, it takes 6 votes to pass a bill in committee.

The bill would have created a dynamic shift in the way commercial real estate brokerage is conducted in California and potentially in the rest of the country. But most of all, the bill would better protect, in particular, the commercial tenant/buyer.

About 3 years ago, the California State Senate passed SB1171 which required commercial agents to present to and have all parties sign a 2079 disclosure form which we referenced in earlier “Tenant Tactics.” The bill states that as soon as you enter into discussion regarding a real estate transaction, the agents must disclose in writing whether they represent the tenant, landlord or are acting as a duel agent. This conflict of interest and the validity of the law was confirmed in the “Horiike” case.

AB1059 takes the duel agency a step further. It would basically eliminate any form of duel agency. While a commercial real estate firm may represent both landlords and tenants, none of the agents of that firm may represent both parties to a transaction. Meaning, per “Horiike” even if that agent was not the listing agent on that property, if the Broker of Record for the agency holds the actual contracted listing on that property then all agents of the agency are sub-agents on that listing, thus creating a potential duel agency.

What complicates the issue even more is that under existing law, although the agent is required to disclose in writing whom he represents, that law is not being followed by the commercial brokerage community nor monitored by any agency. Critically, there are no penalties the Commissioner of the Bureau of Real Estate can hand out under present law if there is a case of non-compliance. In the alternative, the only remedy would be for the consumer to file an expensive law suit.

While work is in progress to fix that, one must wonder why AB1059 has not been passed. Evidently the bill was not restricted to commercial transactions and much of the negative feedback came from the residential sector.

Maybe the bill should be introduced and modified to address only commercial transactions where the abuse is greater (residential agents have been executing 2079’s for decades but rarely signed in commercial transactions as required), the issues, particularly in commercial leases are more complex, and the end user is not always as sophisticated in the ways of commercial real estate and those complexities.

What are your thoughts? Feel free to comment or private email me to jerryn@inhousecorp.com.

IN/House Corporate Real Estate has exclusively represented tenants for over 25 years serving not only to handle transactions but to serve as our clients’ in-house real estate department, managing all aspects of our clients’ real estate matters before, during and after any transaction while the client focuses on their core business thus saving time and money while providing real estate expertise not readily available within their own firm.