The Royal Institute of Chartered Surveyors (RICS) looks set to tighten up its guidelines setting out how dual agencies should deal with conflicts of interests. How might this help to ensure fairer outcomes for tenants?
While RICS undertakes its review, academics from The University of Leeds have recently provided the industry with further food for thought. The report, Commercial Property Agents and Conflicts of Interest (available to download here) focuses on the culture of “double dipping”, where the same firm represents both landlord and tenant in the same transaction.
1. An easier to follow framework
For a code of conduct to be effective, it must make sense not just to industry insiders but also to the people it seeks to protect. At present, assorted regulations and guidelines are set out across multiple key documents. If they are re-organised in a logical issue-by-issue way, clients have a better chance of making sense of them – and of knowing what to expect from their agent.
2. Making it easier to spot a conflict
If there’s a conflict of interest, an agency is required to either avoid it or manage it (and obtain proper consent from both clients if the agency is going to continue to act on the deal). But what exactly is a conflict of interest? Is it where an agency happens to have both landlords and tenants on its books? Does it only arise once the parties start bargaining with each other? What about conflicts between a client and the agency itself? If clients are to be safeguarded, the rules need to be clear on precisely when firms need to take protective action – and the starting point is the definition of “conflict of interests”. At present, there appear to be multiple definitions – each of which is inadequate. Re-drafting should bring in much needed clarity.
3. Not acting in a conflict of interest situation where it’s against your best interests
An agent continues to act for both landlord and tenant when it’s manifestly not in the best interests of each client to do so. In most professional contexts, this scenario would be deemed unacceptable by the relevant governing body. If the RICS guidelines are tightened, it will make it clearer that it’s unacceptable in commercial property transactions too.
4. It won’t be possible for an agency to ‘contract out’ of a tricky conflict issue
A newly-drafted regulation should make it clear that it’s not permissible for an agency to override your best interests or not to get your informed consent to continue to act by slipping in a term to that effect in its contract with you.
5. The importance of information barriers should be made clearer
The regulations should stress the fact that if an agent is going to act for you in a conflict situation, an effective information barrier is essential.
6. You should be able to understand how the information barrier works
Do you actually understand the measures that are in place to stop your sensitive information getting into the wrong hands? Tightened regulations should ensure you have a clearer picture.
7. If there is an information leak, what are the implications?
It’s provisionally agreed that the firm continues to act for you despite the existence of a conflict. That conflict is going to be managed through the use of information barriers. But what happens if that conflict suddenly becomes “unmanageable” (for whatever reason)? What will be the implications of an information leak for the deal – and for your business? New rules should ensure you have a clearer picture of the risks.
8. What’s the ‘plan of action’ if there’s a problem with managing the risk?
If a conflict becomes unmanageable, what is the firm going to do about it? Do these measures sound acceptable to you? The rules should be strengthened to require firms to provide you with the information necessary to assess this.
9. A clear roadmap for obtaining your “ informed consent”
By law, an agent must get your “informed consent” prior to acting for you in a conflict of interests scenario. But what does this mean? What material information should you be supplied with to make an informed decision? The redrafted regulations should provide for a clearer process for this.
10. There should be fewer variations in standards between firms
Where guidelines are vague, there’s scope for different firms interpreting them in slightly different ways. A tightened framework should ensure more effective, clearer ways of operating and fairer deals for clients across the board.
11. Courts will have a clearer industry benchmark against which to gauge alleged wrongdoing
When courts consider claims, the fundamental question is invariably, “Did this firm act in the manner of a reasonably competent professional?”. The relevant profession’s code of conduct becomes an essential reference point. The clearer the code, the easier it becomes for courts to answer this question.
12. It should be easier for tenants to spot problems
How can you tell if your property deal is in safe hands? If the guidelines give a clearer picture of the procedures firms should be following, it should become easier for their clients to spot when these rules are not being adhered to.
In total, the researchers made 22 recommendations for changing the RICS guidance. Download the report to read these recommendations in full. For impartial property advice from a firm that only acts for occupiers, search the market with DeVono Cresa.