Commercial real estate consists of many types of real estate and a variety of agency types. But when representing a renter or buyer, that exclusive agency in which the client has secured himself and expects to receive absolute good faith, loyalty, fidelity and confidentiality is only as strong as his weakest link; and that link is a conflict of interest.

Conflicts arise when the same agent that represents the lessee breaches loyalty and fidelity, either by design (when he does it deliberately), or by default (by allowing or creating the circumstance). The subject of this article is the latest, most sinister and invisible form of conflict of interest found throughout the commercial real estate industry due to the “convenient proximity” of the conflict of interest to that of the tenant. However, also know that the former, intentional conflicts, also happen all the time; and both require the tenant or buyer to strap on strong screening devices, as well as strong legal protection.

Conflicts even occur when there is a buyer’s agency or exclusive agency agreement that lists in detail the requirements of good faith, loyalty, fidelity, and confidentiality, but the conflict can still arise at any time without the client knowing it is there. Some examples below show that conflict can be as invisible and deadly as carbon monoxide gas. It takes a trained tracker and monitoring system to identify it, but it sure is there.

Consider, for example, that the tenant is represented by an agent of Company XYZ who, among the variety of buildings the tenant must consider, Company XYZ has listings in several. There have been times when the tenant’s representative agent is simultaneously a listing agent for other buildings. Worse still, there have been leases where the tenant, represented by the tenant representative, actually leased a space in the building registered by the tenant representative! Do you smell rat? But conflicts of interest need not be so obvious, and most can be harmful and just as invisible.

Here are some more real life examples where conflicts can exist in some overriding hidden form: CBRichard Ellis, known as the world’s largest real estate services, also has CB Richard Ellis Realty Trust, a real estate investment trust (REIT) that seeks to invest in income-producing properties in major metropolitan areas (one owner). And in May 2008, CBRichard Ellis Realty Trust also formed a joint venture with Duke Realty to acquire from Duke Realty up to $800 million in newly developed bulk industrial custom build projects over three years. Yet at the same time, CBRE consistently represents tenants, and perhaps even in these buildings. I’m not suggesting that CBRE engages in conflicts of interest, but the extremely close association of opposing interests in a space, company, or office provides fertile ground for the possibility.

Another more accurate example is the actual company, self-described as the largest tenant representation organization (we’ll call it ABC Company); however, when you go down to the local operating unit, you discover that this company is actually part of (and owned by) another company that describes itself as a full-service real estate service provider in retail development, property disposition, lease administration, project management, audits, and asset/property management. They then describe their tenant representation as “Our corporate division is the (city) office of ABC Company, one of the nation’s leading corporate real estate firms dedicated exclusively to providing corporate real estate services, including tenant representation, project management, administrative services, and strategic planning.” Hey? Tenant representation INSIDE a property development, management and sales company?

Jones Lang LaSalle, a financial and professional services firm specializing in real estate services and investment management, recently acquired the Staubach Company, which only represents users of office, industrial and commercial space. On the Staubach website it even says: “There are no conflicts of interest.” So what about “no conflict of interest” now that Staubach is inside the JLL whale? What happens if or when Staubach represents a tenant in a JLL building? They will gnash their teeth and jump around proselytizing about never violating loyalty and fidelity like everyone, and always, does.

To be specific, the St. Louis Business Journal (March 13, 2009) announced an agreement with JLL. This is exactly what it says: “Lynn Schenck of Jones Lange LaSalle represented (Lessee), and David Steinbach, also of Jones Lang LaSalle, represented (Landlord).” Hello? Excuse me moi?

Even Mark Fewin, senior general manager of CB Richard Ellis Inc.’s Dallas office, got into this when he was quoted in the Dallas Business Journal (August 8, 2008 issue) about Staubach’s benefit within JLL, saying, “The (JLL/Staubach) merger provides final validation to the argument we’ve been making for many years: that a single company can serve the best interests of tenants and landlords.” INCORRECT! In my opinion, the merger provides the final vindication that the interests of tenants cannot be better served by a firm that represents both tenants and landlords.

But, purveyors of conflict of interest situations artfully sway and weave, denying any association with any conflict as if to say “Elephant! What elephant?” I have been involved with many and one in particular stands out. Caught red-handed that his tenant representation assignment included some of his own company listings, he stuttered like a public figure caught in the act of accepting settlement money, juxtaposing and diverting flight through life knowing the evidence was immutable.

Tenants who knowingly allow dual agency are ignoring the law in their favor, called Buyer’s Agency Laws. Each state has buyer agency laws that apply specifically to tenants. Not having an inviolable representation is having a fool for a patient.

While dual agency and “Chinese walls” are routinely touted as defenses and explanations, they cannot completely erase the stain and odor of conflict. The seed of doubt, once cast, cannot be completely removed.

The best course of action is to understand the insidious nature of overt or covert conflict and only work with a company “that can never have a conflict” (emphasis added). Look for a firm that specializes in representing tenants. Don’t be fooled by the “full service” offered by the big brokerage firms. You don’t need his property management skills, you need a person with a poker face. As a tenant, you have every right to make this claim… in practice and under the law.