On this planet of residential actual property brokerage, some discover it stunning that the identical brokerage agency may characterize—and negotiate on behalf of—each the client and the vendor, or the property proprietor and the tenant, in the identical transaction. However there are solely a small variety of giant brokerage firms. When an agent at one in every of them lists a property, that itemizing goes out to the complete brokerage neighborhood, together with the big brokerage agency whose agent signed up the itemizing. From time to time, an agent within the giant brokerage agency—typically the identical agent that listed the property—has a shopper that wishes to purchase or lease within the property. None of this comes as a shock to anybody acquainted with actual property brokerage.
How would one forestall this? Preclude a purchaser from listings maintained by the identical brokerage that represents the client? What if a type of listings greatest meets the client’s wishes and necessities? Ought to a distinct brokerage agency step in when the identical brokerage agency would in any other case characterize each side of the deal?
Legislators typically discover these “twin company” conditions stunning, so that they determine that any “twin company” have to be disclosed to the brokerage agency’s purchasers. That leads the legislators to give you disclosure legal guidelines. As so usually occurs, these legal guidelines find yourself creating extra issues than they remedy.
An ideal instance of this occurred just lately in Washington, DC, the place a industrial tenant engaged the JLL actual property agency to barter a lease. On behalf of the tenant, JLL finally negotiated a lease in a constructing the place JLL additionally represented the proprietor—heaven forfend, a twin company!
The DC twin company disclosure legislation doesn’t restrict itself to residential transactions, the place a poor, harmless, and naïve residence purchaser may be shocked and outraged to study that the identical brokerage agency represents each purchaser and vendor. As a substitute, the DC twin company disclosure legislation applies to all actual property brokerage, together with industrial transactions the place everybody within the enterprise is aware of the identical brokerage companies recurrently characterize each side of a deal.
The DC legislation goes into nice element about how an actual property dealer ought to disclose any twin company. If a dealer doesn’t comply, it forfeits its fee—an extreme and disproportionate penalty meted out by a authorities that, like these of New York Metropolis and State, apparently doesn’t miss a possibility to punish anybody in the actual property business.
Within the JLL engagement, JLL’s twin position was well-known throughout the transaction. JLL communicated to the proprietor on behalf of the tenant, and vice versa. In brief, JLL as a twin agent was all around the transaction, with whole visibility to all. JLL wasn’t hiding something.
When the time got here for the proprietor, S.C. Herman & Associates, to pay JLL its fee for the lease, nevertheless, the proprietor introduced that JLL had not correctly disclosed its twin company in compliance with the DC statute. The JLL paperwork contained some makes an attempt at disclosure, however they weren’t ok. The proprietor stated that due to JLL’s faulty disclosures, it wasn’t entitled to a penny of fee. Litigation adopted.
The court docket that originally heard the litigation determined that the proprietor was proper and didn’t must pay a penny. On the time of writing, that call is on enchantment, with a robust trace that the appellate court docket doesn’t just like the proprietor’s place very a lot.
Going ahead, no matter how this case seems, industrial brokers in DC will most likely study to be extra vigilant about complying with DC’s twin company legislation. That doesn’t truly pose a monumental problem. It’s only one extra piece of paper that brokers (who’re normally not legal professionals) now want to recollect to get signed with each new shopper engagement or each time the necessity in any other case arises. One may additionally fairly count on that the proprietor that refused to pay JLL will discover that its future brokerage relationships have turned a bit frosty.
It might most likely be unreasonable to hope that the DC authorities may amend its legislation to do away with the twin company disclosure requirement in industrial transactions. In that department of actual property, the requirement serves no goal besides to create potential windfalls for sellers or anybody else who can use the legislation to keep away from paying a fee that was in any other case totally earned.
