Assembly Bill 1059, introduced in February by Assemblywoman Lorena Gonzalez Fletcher, D-San Diego, was proposed to ban dual agency commercial property transactions in the state of California. The bill’s supporters claim that dual agency creates a conflict of interest and the only solution is a legislative ban in the commercial setting. The sponsor of AB 1059 is using the recent California Supreme Court decision in the Horiike v. Coldwell Banker Residential Brokerage case, which dealt with residential disclosure issues, as a cover to pursue an agenda that would codify its business model, limit competitors, upend commercial real estate transactions, and ultimately harm consumers.

Despite proponents’ claims, AB 1059 will hurt small and large tenants alike by driving down competition, raising costs and making transactions more difficult.  Under this bill, real estate transactions will be more complicated, costly, and adversarial than they currently are by banning the ability for one firm – mutually agreeable to both parties – from coordinating purchase and/or lease transactions.  Senate Bill 1171 is already in place to mandate disclosure of dual representation in commercial property transactions to limit conflicts of interest and increase transparency.

On April 25^th the author, Gonzalez-Fletcher, informed BOMA CAL that they will be pulling the bill from consideration this year. It appears the author was caught off guard by the level of opposition to the bill and has decided to focus on other measures at this time.

The commercial real estate community appreciates that the author of the bill heard their concerns and chose to reevaluate, but it is very likely that this measure or an amended version of it will be revisited next year. It is prudent to assume that the sponsors of AB 1059 will continue to press this issue and therefore the commercial real estate industry should continue to work to communicate the benefits of dual agency with policymakers, commercial real estate professionals, property owners, and the public at large, and why banning the practice would harm the entire commercial real estate industry.

Major Points

• Anti-consumer and anti-choice. Today’s marketplace empowers buyers, sellers, tenants, and landlords to choose a full-service commercial real estate firm that best meets their business needs. If the bill is approved, tenants/buyers will be forced to either work with a tenant rep broker from a firm other than the listing firm or represent themselves, which will result in higher transactions fees and could stifle small businesses’ ability to close transactions.

• Conflict of interest argument is false. In dual agency commercial real estate transactions the role of the broker is to provide information that creates an understanding of the market on both sides of a transaction in order for both parties involved to make informed business decisions. Many parties involved in commercial real estate transactions purposely choose to work with dual agency brokers, and mandating against this practice is imbalanced.

• Not a means of protection.  There are currently stringent disclosure requirements in place that ensure all parties to a transaction are fully informed, including an obligation to provide written notice of the commercial real estate agency’s relationships and whether they are acting as a buyer/tenant agent exclusively, a seller/landlord agent exclusively, or as a dual agent representing both sides of a transaction.

• Adversely affect CRE industry and economy. Approximately 90% of commercial leasing in California’s largest markets is conducted through full service firms generating billions of dollars annually and creating jobs and tax revenues that benefit local communities throughout the state. Mandating single agency would dismantle the commercial real estate sector, affecting companies large and small, and would position California as an even more difficult state in which to do business.

Sources:

AB 1626 (Irwin D) Real estate brokers: dual agency 

AB 1059 (Gonzalez Fletcher D) Dual agency: commercial real estate transactions 

CoStar, California to Consider New Legislation On Dual Agency