Businesses which engage some tenant advocates for offices, but do not pay a fee, may be paying higher rents to occupy unsuitable buildings because of conflicts, according to the Real Estate Institute of Victoria.
The industry body has called for more transparency – joining others which have called for legislation which would force representatives to disclose at the outset what the fee will be, and whether this would be paid by the landlord.
“There is a growing trend to use the services of a tenant representative in today’s commercial leasing market,” Tenancy Matters tenant advocate director Chris Goodwin said.
“The majority of these advocates seek to be rewarded from the building owner, because the rewards are higher,” he added.
“The arrangement can only be construed to be a conflict of interest where tenant advocates purport to represent the tenant”
The conflict allows advocates to negotiate fees from landlords and not tell the prospective tenant.
It also means building owners which don’t offer a fee might not be considered at all by the advocate – which is again at a disadvantage for the client.
“Tenants should be mindful that not all buildings are tabled for their consideration because the tenant advocate is unable to secure a position with the building owner and in some cases buildings are adversely criticised due to the fact insufficient or no fee is available,” Mr Goodwin said.
Chairperson of the REIV commercial and industrial chapter, Matt Walsh agrees.
“One of the things that the law and the REIV requires is full disclosure of all commission arrangements,” the executive said.
“Receiving a commission other than from the person who has employed you is neither acting transparently nor is it considered to be in the best interests of the client”.
Jones Lang LaSalle regional director, corporate solutions, Michael Greene described the situation as highly questionable.
“We’re saying there needs to be transparency in the industry as a whole,” he added.
“Tenants need to know if they appoint an advocate, they will act in their best interests and will put up all the properties available to them regardless of whether they get a fee or not”.