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He who is his own broker has a fool for a client

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"He who represents himself has a fool for a client." - Abraham Lincoln

To say the least, a lot has happened in the past 150 years since our nation’s 16th president presided over a federal budget of just more than $80 million. However, the principle behind the words he spoke then holds true today in the complex business of commercial real estate when tenants try to represent themselves in negotiating leases for office spaces. One could easily paraphrase the adage as follows to fit the real estate negotiations paradigm: “He who is his own broker has a fool for a client.”

Problem is, tenants are not in the commercial real estate business. They don’t have access to current conditions and trends in the commercial real estate market, the concessions available or other options that might be available to them.

Even most attorneys who are skilled and highly competent in negotiating complex transactions for their clients recognize the need to have their own broker representatives when it comes time to negotiate a lease. My partners and I have represented many of the largest law firms in San Diego as well as countless other legal practices over the years. As a result, they were able to focus on their core business – representing their clients – while taking advantage of the experience and expertise of their own real estate broker to achieve the best terms and conditions, given the condition of the office leasing market. Moreover, we guarantee our results.

There’s yet another problem with tenants being “represented” by the landlord’s broker that brings to mind another ages-old adage: “No man can serve two masters; for either he will hate the one and love the other.” Our firm represents only business owners, municipalities and nonprofit organizations with their corporate real estate needs -- not landlords.

The situation in which one broker can represent both tenant and landlord is known in commercial real estate as “dual agency.” For reasons that escape plain common sense, dual agency is perfectly legal in commercial real estate – unlike law and other professions where the concept of dual agency and other forms of conflict of interest are forbidden either by law or professional codes of ethics.

No matter how honest and hard-working a landlord’s broker may be, it’s impractical to think the tenant can be equally represented without his own broker. Traditional commercial real estate brokers have a fiduciary obligation to their landlord client. They agree in writing to use their best efforts to negotiate the most finally attractive terms for their client – the landlord. More specifically, their sole job is to fill vacant space and keep existing tenants in their clients’ buildings. Their goal also is to achieve the highest rents possible while giving away as little as possible in the way of concessions and benefits to tenants.

Sadly, there’s no sign that dual agency will be prohibited anytime soon, either by state regulations or professional codes of ethics. However, that doesn’t preclude tenants, looking to lease office space, from taking matters in their own hand and retaining a broker who specializes in representing tenants in order to have an equal say at the bargaining table. If anything, it encourages it.

-Submitted by Jason Hughes. Hughes is president of Hughes Marino, the largest San Diego commercial real estate company with brokers exclusively specializing in tenant representation for lease negotiations and building purchases. Contact: jason@hughesmarino.com or 619-238-2111.

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