The Royal Institute of Chartered Surveyors has introduced new mandatory conflicts of interest requirements for agents involved in UK commercial property investments which will take effect from 1 January 2018. Amongst other things, the new rules will bring to an end the practice of “double-dipping” and have been introduced to address these and other risks identified during the recent Global Conflicts of Interest Consultation.
The requirements address the following areas:
· Dual agency, that is where there is an agency relationship with both seller and buyer at the same time, must not be undertaken under any circumstances. The ban may also extend to situations where the buyer (or seller) is considered to be a related company of an agent. This practice, colloquially known as “double dipping” has been frowned upon by many, both inside and outside the industry, for some time but nonetheless is still common across the UK although many of the worst excesses seen during the property boom appear now to have been curtailed.
· Multiple introductions, that is where an agent has competing contractual relationships with several buyers at the same time, continue to be permitted but no individual should act for clients competing to purchase the same commercial investment property. In the case of a firm of agents, multiple introductions are permitted provided that terms of engagement are agreed in writing and the terms make it clear whether the agent is working on an exclusive or non-exclusive basis (when undertaking multiple agency relationships). If the appointment is on a non-exclusive basis the agent must obtain the client’s “informed consent” to the conflict of interest and an effective “information barrier” must be established within the firm to ensure that no confidential information can pass between the relevant individuals within the firm.
· Incremental advice, that is where an agent is asked by another party to provide advice, such as valuation or planning advice, related to a sale or purchase that is incremental to an existing instruction. For example where the agent is acting for the seller on a sale and is approached separately by the buyer or its lender to provide a valuation. Such scenarios are common across the UK. The new rules permit the giving of incremental advice but only in the following circumstances:
1. An information barrier must be established between the relevant personnel in the firm and confidentiality must be maintained throughout;
2. Where an agent has an exclusive instruction to purchase, informed consent from the client must be obtained before providing incremental advice to another prospective buyer; and
3. Where the agent has a sale instruction, the client must be notified before incremental advice is given to a prospective buyer (but consent is not required).
Incremental advice should not be provided under any other circumstances.
These new requirements apply irrespective of whether or not the RICS member or firm is located in or conducting business from the UK but only apply to open market transactions.
Several large property companies and agency firms, including UK REITS, Land Securities, SEGRO, JLL and CBRE have already adopted the new requirements without waiting for the 1 January 2018 mandatory implementation date.
With the continuing trend of consolidation across the property agency and surveying professions, including acquisitions and mergers of local firms with UK-wide or global firms, the incidence of conflicts of interest will only increase and it is therefore more important than ever that firms introduce and stick to effective policies for managing conflicts when they arise. Failure to do so may well damage the integrity of the profession and undermine public confidence in it.
Graham Pierce is a partner in Worthingtons Solicitors, specialising in commercial property and can be contacted on 02890434015