April 18, 2017 Maria Verdin

Call to Action: Fight Against AB 1059 (Dual Agency Ban)

Assembly Bill 1059 has been introduced to the California Legislature to ban dual agency relationships in all commercial real estate transactions. Specifically, the bill “would prohibit an agent from acting as a dual agent in a commercial real estate transaction,” while also preventing different individuals in the same firm from “acting as an agent for both a seller and buyer in the same commercial real estate transaction.”

Though proponents of the bill claim it will level the playing field for tenants and buyers by eliminating potential conflict of interest, a closer look at the bill’s potential consequences shows just the opposite.

AIR CRE vehemently opposes this bill for a number of reasons:

  1. It will harm small businesses, by adding costs and negatively impacting relationships.
  2. It will introduce unnecessary regulations to the commercial real estate transaction process.
  3. It will eliminate freedom of choice, and provide certain firms with additional commission fees for services that are not wanted, but rather, are mandated by law.

The first step in fighting AB 1059 is to sign the petition opposing the bill’s passing and contact the Assembly Judiciary Committee members via letter, email or phone call and let them know you oppose this bill.

Sign the petition opposing the bill

Click the button below for the committee members’ contact information

Harming Small Businesses
According to Jason Jamison, President of GM Properties, who has more than 20 years of commercial real estate experience working with small businesses in the management, leasing and sale of commercial properties in Southern California, the bill will hurt tenants, especially smaller ones who are trying to expand.

Under AB 1059, the tenant would not be allowed to use a broker from the same firm as the listing broker, even if the brokers work from different offices. This means the tenant will either need to work with a tenant rep broker from a firm other than the listing company, or will need to self-represent. This is an arbitrary provision of the bill, which will lead to higher transaction fees, and stifle a small business’ ability to lease or purchase space.

Additionally, the tenant may have a difficult time even finding representation because tenant rep brokers may be reluctant to spend time on smaller deals that generate little commission dollars. The listing broker, however, is very willing to work with the tenant/buyer.

Additional problems can occur during the renewal process, especially if the tenant and landlord have a good working relationship. Again, unless the tenant is willing to represent itself, the only other choice available is representation from another brokerage firm, which could create conflict.

Said Jamison: “I believe AB 1059 will cause more hostile lease renewal situations than normal. That will have an adverse effect on both tenant and landlord, as they struggle to co-exist with each other and deal with the damaged relationship that occurred during the renewal process.”

Unwanted agents inserted into the renewal process can wreak havoc on the landlord-tenant relationship. “Once the dust settles and the brokers collect their commission checks and leave, the landlord and tenant are left to deal with each other for the new, extended lease term,” Jamison said.

On the sales side, buyers investing in smaller properties might rely on either the property’s listing broker, or another broker from that same firm for representation. But, if AB 1059 becomes law, the small-property buyer will either have to spend time and resources to find a representative from another brokerage firm, or will have to self-represent.

Such an action could impact the price of an asset. Many times, if the listing broker and buyer representative are with the same firm, commission fees are less. But that advantage will no longer exist, and the seller could end up paying more for commissions. That cost will then be added to the price of the asset, making it more expensive for the buyer.

Introducing Unnecessary Regulations
Commercial real estate brokers in California are already governed by strict licensing and disclosure rules that impose fiduciary duties on the brokers, and require maximum disclosure and other protections to the public. The California Supreme Court recently ruled “[A] dual agent owes fiduciary duties to both parties, including the duty to disclose known facts materially affecting the value or desirability of the property.”

As a result, a buyer or tenant in a dual agency relationship will have the benefit of more information, not less, because both agents in the transaction will have the fiduciary obligation to provide all material information each holds.

It is also important to point out that under current California state law, the brokers are already held accountable if they breach this fiduciary obligation. Adding yet another regulation to those in place will do nothing more than slow down the process, boost frustration and increase costs.

Limiting Freedom of Choice
AB 1059 will limit freedom of choice, not only for small business owners but also for large, sophisticated tenants/buyers. Organizations may have sound business reasons for choosing to work within a dual agency framework. Present law allows businesses to choose either to hire a tenant rep firm or to choose to take advantage of the benefits that a dual agent can offer. This bill would remove that choice from all California businesses.

Tim Hayes, Executive Director of AIR CRE said, “If a company like Amazon decides that dual agency representation is beneficial for them, they should have the right to make that choice.”

Benefiting Only Certain Brokerage Firms
The only group that stands to benefit from this bill are tenant rep only brokerage firms such as the one which is sponsoring the bill. By depriving large and small businesses of the choice to use dual agency, these tenant rep firms hope to receive commissions for work that those businesses don’t necessarily want or need. Present law allows businesses to choose either to hire a tenant rep firm or to choose to take advantage of the benefits that a dual agent can offer. This bill would remove that choice from all California businesses.

Taking Action
The California Assembly Judiciary Committee will review and vote on AB 1059 on May 2nd. AIR CRE encourages you to act quickly and voice your opposition. Please contact your representative by calling or sending a letter (letters are much more effective). Time is of the essence – it’s very important that you participate to ensure the CRE industry is not upended by this bill.

Sign the petition opposing the bill

Click the button below for the committee members’ contact information