Viewpoint: Time to act on conflicts of interest in the property industry
The discussion around conflicts of
interest has focused on firms representing clients on opposing
sides of the same transaction. Andy
Williams, believes the risk to clients goes much
further than that.
Conflict of interest in property transactions is firmly back on
the agenda after a Leeds University report found not enough is
being done to prevent or deter the practice - which they say has
become commonplace in some circles - to the detriment of clients,
and there are those who would like to see much stricter regulation
and enforcement against the practice.
Much has been said about firms acting for clients on different
sides of an investment transaction or lease negotiation, be that
the seller and buyer, landlord or tenant or multiple bidders. No
matter how high the Chinese Walls, there is the potential of them
being breached. This puts at least one if not both of those clients
potentially at risk of their sensitive information becoming known
to the other side and influencing the terms of a negotiation.
How to best serve the interests of the
But there is more to it than just this 'double dipping'. There is
also the potential for a conflict of interest to arise when clients
rely on a single organisation to provide all elements of the
pre-acquisition advice. A supplementary question to ask - not
covered in the Leeds University report - should be: are the
interests of the investor best served by having all of the
pre-acquisition advice emanating from the same source, or would it
be better to instruct a series of independent but aligned advisors
for each specialism in the TDD process.
Central to the issue is the monopoly caused by the amalgamation
and acquisition of so many small and mid-tier firms over the last
20 years into large multi-disciplinary organisations. International
businesses often turn to one-stop-shops to handle their affairs on
a global scale, and often those interests intersect, resulting in
the potential conflicts we've discussed.
The smaller independent organisations, on the other hand, often
don't have the client base for such conflict to arise. They're also
likely to have extensive local knowledge and niche specialisms
which could make their analysis all the more relevant to the
particular client, or to the purchase.
There is no real compromise in instructing an alternative to the
large multi-disciplinary practices. A chartered surveyor is a
chartered surveyor, and many of the directors and employees will
have at some point worked for such an organisation. Many have since
set up on their own or taken the opportunity to make an impression
at a smaller business. The benefit will be in the value the client
will hold for that practice, and the efforts that will be made on
There are some benefits to the one-stop-shop approach offered by
the larger organisations but, when it results in a real or
perceived conflict of interest, the best option is not to rely on
guidelines, protocols and trust, but instead for clients to vote
with their feet and find alternative support.
Knowing who to go to could take some research from investors and
their asset manager, but surely the impartiality of the advice and
avoidance of significant risk is worth those extra few phone
here to contact Andy Williams.
Click below to read our Conflicts of Interest overview.