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Bill Gornall-King
Bill Gornall-King,
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RICS guidance on conflicts of interest
04 September 2017

The Royal Institution of Chartered Surveyors (RICS) has released a professional statement on conflicts of interests in commercial property market investment agency opportunities. All RICS members and RICS-regulated firms will be bound by the professional statement, which will take effect on 1 January 2018. The Statement deals with three issues.

The End of Dual Agency

The Statement outlaws the practice of ‘double dipping’, i.e. dual-agency, which is where a member accepts instructions to act for both a buyer and a seller in a commercial real estate transaction. The intention is to avoid conflicts of interests arising that are prejudicial to the member’s client’s best interests.

The RICS considers that conflicts of interest if allowed to arise not only act against the public interest but also damage confidence in the marketplace as well as threatening the integrity of the profession.

This is part of a global drive to ensure that in the commercial property market there is transparency in the way relationships between buyers, sellers and agent intermediaries operate and thus confidence in them.

The Statement also addresses the scenario of where the buyer or seller may be seen as a related company of the agent. Care must be taken in assessing the impact on the member firm’s business/ownership structure. The RICS gives ‘related firm’ guidance: the factors a firm should consider, which, if all are fulfilled, should not give rise to a conflict of interest:

the firms are separate legal entities:

  • there are no directors, partners or employees in common between the firms;
  • there is no direct or indirect fee sharing between the firms; and
  • there is no access to information or common internal data sharing arrangements relating to the area of conflict.

These criteria are to be applied strictly. If any one of the above is not fulfilled then the firm should not act, unless it can clearly demonstrate why there is no risk of breaching the Statement’s “related firm” guidance. Clearly in such a situation the member must clearly document how it reached its decision and also must obtain in writing informed consent to act.

Multiple Introductions

As well as dealing with the perceived risks arising from dual agency the Statement also deals with multiple introductions. These are where an agent has competing contractual relationships simultaneously with several buyers for a commercial real estate investment opportunity.

Multiple introductions are not outlawed by the Statement but are to be hedged around by specific requirements.

First of all, the terms of the engagement between the client and agent for a real estate investment opportunity must be in writing, and must state whether the appointment is exclusive or non-exclusive.

If the appointment is exclusive, the agent must inform any other prospective buyers that he/she has had contact with about the opportunity and that the agent may no longer advise them.

If the appointment is non-exclusive, informed consent must be obtained from the clients, subject to necessary information barriers being put in place.

In either instance, the seller’s agent (or the seller if there is no agent appointed) must be informed whether the appointment is exclusive or non-exclusive.

In addition, no individual in a firm should act for, or for that matter be responsible for the supervision of the instruction of, more than one buyer competing for the same property.

The Statement insists that firms establish and maintain “clear and robust” information barriers.

Incremental Advice

Incremental advice is where an agent is approached by a party to provide professional services (e.g. building surveying, planning, valuation) related to a purchase or disposal that is ‘incremental’ to an existing instruction from another party (e.g. the agent is acting for the seller in relation to a disposal but is approached separately by the buyer, or its lender, to provide a valuation).

In this scenario the following rules will apply:

  • there must be information barriers in place at the firm between the team dealing with the original instruction and the team providing the ‘incremental’ advice, so as to maintain strict confidentiality;
  • where the agent has an exclusive instruction from a buyer then he must first obtain informed consent from that client before agreeing to provide ‘incremental’ advice to another prospective buyer; and
  • where the agent has a sale instruction, the agent must notify his client before agreeing to provide ‘incremental’ advice to a prospective buyer, although he does not have to obtain informed consent from his client.

What to do next

The Statement raises a number of compliance issues. It applies to RICS members globally. Its impact is such that it will apply across networks of offices, e.g. where there are autonomous branches. This will mean client and site data will need to be shared and accessible to avoid inadvertent breaches.

RICS member firms should between now and the end of the year:

  • Review their existing engagement terms & conditions with clients;
  • Raise awareness in their firms of the need to ensure that ‘double-dipping’ does not happen and consider systems to prevent it from arising in their firm;
  • Review existing arrangements where there are multiple introductions and put in place suitable processes to establish clear and robust information barriers;
  • Train staff to recognise confidential information and the steps to be taken to safeguard it; and
  • Review the instances of ‘Incremental Advice’ and instigate a process review and training, as above. 

For more information about The Royal Institute of Chartered Surveyors guidance please contact Bill Gornall-King on 0118 952 7247 or email [email protected].

Consistent with our policy when giving comment and advice on a non-specific basis, we cannot assume legal responsibility for the accuracy of any particular statement. In the case of specific problems we recommend that professional advice be sought.

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