In commercial real estate, the agent owes a fiduciary duty to the principal investor before a single dollar passes from one party to another. Similarly, partners of real estate groups have fiduciary obligations owed to each other within the business or enterprise. While these duties vary in nuanced ways from state to state, they break down into three silos:
The Duty of Care relates to diligence in making decisions, taking actions or exercising proper oversight. A duty of care requires:
a. Time commitment and attention;
b. Accurate and timely information;
c. Appropriate Inquiry; and
d. Reasonable judgment (acting in what is reasonably believed to be acting in the partnership’s best interests)
The Duty of Loyalty specifies forbearance from pursuing personal interests at the expense of the alliance, the other partners, or principals. A duty of loyalty requires:
a. Putting corporate or partnership opportunities first;
b. Avoiding conflicts of interest;
c. Fair dealing in transactions with the enterprise; and
d. Appropriate use of firm resources and information
The Duty of Candor requires CRE agents to provide accurate and timely disclosure of material information relevant to the affairs of the business and its principals. The duty of candor requires:
a. Full disclosure of all real and potential conflicts of interest;
b. Prohibition on insider trading; and
c. Ensuring that materials facts and plans are accurate and appropriately disclosed in either public or private statements.
Although monetary metrics measure success within the commercial real estate market, this does not compel agents to act at the expense of the principal.
Often misunderstood, the fiduciary responsibilities bestowed upon a commercial real estate agent exceed the promise to preserve (or not to squander) and investor’s money. It relates to the proper conveyance of information and the general alignment of all investment objectives.
If considering a commercial real estate advisor, consultant, broker, agent, or representative, investors should hire a firm (Yes, like Keller Williams) with the corporate culture and systemic allegiances to all components of fiduciary responsibility.