What the California Legislation on Dual Agency Means for You

When the discussion of dual agency occurs, commercial real estate practitioners may rarely think of its implications. However, dual agency involves all parties including sellers, buyers, landlords, and tenants of both residential and commercial properties. California currently allows dual agency, so long as it is disclosed to the parties involved: a broker can represent both sides in the transaction. Some states, such as Colorado, Kansas, Florida, and Wyoming, prohibits dual agency; many others follow along the same lines as California. Recent proposed legislation by Assemblywoman Lorena Gonzalez, D-San Diego, could change that and the way we transact.

What is Dual Agency Legislation?

Assembly Bill 1059 was introduced by Gonzalez and would prohibit a brokerage firm or its licensees from acting as a dual agent. This impacts the entire brokerage firm. If passed, this would mean that Colliers International as a firm couldn’t act as a dual agent for both a seller and a buyer in a transaction, even if the buyer was represented by an agent in a different office.

In January 2015, Senate Bill 1171 was passed requiring disclosure of dual agency and agency relationships in a commercial property transaction; residential transactions already had this practice in place. The bill was also introduced shortly after the California Supreme Court ruled unanimously that a real estate professional representing a seller on a residential home purchase owed a “fiduciary duty” to both parties if the buyer’s agent works for the same brokerage. The ruling stated, “It is undisputed that Coldwell Banker owed such a duty to the buyer. We now conclude that the associate licensee, who functioned on the Coldwell Banker’s behalf in the real property transaction, owed to the buyer an ‘equivalent’ duty of disclosure.”

Varied Opinions On The Bill

Some proponents of the proposed legislation come from the commercial real estate community. Hughes Marino, CEO of a San Diego based tenant representation firm, believes this will provide more transparency. According to CoStar, Hughes states, “prohibition of dual agency would truly level the playing field for tenants offering them legitimate transparency and conflict-free representation.” Opponents believe the bill is too extreme and could change the commercial real estate industry in California. Another bill was introduced AB 1616 by Assemblywoman Jacqui Irwin, D-Thousand Oaks, where instead of banning dual agency all-together, expands current disclosure requirements. Both bills coupled with the Supreme Court ruling show evidence that there is increased focus on the consumer, to limit both potential conflicts of interest as well as increase transparency.

While AB 1059 does have some hurdles such as going through committees, the Assembly, and State Senate, before being sent to the governor, there is no doubt that this could cause disruption within the real estate brokerage community, especially among larger firms, and can certainly impact future real estate deal making. Brokerage companies, agents, as well as clients will need to pay close attention as the bill progresseses.

For more information on AB 1059, please visit: California Legislative Information.