The property sector is at risk of serious reputational damage if it does not put in place more robust rules to curtail ‘double-dipping’, a major study has warned.
University of Leeds report on conflicts of interest in property, shared exclusively with Property Week, called for the RICS to produce “beefed-up” guidance in order to better regulate the practice of agents from the same firm working on both sides of a deal.
The 160-page study (attached right), the first comprehensive examination of conflicts of interest in property, raised serious doubts over the industry’s ability to effectively self-regulate dual agency and said there were “clear risks” in relying on the use of “ad hoc” Chinese walls. These are meant to prevent the sharing of information within firms, but the report said the walls were “prone to being breached”.
“We can’t just take it at face value that these information walls are trustworthy,” said Adam Baker, a lecturer in property law at the University of Leeds and a co-author of the report. “There are clear issues with them. We want to get past the situation where a firm says: ‘Well, we have our information wall and that’s fine.’ We feel that’s totally insufficient.”
Baker said it was “very difficult” for clients to spot a “suboptimal” deal. “There’s a difference between a skewed deal, which could be readily spotted, and a deal that’s been subtly distorted,” he said. “It’s more about slightly altering the deal and we just don’t believe that kind of subtle wrongdoing will be picked up.”
The report said current RICS guidance was “inadequate” and contained “numerous flaws”, although Baker acknowledged that the RICS had established a working group focused on drawing up a new code of practice.
The Investment Property Forum has established a protocol to address conflicts of interest on the investment side of the industry, but Baker said there was a danger that if property did not put in place more robust regulation it could lead to serious reputational damage.
Gary Strong, director of practice standards and technical guidance at the RICS, said the organisation was undertaking an extensive review of its guidance on conflicts of interest and it would soon publish a new set of “mandatory” RICS rules. “This is a major issue and one we have been tackling,” he said.
However, Jeremy Grey, director of management company at James Andrew International, said a new RICS code would not be a silver bullet. “I’m not convinced they have the manpower to police it - plus it only ties the hands of the chartered surveyors and leaves others to act with impunity,” he added.
Philip Sandzer, director of DeVono Property, which commissioned the report, said stronger action was needed. “Over many years, tenants have been getting poor deals as a result of dual agency - and they continue to do so. It needs to be dealt with once and for all.”