Working Outside Your Area of Expertise Could Result in Legal Exposure
If you’re skilled in one area of real estate, you may think you’ll automatically excel in other types of property transactions too. But the truth is that different real estate dealings come with different regulations, and if you aren’t an expert in the type of transaction you’re conducting, you may end up in legal jeopardy.
Here’s a real-world scenario where an agent well-versed in residential sales decided to venture into commercial sales and ended up being sued.
SITUATION
A real estate agent with a successful background in residential sales received a request from a light manufacturer to help locate a new business space to rent. The agent had been selling residential homes for over 30 years, and he welcomed the opportunity to finally put his commercial real estate knowledge to use.
PROBLEM
The agent was considered an expert in residential transactions, but he was inexperienced in commercial real estate.
MISTAKE
The agent found a great space in an old, converted factory that housed dozens of similar manufacturing operations. While negotiating the contract, the agent misunderstood the true extent of the Common Area Maintenance [CAM] provision. He thought that CAM charges only applied to general maintenance expenses, like landscaping and snow removal.
RESULT
Six months into the lease, the building owner notified the tenants that he planned to replace the aging roof with a new one. At first, the light manufacturer was pleased his new landlord was investing in capital improvements.
However, when the manufacturer learned from other tenants that the cost would be included as part of his CAM fee, he reviewed the contract and discovered that it failed to detail what expenses would or would not be included. He then consulted a real estate litigation lawyer who explained his agent should have taken the necessary steps to protect him as a tenant by adding restrictions and/or a spending cap into the provision.
The lawyer also stated the agent’s misunderstanding of the CAM charges (thinking they were only limited to general maintenance) was in direct conflict with the contract language. A lawsuit was brought against the agent alleging breach of fiduciary duty, among other liability theories.
PREVENTION
Mistakes often occur when real estate professionals practice outside their area of expertise. In this case, the agent should have consulted a commercial real estate expert, even if it necessitated the payment of a fee or a share of the commission. This could have saved the agent from a costly lawsuit and a compromised reputation.
Word travels fast in real estate circles, especially if an agent or broker fails to properly protect a client. But if you err on the side of caution, you can avoid making the same mistake.