October 11, 2011

Conflict Waivers – a continuing conundrum

By Benno Rothschild, partner

Benno Rothschild At Hartman Simons we represent both landlords and tenants. This is advantageous for our clients because we understand both sides of a deal. However, this aspect of our business causes us to run into potential conflicts of interests every day. We feel it is important for anyone working in commercial real estate to understand how conflicts of interests happen, the reasoning behind them and how the process for identifying one has changed in recent years. I recently spoke at a Continuing Legal Education (CLE) seminar about ethical issues in commercial real estate and conflicts of interest and client waivers were hot topics.

The Lawyers Real Estate Dictionary states, “A conflict of interests occurs when a person who has a duty to act in the interests of a client also has a duty to act against the interests of that same client.” For example, Hartman Simons’ attorneys represent a number of national retailers. We understand the ins and outs of each business and what the company looks for in a lease. However, landlords also hire us to represent shopping centers where these national retailers want to lease space. Even though the retailer has different representation for the deal, we are faced with a conflict of interests. This begs the question of whether the retailer is willing to waive the conflict.

A few years ago, it seems to me conflicts of interests were waived more frequently. Going back to our example, many national retailers are fine with us representing the landlord in a deal. The retailer wants the deal done quickly and the company leadership knows our attorneys understand their business and will not waste time asking for unrealistic clauses. This thinking still occurs, but conflict waivers seem to be issued less frequently.  With retailers making fewer deals, some may decide a law firm they do business with knows too much about the company. Even though a different attorney would work on the deal who has never done their work in the past, the retailer may decide not to sign a conflict waiver.  We understand both lines of thinking and at the end of the day we want all parties to be comfortable with the legal arrangements.

Now we have identified conflicts of interests and how the real estate community responds to them. Next question, how do attorneys identify a conflict?  It is improper for us to begin work on a project until we are sure no conflicts of interests are present or they have been waived. When I started in the business 25 years ago, the only way to find out if there was a conflict of interests was to ask around. Too many times a conflict would not be uncovered until all parties were immersed in the deal. As you can imagine, this caused all types of problems.

Fortunately, technology has improved since the mid 80’s and all reputable firms have computer programs to help vet conflicts of interests. Our system will not allow any attorney to open client files until the software has been run and no conflict of interest was identified or a waiver has been signed. At Hartman Simons, we even take this vetting process a step further to make sure nothing falls through the cracks.  Technology can make anyone complacent and single-purpose entities are oftentimes not caught by the program. With every proposed deal we send an email to all attorneys and paralegals to ask if anyone can identify a potential problem.

This can be a frustrating process because time kills deals. However, we see multiple conflicts of interests come across our desks each day and it is important we do our due diligence to protect our clients and ourselves. 


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