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edition 4 (179)
April 2013
Interior Design

No short cuts

The level of honesty on the market is also the measure of its professionalism

Aneta Cichla

Questioning practices in the Polish property sector is in fact to question its quality as well as the professionalism and maturity of those operating in it. As it turns out, things are far from perfect in this respect

When the Polish version of the Real Estate Agency & Brokerage Standards (REABS) was published, the Royal Institution of Chartered Surveyors (RICS) compiled its own list of unethical practices on the commercial property market. This concerned the activities of agents, tenants and lessors. RICS' aim was to initiate a debate on the quality of the Polish commercial property market. The REABS document, on the other hand, is designed to help establish in common practice the best rules and standards for doing business and consequently improve the quality of the services offered to clients. It seems that there is still a great deal of work to do. According to the RICS, the commercial property sector is by no means free of deliberate attempts to mislead clients and business partners. This is confirmed, for example, by the penalties that continue to be imposed by the Office of Competition and Consumer Protection (UOKiK). "The property market in Poland, particularly during economic downturns, is exposed to a number of factors that put to the test the integrity of agents in their relations with clients and colleagues. In a period of intensifying competition for clients, there are tendencies to act unethically, both in purchase and sale transactions and in the brokerage related to the lease of offices, warehouses and retail space," explains Monika Dębska-Pastakia, FRICS, the chairman of the board of RICS Polska, and a partner and chairman of the board of Knight Frank.


Agents under the magnifying glass
The REABS code is mainly addressed to property agents, because it is their work that the RICS has the most reservations about. This mainly regards the failure to implement procedures in the case of a conflict of interest, such as failing to fully inform the ordering party about previous or present relations between the agent and the other party to the transaction. In practice, the agent who represents the developer acquires tenants, acts as the middleman in the sale of a property that has already been leased, and after half of the lease term (2-2.5 years) represents the same tenants while renegotiating the rent rates, lease contracts or moving the tenants to other office buildings. Thus the developer faces either losing the tenants or a lower profit. Another common occurrence is when agents receive additional benefits on top of their regular pay. Trade secrets about newly signed leases may be disclosed to construction companies, for instance, in return for additional remuneration. This situation might be reversed on a market where tenants have the upper hand - the tenant does not pay despite the fact that they have commissioned an agent to renegotiate or find new space. And these are only a few examples of the dubiousness that prevails.


The punishing hand of the authorities
At the beginning of this year, the UOKiK punished two companies (Metrohouse and Partnerzy) for charging their clients full commission on the sales of apartments that were finalised independently of the activities carried out by the agent. The UOKiK imposed a similar penalty on Bracia Strzelczyk for charging its clients penalty interest of 180 pct (per annum) on late payments. Complaints about agents' work are also sent to the Professional Accountability Commission, which operates under the Ministry of Transport, Construction and Maritime Economy. The Commission has responsibility for examining the professional accountability of brokerage agents. "According to the published 2012 statistical data, the Commission started 78 proceedings in relation to such complaints last year. Unfortunately, the Ministry does not publish the reports that would make it possible for us to find out precisely what the complaints consisted in. Information we have received from members of the Commission confirms that since 2009 there has been an increase in the number of cases of apartments that clients had viewed independently being made subject to a previously signed agreement," claims Leszek Hardek, the president of the Polish Real Estate Federation (PREF). He also admits that when agents make the viewing of a property dependent on the prior signing of an agreement with a potential buyer, it might be considered disadvantageous for the seller with whom the agents have signed an agreement. According to Witold Czapla, the vice-chairman of the Professional Accountability Commission's division for property brokerage agents, complaints are increasingly being made by the vendors. "Such activities take place in all sectors of the market. This very commonly occurs in the leasing or sale of office and retail space. The charging by agents of both parties to the transaction is clearly an unsound practice, because it is not clear who they work for and whose benefit they should protect," adds Monika Dębska-Pastakia.
Moreover, agents do not always inform clients about the process for submitting complaints and grievances, nor are they very scrupulous about describing the conditions of the agreement clearly, while the market information, which can be exploited for fixing the rent or sales price, is sometimes presented selectively or completely omitted. Such practices are dishonest, not only towards clients but also towards business partners. "It is not only damaging the Polish market, but also shows it in a very bad light to foreign parties, who take a great deal of care to comply with the highest standards when it comes to cooperation. Our activities, including the REABS standards, are intended to bring the market in line with European requirements," emphasises the chairman of RICS.


A construction sector in disgrace
Practices on the Polish construction market cannot be said to be any better either. EU subsidies for Polish road construction were suspended when price fixing was discovered. Covert and overt corruption, a lack of care about the quality of work, thefts at building sites and bribery are all now the subjects of lawsuits. The UOKiK has made its position clear in other sectors. At the end of February the office questioned the denial of the right to withdraw from a contract when its main conditions (such as the price of the apartments, their area or layout) change. A total of 22 decisions were issued in regard to such practices, which confirmed irregularities in the contracts of developers offering new apartments. Peter-House is one company that has been penalised, while Przedsiębiorstwo Budownictwa Ogólnego Iława has been fined for including provisions in their contracts releasing them from the responsibility for delivering an apartment on time. Meanwhile, Sol & Art Projekt Koszykarska has promised to change a provision that made it harder for clients to withdraw from a contract by keeping their money in the developer's bank account without paying the interest due and setting grossly high penalties for terminating contracts. Poznań-based company Family House has appealed against a penalty the UOKiK imposed on it for not clearly defining the amount of contractual penalties. In total, the companies will have to pay out over PLN 1 mln in penalties. "There are some complaints from companies' clients that indicate a failure to comply with the regulations laid down by the Polish Association of Developers (PZFD). If the accusations are proved, we will act as mediators to help the parties in the dispute reach an agreement. We succeed in 99 pct of cases. However, I have to admit that we have had two situations when we had to use the only - but very effective - sanction of excluding companies that have persistently failed to comply with the client service norms of the PZFD. There are fewer and fewer such complaints as years go by, a maximum of a dozen or so per year, which is not a significant problem when you consider that many thousands apartments are built annually. The complaints tend to concern a failure to hand over a residential unit on time and sluggishness when it comes to the removal of defects under the guarantee," says Jacek Bielecki, the general director and a member of the board of the PZFD. In his opinion the activities of the UOKiK are also leading to the elimination of dishonest practices, even though sometimes they could result in limiting companies' legitimate rights if the reality of their operations or technological limitations are not taken into account.


The developer who preys on tenants... and vice versa
The issue of ethics, honesty and professionalism looks very different on the retail market. The consumer is not the one who suffers directly, since here disputes arise between two parties: the tenants and the developers. This is a matter of internal relations with business partners. When asked to comment on this subject, the companies we asked declined - even though the problem certainly exists. Last year the UOKiK received a notification from the PZFD about suspected practices that limit competition. The complaint concerned some of the leading tenants of shopping centres, who were allegedly demanding additional monetary benefits from developers in exchange for renting areas in a given facility and treating it as a return on the fit-out costs, which tenants should pay for themselves. Developers compensate such expenditure by raising the rents of other tenants who do not have such strong bargaining power. Thus the PZFD turned its attention to the fact that some tenants (anchors) exploit their dominant position and, consequently, act to the disadvantage of the developer. It needs to be emphasised that the amounts paid to tenants for the fit-out could be as high as seven years' rent. The information sent to us by the UOKiK on this issue reads as follows: "Differentiating the fees of high-profile tenants and others is an economically justified practice commonly used by shopping centres. In order to acquire as many high-profile tenants as possible (i.e. those who are the most attractive from the consumers' point of view), shopping centres can offer very attractive lease conditions. The presence of such famous tenants means that there will be greater interest in the shopping centre both from consumers and smaller tenants, who benefit from operating in the same centre as the large ones." However, the case has left a bad after-taste. After a period of intensive expansion of retail chains and greater pressure on the signing of contracts in new locations, the market is now at a cyclical low. Such an imbalance and the feeling that the market is being unfairly dominated might now lead to unclear situations. The Polish Council of Shopping Centres (PRCH) sees these problems as being due to a lack of mutual understanding. "Difficulties in cooperation on the retail market result solely from the inability to communicate and develop a model of communication. If someone sends a letter that is not replied to for a few months or unsuccessfully tries to set up a meeting, there is no chance for any agreement. Of course, at some point lawyers will be brought into the dispute," says Anna Szmeja-Kroplewska, the general director of the PRCH. However, she goes on to add that some issues concerning the retail market will always arouse emotions. "I mean, those related to lease contracts, shared fees and the marketing of a shopping centre," says Anna Szmeja-Kroplewska.


Much work ahead of us
The organisations that have been set up on the Polish commercial property market have noted the need to normalise certain practices and drawn up codes of practice setting out not only the framework for operating in a given industry, but also directives and guidelines for professional practice. In the case of the PZFD, these include the Code of Best Practice and the Code of Development Agreement Principles. The Polish Real Estate Federation (PREF) also makes its standpoint clear, emphasising in an official statement: "One should never make the viewing of a property dependent on the signing of a brokerage contract by the prospective buyer. The benefits of brokerage services rendered should be explained to clients. Forcing clients to sign a contract with an agent to obtain information about a property could now lead to prosecutions, as stipulated by the act on property management." Also, the PRCH has created a platform for cooperation. "We have been meeting representatives of shopping centres for six months - around 150 of them. We have collected opinions about the market and the relations that prevail there. At the same time we have started talks with investors - a large group of developers. Together we took a look at tenants' recommendations and in this way created a code of best practice. Importantly, the code focuses on the promotion of positive examples by showing which elements in cooperation are important and which require particular delicacy. The document standardises and regulates the cooperation on the market," insists the general director of the PRCH. REABS has been devised to serve much the same purpose. "The most important things for the market are clarity and transparency. They determine whether investors trust the Polish market and its participants. It is not possible to conduct professional activity without clear rules, and we have to be aware that this is exactly what others expect from us, particularly international corporations. There are no shortcuts. The only way is through hard work and honesty," concludes Monika Dębska-Pastakia.
Poland has had a free market for over twenty years, and therefore there are no long-standing traditions. we still have to improve our professionalism. But what is it like in other countries? "The issue is the quality of the market. Professional standards on the property market in the UK have been in force for many years. Everybody adheres to transparency when it comes to cooperation and makes sure that transactions are clear," claims Monika Dębska-Pastakia. Anna Szmeja-Kroplewska is also of a similar opinion. "For example, in Scandinavian countries leasing issues are very clearly stipulated and transparent. There is, for example, an obligation to report the turnover of shopping centres. In other countries things are different and also depend on the legal regulations that are in force," says the head of the Polish Council of Shopping Centres.

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