Sn1 Ep 02: How The Legal Principles of Arm’s Length, Prejudice and Conflict of Interest Affect Real Estate Transactions

Arm’s length, prejudice and conflict of interest often feature as critical legal principles in real estate transactions.

An understanding of their importance is very relevant to achieving success in real estate transactions.

Any investor would need to know how to navigate their engagement with prospective sellers and buyers of property by having at least a basic understanding of armslength, prejudice and conflict of interest.

It is often presumed that these legal principles should remain within the purview of the legal representatives of the parties to the transaction.

However, in this conversation, one shall be able to see how these principles interact. Our legal expert, Ms Monica Mwangi, fields various scenarios in an attempt to provide a basic understanding of these principles. We look especially at scenarios that occur with regular frequency in the real estate industry.

Definitions

Arm’s Length Transactions

Investopedia defines an arm’s length transaction as a business deal in which buyers and sellers act independently. Neither party is under any undue influence from the other. Both parties act in their own self-interest and are not subject to any external pressure from the other party. In arm’s length transactions, there is also no collusion between the buyer and seller. The principle makes the fundamental assumption that there is perfect information between both parties to the transaction. It also assumes that both will act, in the interest of fairness, based on the fact that they have access to the same information about the transaction.

Conflict of Interest & Prejudice

Situations often arise in the course of real estate transactions where the interests and objectives of the parties to the transaction may differ, become incompatible and even degenerate into an openly adversarial nature. These scenarios give rise to a conflict of interest.

In today’s conversation, we look at the situations in which these principles come into play, and why it is important for any investor to understand how to navigate their way around the scenarios that could arise when these principles are either overlooked or when the results of overlooking them come to bear in the course of a real estate transaction.

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