Following a Code of Ethics in Commercial Real Estate

By Senior WriterPublished On: August 11, 20212.7 min read

In commercial real estate — and all aspects of business, really — a code of ethics is a set of principles meant to help professionals conduct business with honesty and integrity. Many organizations have a code of ethics document that outlines the company’s mission and values, and how employees are expected to conduct themselves and approach problems.

Depending on the organization, a code of ethics could include business ethics, a code of conduct for employees, and/or a code for professional practice. Business ethics in particular could refer to employer-employee relations, discrimination, insider trading, and more.

Although many aspects of an ethical code are covered by law, it’s up to a business to enforce that code and add specific rules as needed. Breaking a code of ethics often leads to dismissal from the company or even legal consequences when considering infractions like wire fraud, money laundering, and other white-collar crimes.

3 Types of Codes of Ethics

1. Compliance-Based Code of Ethics

A compliance-based code of ethics is one that focuses mainly on laws, ensuring that everyone in the company is following all legal regulations and standards. For commercial real estate construction, for instance, are all the safety standards being upheld? Are zoning laws being followed? Are there any discriminatory hiring practices?

Compliance-based codes of ethics ensure these guidelines are being followed and also determine penalties for violations. Noncompliance creates legal issues for a company, so usually, employees also receive formal training on the ethical code.

Sometimes, a commercial real estate developer might even employ a compliance officer to keep up to date on any regulatory changes and monitor employees. Another example would be property owners who hire a property management company that is up to date on laws and ethics regarding the selection and treatment of tenants.

2. Value-Based Code of Ethics

A value-based code of ethics, rather than having to do with legal standards, complies with a company’s value system. That value system could be what the company deems necessary for the public good.

For instance, environmental protection often falls into a value-based code of ethics. A commercial real estate developer might include certain environmental standards in terms of where and what to build in a value-based code of ethics. This type of code requires more self-regulation because there are no legal penalties involved.

Sometimes, a code of ethics could include both compliance-based rules and value-based rules.

3. Code of Ethics Between Professionals

A code of ethics between professionals refers to the ways in which employees conduct themselves around one another and around clients. For companies registered with the Securities and Exchange Committee (SEC), they are bound by a “fiduciary duty,” or a legal requirement to act in the best interest of their clients.

Why Is a Code of Ethics Important?

For almost all business professionals, a code of ethics is an essential set of principles intended to ensure that everyone acts with honesty, integrity, and good faith. A code of ethics protects both employees and employers, guiding them so that they are in compliance with laws and company values.

In commercial real estate, where investments, transactions and construction all occur, a code of ethics makes sure that the laws are being followed, and that everyone follows a set of guiding principles to ensure a safe and honest work environment.

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