Fraud risk in commercial property
According to the UK government, fraud accounts for 40% of all crime in the UK.
One of the key findings of the Association of Certified Fraud Examiners’ 2024 edition of the Report to the Nations is that organisations lose an estimated 5% of their revenue to fraud each year. In today’s difficult economic climate, that 5% could be the difference between sink and swim for many businesses in the UK.
After the financial services sector, the property sector is the most vulnerable to fraud. The large sums of money involved in property transactions make the sector particularly appealing to criminals. Failing to deal with fraud can lead to dire consequences for individuals and organisations, with punishments ranging from fines to imprisonment (especially given the new ‘failure to prevent fraud’ offence, which is due to come into force in early 2025). There are also serious and wide-ranging financial and reputational implications. That is why it is vital for surveyors to educate themselves about fraud, and to understand the steps they can take to protect their revenue and reputation.
COVID-19 had an unprecedented impact on the commercial property sector, with remote working patterns causing a significant reduction in demand for commercial office space. Given flexible work arrangements and hybrid models are now the new norm, the sector has had to adapt. In addition, rising inflation and the contraction of the UK economy has added fuel to the fire. Although inflation has been close to the 2% target since the middle of 2024, the Bank of England is expecting inflation to rise temporarily this year, to 3.7%, as a result of, among other things, higher energy prices. The RICS Commercial Property Market Survey, Q1 2025 reveals a cautious market sentiment, with some sectors experiencing declines in rents and prices. While the overall outlook is mixed, with potential for improvement due to easing inflation and credit conditions, the market remains polarised between high-quality assets and the rest, with the latter experiencing declines.
Fraud in the commercial property sector evolves year-on-year, and therefore keeping up to date on evolving trends is important for your own and your organisation’s protection. Through the Economic Crime and Corporate Transparency Act 2023, the UK government has created a corporate offence of failure to prevent fraud. The offence comes into force on 1 September 2025 and will apply to all large corporate bodies and partnerships, i.e. organisations that meet two of the following criteria:
- more than 250 employees
- more than £36 million turnover or
- more than £18 million in total assets across all sectors.
A defence to prosecution mirrors that under the Bribery Act 2010 where an organisation must demonstrate they had reasonable procedures in place to prevent fraud. Government guidance on such reasonable fraud prevention procedures was published on 6 November 2024. It is advisable to start implementing processes and procedures to prevent fraud ahead of the commencement date so that employees and other stakeholders are aware of what is expected.
This section is maintained by Arun Chauhan of Tenet Compliance and Litigation.