Property fraud in commercial property

One of the key findings of the Association of Certified Fraud Examiners’ 2022 edition of the Report to the Nations is that organisations lose an estimated 5% of their revenue to fraud each year. In the difficult economic climate created by the COVID-19 pandemic, and more recently the war in Ukraine, 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. Also, as well as the very real risk of punishment are serious and wide-ranging financial and reputational implications. That is why it is so important 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. In addition, rising inflation and the contraction of the UK economy has added fuel to the fire, albeit the Bank of England is now expecting weak GDP growth of 0.25% in 2023 compared to a predicted 0.5% contraction in its previous report.. The RICS Commercial Property Market Survey, Q1 2023 reports that the UK market remains subdued, however, there are signs of renewed momentum in the industrial sector. The headline net balance for tenant demand came in at -3%, which is a marled improvement on the -20% reported in the last quarter of 2022.

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 Bill, the UK government is creating a corporate offence of failure to prevent fraud. The offence 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. It is, therefore, advisable to start implementing processes and procedures to prevent fraud early so that employees and other stakeholders are aware of what is expected.

This section provides a high-level overview of different types of fraud affecting the commercial property sector. This is followed by an in-depth look at each of these types, focusing on:

  • what it is and what it looks like in real life
  • particular risks to be aware of
  • practical tips for how to protect against it and
  • what to do if you suspect it has occurred.

It finishes with a look at the involvement of the police and courts: how they are involved, what options you have and what to expect.

This section is maintained by Arun Chauhan of Tenet Compliance and Litigation.