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, with the Bank of England predicting the UK economy will experience at least a four-quarter recession, its longest on record. The RICS Commercial Property Market Survey, Q4 2022 notes the all-sector net balance for tenant demand slipped to -20% in Q4 (down from -10% previously) with fall in occupier demand cited across both offices (net balance -29%) and retail premises (-45%).

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. In its recently published response to the House of Commons’ Justice Committee report on Fraud and the Justice System, the UK government has indicated that it is considering the creation of a corporate offence of failure to prevent fraud. A defence to prosecution is likely to mirror that under the Bribery Act 2010 where an organisation must demonstrate they had adequate 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.