Safeguarding CRE Companies: Navigating Risks in Revenue Management Software Agreements
Jan 24 2025
In today's rapidly evolving commercial real estate market, it is crucial that CRE companies include protective provisions in their agreements with vendors that utilize revenue management software (RMS). Legal actions, including a U.S. Department of Justice's (DOJ) antitrust lawsuit against a prominent RMS provider, highlight the potential risks associated with the use of these RMS systems.
The DOJ lawsuit alleges that the provider’s RMS product enabled multifamily landlords “to share their competitively sensitive data … in return for pricing recommendations and decisions that are the result of combining and analyzing competitors’ sensitive data”. The landlords allegedly funneled their sensitive, confidential data into the RMS algorithm, which also uses other CRE companies’ proprietary, non-public data (including occupancy and rental rates), and received rental pricing recommendations for their apartment communities. The DOJ asserts that this practice resulted in increased rents and decreased market competition in rental pricing across the numerous apartment communities owned by CRE companies that use the RMS platform.
The DOJ’s antitrust lawsuit follows a 2022 investigation by ProPublica into the provider’s use of its RMS algorithm in setting rents. That investigation launched a series of lawsuits filed against the provider on behalf of apartment residents in several cities seeking class-action status. In 2023, the-then District of Columbia Attorney General filed a lawsuit against the provider and fourteen of the largest apartment landlords operating in DC. That suit accused the defendants of “colluding to illegally raise rents for tens of thousands of DC residents by collectively delegating price-setting authority to [the RMS provider], which used a centralized pricing algorithm to inflate prices, costing renters millions of dollars”.
While the provider has denied that its RMS “facilitates collusion” and has stated that it “is willing to make changes to its system to ease antitrust concerns”, CRE companies that continue to use these types of RMS risk facing similar claims by residents, the DOJ and other public agencies. According to a recent Washington Post article, in the past week, the DOJ “expanded its suit to sue six large landlords, which it says operate in 43 states and D.C.”
Here are some protective provisions that CRE owners and managers should consider including in their contracts with vendors that use RMS products similar to those that are the subject of the DOJ lawsuit:
Vendors may push back on requests for many of these provisions. However, given the current litigious environment involving RMS systems, CRE companies may have increasing leverage in their contract negotiations to insist that vendors accept them. The RMS provider that is the subject of the DOJ lawsuit publicly acknowledged that its customers “are starting to worry about the legal threats”, which is a signal that RMS vendors may be more accommodating in negotiating their agreements in order to retain their existing customers and attract new ones.
These practical tips are intended to protect CRE companies from being inadvertently caught up in the current antitrust scrutiny involving RMS systems. Antitrust claims based on information sharing are easier to allege than prove. Proof requires specific economic analysis of the specific practice and its impact on the market, which is often difficult to determine when initially entering into seemingly benign agreements. Once entangled in an antitrust case, however, a CRE company faces significant costs and disruption of its business, regardless of the ultimate outcome of the case.
The lawsuits against the RMS provider (and now the landlords that are using the RMS) underscore the importance of safeguarding the interests of CRE companies. By ensuring that contracts with vendors using RMS include provisions that protect against potential antitrust and other legal violations, CRE companies can mitigate risks and avoid becoming embroiled in this type of lengthy and expensive litigation.
*Pam Rothenberg (pam.rothenberg@wbd-us.com) is a Partner in the Real Estate Practice Group at Womble Bond Dickinson (US) LLP and routinely negotiates vendor agreements for her CRE clients. Jason Hicks (Jason.hicks@wbd-us.com) is a Partner in the Firm’s the Complex Litigation Practice Group and regularly counsels and defends clients in antitrust matters.