Tenant Rep Commission Agreement

If you read tips for commercial leasing, you will quickly notice that experts often recommend hiring tenant brokers. Employees can give you access to spaces you could never otherwise rent and help you choose the office or building that best meets your needs. In addition, during the negotiation process, employees help obtain the most advantageous lease terms. As an independent entity, the broker should not be able to link or hire the tenant to third parties, including owners, other brokers, agents or researchers (also within the same brokerage firm). Brokerage firms can be large and employ a lot of brokers – the brokerage contract should define the names of members of the brokerage team representing the tenant. Once the list is established, the client should have the right to approve changes to the brokerage team. If a person from the team or the largest brokerage firm also represents the owner, the brokerage company should be required to disclose such a presentation and maintain a system acceptable to the tenant, which creates a wall between the brokerage teams. The tenant should understand what this system is to determine acceptance and the risk of conflicts of interest. Some tenants think this might be a good idea, as it could allow them to get a better rate from the landlord, since they do not have to pay a rental fee. But in reality, a landlord is usually contractually obliged to pay his real estate agent a higher fee if there is no agent of tenant brokers. The savings that a tenant thinks they could get by not using a tenant representative actually go to the landlord`s representative.

The brokerage contract will likely also include a “tail” at the end of the term. The “tail” is a period during which the broker or brokerage company receives payment for the broker`s negotiations with the owners during the term of the contract. If the tail cannot be removed, it must be cut tightly. As a general rule, the lessor plans to pay a total of 6% commission, 4% goes to the tenant`s representative and the remaining 2% goes to the landlord`s representative. It should be noted that, in very rare cases, landlords may refuse to pay the brokerage fee, so the new tenant is free to cover the commission. Normally, this only happens if the tenant has irritated the landlord with undue concessions or acted unethically. Working with a tenant broker with a good reputation and extensive experience can significantly reduce the risk of this happening. In essence, the landlord rewards the tenant agent for the support of the building to obtain a new tenant. But don`t worry, a tenant-representative broker always works for you and has a fiduciary duty to represent your needs in everything they do. One of the main tasks of a customer representative is to make sure you have the best location for your business. You take into account your budget and the possible need for space.

For example, if you sign a 5-year lease for 5,000 sf and your rental price is $30 per square metre, these three numbers would be multiplied to determine the total amount the tenant would pay to the lessor during the term of the lease (5 x 5,000 x 30 – $750,000). Then, the total amount received by the lessor is multiplied by 4% to find the tenant`s commission (750,000 x 0.04 – 30,000 $US).