Why “TENANTS” Need Written Tenant Representation Agreements!

…because only with a written representation agreement can a real estate broker or advisor represent the interests of a tenant or a buyer!  Absent a written agreement clearly stating that the broker represents the tenant or buyer, under common law the broker likely has an obligation to protect the interests of the landlord or seller.   That’s right!   This is true even if the landlord or seller already has a broker representing it!

What corporate executive in his or her right mind would work with a real estate broker whose job is to negotiate against the executive’s company?  Besides, don’t landlords engage brokers via written agreements?  Don’t companies engage executives via written employment agreements?  Employment agreements, representation agreements, and the like serve, among others, one very important purpose…they set down the terms of a relationship between employer and employee, service provider and client, or otherwise.  So, why wouldn’t a company “employ” its broker or advisor, especially given the risks of not doing so? 

The process of engaging a broker or advisor to represent the interests of your company is very simple.  First, select the right commercial real estate broker that is qualified to address your company’s specific objectives.  Then engage the broker via written agreement that clearly states that the brokerage company is obligated to protect your company’s interests.  Address all the terms that are important to your company, including how the broker will be compensated (most often through commissions paid by landlords) and any other terms that are important to you.  Then get to work on your real estate project knowing that your company will have an objective real estate representative authorized to advise it and negotiate on its behalf.  It’s that simple!

By formally engaging a broker, your company will send a clear message to landlords, sellers, and others that it is serious and has thought-out its real estate project.   Landlords and sellers also benefit when tenants and buyers engaged brokers, as doing so clarifies the relationships between the tenant, landlord or seller, and brokers.

There’s a lot more to this discussion.  But for now…Enough Said!

The above is based on guidance I have received from numerous legal experts.  I am not a legal expert.  The above may vary from state to state or province to province.   So, you may wish to validate how this works in your area.

Copyright Real Estate Strategies Corporation 2009.  All Rights Reserved.

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4 Responses to “Why “TENANTS” Need Written Tenant Representation Agreements!”


  1. 1 Steve Kapp October 12, 2009 at 5:16 pm

    Andrew,
    Well said! In this day and age, business relationships without written agreements lead to misunderstandings, or worse, lawsuits. As a broker, if a tenant is unwilling to sign a written agreement to engage my services, that is a red flag that something else is going on.

    • 2 realstrat October 13, 2009 at 8:06 pm

      Steve:

      You are absolutely correct about that red flag. For a moment, forget the concern about dishonest people trying to do bad things. The over-riding reason to memorialize any business relationship, especially those that pertain to personal or professional services is that two honest men, who have no desire to do anything but the right thing, can easily misunderstand each other. Then what? Without a written agreement, all bets are off!

      Looking forward to your future ideas!

  2. 3 Ron Rotole January 13, 2010 at 2:40 pm

    On the tenant representation side of the brokerage business, more leases are being structured with a proactive measure called a “rent set-off”. Under a rent set-off, the broker who represents a tenant has a sort-of Plan B structured in the lease, through which the tenant can withhold a percentage of rent over a period of time to pay the broker if he or she is not paid up front.

    The rent set-off also is used for tenants to protect the money they are owed for improvements to their leased space.

    http://www.pmcresa.com/pmcresa/services/tenant-representation/Pages/default.aspx

    • 4 realstrat January 20, 2010 at 12:56 pm

      Thanks for writing in. A rent setoff is a very effective way to keep a landlord honest, both for the payment of commissions and allowances to be paid to or on behalf of the tenant. For obvious reasons, many landlords and their lenders challenge rent setoffs. How often have you been successful in achieving rent setoffs in your clients leases?

      Thanks for your thoughts.


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THIS WORK IS DESIGNED TO PROVIDE PRACTICAL AND USEFUL INFORMATION ON THE SUBJECT MATTER COVERED AND REPRESENTS THE OPINION OF THE AUTHOR. HOWEVER, IT IS PROVIDED WITH THE UNDERSTANDING THAT THE AUTHOR IS NOT ENGAGED IN RENDERING LEGAL, FINANCIAL, ACCOUNTING, OR OTHER PROFESSIONAL ADVICE TO THE READER. IF LEGAL, FINANCIAL, ACCOUNTING, OR OTHER PROFESSIONAL ADVICE IS REQUIRED, THE SERVICES OF A COMPETENT PROFESSIONAL SHOULD BE SOUGHT. THE AUTHOR SPECIFICALLY AND EXPRESSLY DISCLAIMS ANY LIABILITY THAT MAY BE INCURRED AS A RESULT OF THE USE OR APPLICATION OF THE INFORMATION THAT IS CONTAINED IN THIS WORK.

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