You Don’t Need a Commission Agreement…You’re Covered Under the Leasing Agent’s Agreement!

How many times have leasing agents told me that I didn’t need to negotiate a separate commission agreement at their building, because they’d already made provisions for the payment of my commissions in the representation agreement between them and their landlord?  I’ve heard comments from brokers suggesting that negotiating a separate commission agreement is a waste of time, when the leasing agent’s agreement provides for them. It has been suggested to me that the time spent on negotiating a separate agreement could be better spent on pursuing and closing another transaction.

  • Here are a few questions that I offer in response to the above:
  • Have you read the representation agreement between the landlord and the leasing agent or have you just relied on claims made by the agent?
  • Do you have a complete original copy of that agreement?
  • Is your company a party to that agreement?
  • Would the obligation to pay you be from the landlord or the leasing agent?
  • Are the commission rate, amount, pay schedule, and terms what you expected?
  • Does that agreement afford you the ability to change terms you find to be unsatisfactory?
  • What rights and protections does that agreement specifically afford you?
  • What future benefits does that agreement afford you?
  • If the agreement between the landlord and the leasing agent expires, do your future rights expire, too?
  • If the landlord sells the building, what happens to your future rights?
  • What would happen if the  leasing agent defaulted in its obligations to you?
  • What would happen if the landlord defaulted in paying your portion of the commission to its leasing agent?
  • Would you really want your compensation arrangement to be through the leasing agent, a third-party, or directly with the landlord, who has the true obligation to pay you? (In earlier articles I’ve written, I’ve suggested that brokers pass even the landlord and secure commission payment commitments from building lenders!)

…and, I’m just getting warmed up!

Some landlords and leasing agents have responded to these questions by saying that their state real estate commission affords them protections under many of the above circumstances.  That may be true.  However, do you really want to have to deal with, what are most certainly bureaucratic, rules under your state’s real estate commission and perhaps endure a legal battle to collect what is rightfully yours?  Or, do you really just want to be paid what is due you?

No leasing agent can bind another company, unless that company agrees to be bound.  That’s a fact!  Irrespective of what a landlord or a leasing agent tells you, just because they have agreed on commission terms between them, doesn’t mean that you must accept those terms.

Remember something very important here:  A broker bringing a tenant, or buyer, to a landlord, whether through the landlord’s agent or directly, is the customer of the landlord and its agent.  That’s right! The broker is the landlord’s customer.  The tenant or buyer, in turn, is that broker’s customer.  This is especially true when the broker is authorized in writing to represent the interests of the tenant or buyer.

So, as the customer, the tenant or buyer’s broker has the right to set its own terms of service and the compensation that it will receive. If a particular landlord elects not to buy what the tenant or buyer’s broker is delivering or chooses not to pay the broker’s price, then that is the landlord’s option. And, it is the option of the broker to take its business elsewhere. Or, in such an instance, the broker also may have the option of securing an alternative compensation arrangement with its tenant or buyer. But, no tenant or buyer broker is obligated to be bound by an agreement between landlord and leasing agent if that broker did not agree to the terms of that agreement.

About Real Estate Strategies Corporation
Real Estate Strategies Corporation is a respected corporate advisory and transaction services firm that provides thought-leadership, decision-making, planning, project management, and transaction execution services to finance and senior executives at management team-led public, private, and portfolio companies, and not-for-profit organizations.  Under the leadership of its award-winning CEO, Andrew Zezas, RealStrat’s clients engage the firm when acquiring, disposing of, renegotiating, or enhancing occupied leased or owned real estate in New Jersey, Pennsylvania, New York, Connecticut, and throughout North America.  By creating and executing Business DRIVEN Real Estate Solutions and identifying hidden Opportunities, RealStrat drives greater operational and financial performance in support of its clients’ stakeholder objectives, M&A requirements, and exit strategies.

In the current economic environment, RealStrat’s efforts are focused on uncovering, capturing, and re-purposing hidden liquidity and minimizing risk in its clients’ leased and owned real estate.  The firm provides counsel as to competitive advantage strategies in preparation for the eventual economic recovery.  Visit www.RealStrat.com. Read about timely commercial real estate issues at RealStrat’s blog at www.CorporateAdvisor.wordpress.com. Follow RealStrat at http://www.Twitter.com/RealStrat.

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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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