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Commission Agreement Letters: Beware of Traps and Pitfalls

By: James Hochman, David Liebman, SIOR, JD

In industrial and office lease and sale transactions—absent a signed exclusive listing agreement—your brokerage compensation is governed by a commission agreement often in letter form, typically negotiated at the outset of the transaction. Here are a few tips to avoid the pitfalls that result from a poorly negotiated commission agreement.

1. Timing of commission payment: While the tenant representative will request full payment upon lease execution, a landlord is likely to delay commission payment until at least payment of the first month’s rent (especially when substantial upfront rent abatement is included) and/or when the tenant takes possession of the premises. Impress upon the landlord that your job is effectively done when the lease is signed and that you are not a guarantor of the tenant’s occupancy or performance.

2. Warranties vs. Representations about other brokers’ commission claims: Some landlords may require a broker to warrant that there are no other claims for compensation by other brokers in the transaction at hand. Offer instead to make representations based upon actual knowledge that there are no other brokers making such claims. It is reasonable to respond that you are in the business of transactions, not insurance.

3. Payment on renewals, extensions, or expansions: Most landlords will refuse the tenant representative any compensation beyond commission based on the initial lease term. In these situations, you might offer compromise language that you as the tenant representative must be engaged by and actively involved in representing the tenant in specific expansions or renewals in order to earn and receive commission on them.

4. Indemnification of landlord/owner against claims and inaccurate representations: Many landlords will require this indemnification from tenant rep brokers regarding representations or warranties noted in item 2 above. Try to limit the scope of the tenant rep’s liability to the amount of the commission actually paid. Also, if you absolutely must give an indemnity, require the right to control the settlement, defense of the claim, and choice of counsel for both parties.

5. No commission if tenant changes brokers in the transaction: Failing all else, ask for a period of time in which negotiations with you as the original broker can continue or resume and, if such negotiations continue and lead to a lease, then a commission is paid to you and not the other broker. Post-termination protection is fair—it should be your right.

6. No payment of leasing commission if landlord sells property before payment of commission: Such term should be revised to provide that the landlord is released from lease commission liability only when the new owner specifically assumes lease commission liability in writing.

Hopefully these suggestions will help you get that written and enforceable commission agreement to generate confidence from landlords and sellers in your negotiation skills and acumen.


Media Contact
Alexis Fermanis SIOR Director of Communications
James Hochman
James Hochman
Schain Banks Kenny & Schwartz

Jim Hochman is a partner at Schain Banks Kenny & Schwartz law firm and freelance writer. Contact him at jhochman@schainbanks.com.

David Liebman, SIOR, JD
David Liebman, SIOR, JD
PowerPlay Real Estate Partners

David Liebman, SIOR, JD, is the Founder and Managing Broker of PowerPlay Real Estate Partners, a Chicago-based specialty commercial real estate services firm.  A former corporate and real estate attorney, David leverages that experience with 34-plus years of CRE brokerage expertise to exclusively advise and represent industrial and office buyers, tenants and investors in acquisitions, leasing, lease renewals/restructuring, land purchases and build-to-suit transactions.  During his career, David has completed more than 500 transactions, valued at over $800 million.