LEASING COMMISSIONS - Understanding Commercial Leases - Part 14

This is Part 14 of a multi-part series on Understanding Commercial Leases.

LEASING COMMISSIONS

PURPOSE - Compensates the Broker(s) for services in providing Tenant and sometimes for negotiation of lease.

COMMISSIONS WRITTEN INTO LEASE - Provides more protection for Broker, as the obligation to pay the commission goes along with the lease. In the event lease is assigned, Landlord goes bankrupt, etc., it still obligates any future Landlord who is enforcing the lease to pay lease commissions mentioned in the lease.

SEPARATE COMMISSION AGREEMENTS - Provides less protection for Broker, as the
obligation to pay the commission is separate from the lease. In the event lease is assigned
(for whatever reason) the future Landlord has no written obligation to pay commissions  due.

LANDLORD'S INTEREST

• Reducing commissions as much possible.
• Not having to pay commissions on renewals and expansions.

TENANT'S INTEREST

• Tenant usually doesn’t care, as it is typically the Landlord who pays the commission.
• Tenants can sometimes argue for slightly reduced rent if there is no Tenant brokerage commission due.

BROKER'S INTEREST

• Negotiate higher commissions.
• Negotiate commissions on renewals and tenant expansions.
• Write commission agreements into leases, rather than have separate agreements.
• Negotiate language in lease that says failure to pay lease commissions in a default of the Lease by Landlord.