Recent experience negotiating commission agreements with commercial brokers served as a reminder to set forth fundamental principles in clear and concise fashion. Typically, the broker will propose its form agreement, which may not deal with all the issues and, of course, will be broker-friendly. While this is not intended to be an exhaustive list, the following issues should always be considered:
1. Calculation of Commission: Make sure the commissionable rent is defined precisely. Items such as rent concessions and tenant electric, for example, should generally be excluded.
2. Term: At some point, the right to receive commissions should terminate.
3. Payment: Try to provide for a pay out over a reasonable amount of time. The landlord would hate to be in a position of having paid a full commission on a long term deal where the tenant ends up defaulting early on in the term. Also, the right to payment should accrue only upon the execution of a lease.
4. Marketing: The broker’s efforts to market should be clearly described.
5. Exclusions: Be sure to list any prior contacts that will not be subject to a commission.
6. Co-Brokerage: Set forth the circumstances under which the landlord’s obligation to pay co-brokerage fees will arise.
Most experienced commercial brokers will be receptive to reasonable modification of their standard agreement. If you are getting an unusual amount of pushback, the landlord may want to consider doing business elsewhere.