For exclusive listing agreements with real estate brokers for commercial properties “one-size does not fit all”. The issues differ depending on variants such as the type of commercial property (office or retail or industrial space vs. free-standing buildings) and the nature of Tenant’s business and needs.
There are a lot of issues which issues which Owners and Brokers need to carefully discuss so that the brokers will be more effective in inducing the potential clients to agree to the terms of the exclusive and will be able to manage clients’ expectations. And certainly they must come to a common understanding as to whether the Owner is granting the broker an exclusive right to sell or lease or only exclusive brokerage, reserving to the Owner the right to make a direct sale without the broker being entitled to a commission.
Before proceeding to some selected issues, the following should be addressed:
- exclusion, for a relatively short period of time, of the Owner’s accurately described “Active Prospects” for sale or lease generated prior to the commencement of the term of the Exclusive.
- the necessity of the broker to be satisfied as to the authority of the person or persons signing the Sale and/or Lease Listing Agreement for the owner
- the need of the Broker to get full disclosure by Owner of known exterior or interior environmental conditions, physical condition of the building, including as to the mechanical systems, and present or future zoning due diligence issues.
Here are some selected issues:
- Length of the Term of the Exclusive Extension of the Term for the period of time that the Owner may have removed from the market due to the opening of an escrow or acceptance of an offer to purchase or lease and the sale or lease is not consummated.
- Registering “Prospects” during the term or at expiration: What activities by the Broker with a prospective
purchaser or tenant justifies registering the prospect with the Owner?
- The period of time after the expiration of the Exclusive (the “After-Look Period”) during which if a contract
or lease is signed with a party introduced to the Property during the Term, the Broker will be entitled to a|
commission—why is this appropriate and how long is fair and reasonable
- The Base Rent (on a square foot basis), desired by Owner; minimum or maximum duration of initial term of a LeaseThe listing sales price-problems when the Owner’s target price is much over the market. Need for written documentation of Owner’s agreements on reductions of the Listing Price.
- When the Sale Commission is to be paid payable if the Seller will be taking back a note and mortgage for part of the sales price
- When the Leasing Commission is to be paid, especially. where the cost of Landlord’s work above “building standard” is substantial
- Leasing Commissions: are they payable
- to items of “Additional Rent” (CAM, Real Estate Taxes, etc.)
- to the component of Base Rent which represents the recapture by the Landlord of the cost of Landlord’s work over and above “building standard”?
- as to retail space leases, to percentage rent?
- Other Commissionable transactions: Purchase or Leasing of other space in same property or in other buildings, said space owned or controlled by Landlord or its affiliates or members or partners of the Landlord
- If the Lease grants the Tenant an Option to Purchase and the Option is exercised during the term or renewal term or if the Tenant purchases the Property without having had an option
- Is the broker to get a Sales Commission
- If so, is the Landlord to get a credit against the Sales Commission for the amount of leasing
commissions already paid applicable to the unexpired portion of the term as of the closing of the sale?
- Broker’s share of forfeited deposit on a contract of sale or security deposit on
- Broker’s right to a commission where an Owner withdraws the Property from the market or refuses to execute a contract of sale or lease with a ready, willing and able purchaser or tenant on the terms set forth in the Listing Agreement, as the same may be modified.
- Listing of the Property with another broker after the expiration of the Listing Agreement. In the event that Owner lists the Property with another broker after the expiration or termination of the Listing agreement, Owner is to agree to provide in the subsequent Listing Agreement that a commission will not be payable to the new broker with respect to transactions for which Owner is obligated to pay a commission to the first broker.