A leasing agreement is necessary when landlords select a brokerage firm to lease their property, or when brokers or their leasing agents present a prospective tenant to the landlord. The leasing agreement between a landlord and a broker will state what the broker or the broker’s leasing agent must do to represent a tenant or the landlord, how a commission is earned, the method for determining the amount of the commission, and the rights and obligations of the landlord and the broker. One of the reasons landlords prefer to enter into a leasing agreement is to protect themselves from leasing agents claiming they are owed a commission when they have not represented a tenant who entered into a lease. Brokers likewise want an agreement to protect their leasing agent’s position in the transaction.
Both parties to the agreement should understand the specific responsibilities of each party. This chapter will discuss the different types of agreements from the landlord’s and the broker’s perspectives. When a broker or leasing agent represents a tenant, both parties will enter into an agreement that almost always gives the brokerage firm and its leasing agent the exclusive right to represent the tenant in the tenant’s search for space. Leasing agents may prepare a request for proposal (RFP) to outline the location, building, and space requirements of their client. A landlord will either acknowledge the leasing agent’s role in representing the tenant or not accept the leasing agent’s representation. These agreements will be discussed from the perspective of both parties.
Knowledge is power in the negotiating process, and one would be well served to be as well prepared as possible when entering into a negotiation. The negotiating process in commercial leasing is one of the most complicated and rewarding aspects of the entire leasing process. As is the case for most of the aspects of commercial property operations, there are very few rules; and the positions of the parties are always in flux, depending on the conditions at the time of the negotiation. The parties must be as knowledgeable as is practical—not only about their own side of the negotiation, but also concerning the person on the other side of the table. On very large transactions, it is not unusual for leasing agents to do mock negotiations in order to test their positions and responses to various situations.
Muhlebach, Richard; Alexander, Alan (2010-06-14). The Leasing Process (Kindle Locations 1745-2168).
Institute for Real Estate Management. Kindle Edition.
Lesson Learning Objectives
By the conclusion of this Lesson you should be able to:
- Evaluate the different types of leasing agreements from the landlord’s and broker’s perspectives.
- Analyze the Leasing Agreement issues and provisions.
- Understand the importance of a Registration Letter issues and provisions.
- Comprehend how commissions are earned and determining who pays the commission.
- Appraise the goals and objectives of both the landlord and the tenant.
The following Assignments should be completed and submitted to the course faculty via the learning platform for evaluation and grading. Submit your responses to these questions in one WORD document. List the question first, and then your response.
Be sure to properly site your sources, both in-text and with a reference list at the conclusion. If you use an online source to support your answers, you must provide a properly formatted link to the source. You should use APA citation format and make sure your sources are credible. In most cases, your responses should be no more than 500 words.
1. Discuss the elements of a Tenant’s Request for Proposal and why this document is of value to a prospective tenant.
2. Discuss the Registration Letter and its importance to the three parties involved.
3. Since there is no standard industry commission, discuss the factors that go into determining commission rates and payment schedules. Give an example of a commission calculation.
4. With regard to negotiations, compare and contrast the goals and objectives of the landlord with the goals and objectives of the tenant. Evaluate the property-type issues that landlords must consider when negotiating a lease.
5. Compare and contrast the lease terms goals and objectives for a retail tenant and a medical office tenant.