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Bridge Beat

Mar 7, 2012

Listing/Commission Agreements – Do You Know what you Need to Know?

The commercial listing agreement is a material document for the broker and owner. Fees can range from thousands to millions of dollars so it warrants attention just like other material agreements. It comes down to the relative leverage between the parties involved but there are some key terms to consider. Some are not contentious but others require negotiation to arrive at a balanced agreement that rewards the broker and ensures the owner gets relative certainty. Below are some examples:

 

  • 1. The Term – factors include sums to be incurred by the Broker in advertising the premises, uniqueness of the property, supply and demand for similar sites. Six (6) months is common. Consider early termination rights below.
 
  • 2. Early Termination Rights - may require a payment to the broker for time/costs for marketing and a reasonable notice period but it allows for flexibility if circumstances change e.g. triggering of a buy-sell clause in a co-tenancy agreement or a tenant's exercise of right of first refusal on a 3rd party offer.
 
  • 3. The Agent – Did you choose a broker because of a particular agent? What if he leaves? Can he list competitive properties in the area during your term?
 
  • 4. Marketing – What is the budget? The agreement should specify what is expected in terms of services/marketing/budget, especially if the property is unique e.g. internet and foreign market advertising.
 
  • 5. The Fee – usually a percentage of gross or net rent (make sure additional rent is not part of that) or the sale price. Exclude tenant allowances/rent free periods. Always check the “going rates” before signing.
 
  • 6. The Timing of Payment – Is the fee payable on “procuring a valid offer to lease” or “offer to purchase”? signing the lease?, occupancy?, payment of rent?. all of the above? Is there a renewal/extension fee with a formula?
 
  • 7. Holdover Period – How long is it for and which prospective buyers/tenants does it apply to? Sixty or ninety days is not unusual. Provide for a list of serious parties, not those who merely received an email etc. Don’t use wording like “introduced” or “shown”.
 
  • 8. “May” v. “Shall” – be wary of the use of “may” in terms of obligations and consider carefully if it should be changed to “shall” so there is a definite obligation.
   The Lesson: Strive to arrive at a balanced agreement that manages the parties expectations upfront to minimize disputes later on. It takes a little time and adds cost to the process but usually it pays off.

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