Earned Commissions Under Exclusive Listing Agreements
11/2/2016 | Articles & Alerts
When engaging a real estate broker to list a retail shopping center for sale or lease, the owner of the property and the broker will enter into an exclusive listing agreement to set forth the amount of the commissions and when such commissions are earned. Many of these agreements provide that the broker is to be paid a commission for any leases or agreements of sale that are executed during the exclusive listing period or during a “tail” period thereafter. This provision should be discussed and negotiated between the parties so that the agreement is clear as to when a commission is earned by the broker.
The owner should be careful to exclude any transactions that preceded the exclusive listing agreement or that might be subject to a “tail” period in a prior listing agreement with a different broker. This will ensure that the owner is not obligated to pay two listing brokers for the same transaction. The simple solution is to list the excluded transactions on an exhibit to the new exclusive listing agreement and provide that these transactions will not cause any commissions to be paid under the new listing agreement.
The owner’s obligation to pay a commission on renewal terms and expansion amendments is also an issue that should be discussed between the parties. The broker’s argument is that the commission is earned since the broker brought the tenant to the owner and, therefore, should be compensated for the additional rents resulting from any renewal terms and amendments. The owner, however, has also been a cause in the renewal terms and the amendments by providing an attractive product to the tenant that is causing the tenant to decide to stay at the property or expand its premises. The owner should also be concerned about a sale of the property in the future and how the additional brokerage fees that are payable on the existing leases might be perceived by a potential purchaser.
Most exclusive listing agreements provide that the broker is to be paid a commission on leases and agreements of sale that are executed with tenants and purchasers that were specifically marketed by the broker, even if such execution occurs after the expiration of the exclusive listing period and during a “tail” period. With regard to this “tail” period, the owner should clarify that only tenants and purchasers that actually submitted a letter of intent during the exclusive listing period be subject to this provision. Also, the duration of the “tail” period should not be so long that the next broker on the property will want a commission. At some point, the next broker will be able to argue that the letter of intent was no longer in effect and the new broker caused the transaction to occur.