What is a tenant broker?
- Who Is a Tenant Broker?
- There is a Commission in Every Deal
- What is a Leasing Agent?
- How are Tenant Brokers Compensated?
- Should I take a Direct lease or Sublet a space?
- What is a Renewal Option, and why are landlords reluctant to sign?
- Can I Cancel a Commercial Lease?
- What is a “Good Guy Clause”?
Who Is a Tenant Broker?
A tenant broker is a person who works with prospective tenants or buyers to locate commercial property for their use. These brokers provide you with guidance and advice based upon informed knowledge of their markets. Along with locating the space that fits your needs and budget, good tenant brokers will work directly with ownership or the buildings agent to:
- Negotiate a lease in your best interests
- Present your firm to ownership in the strongest possible terms
- Speak with your attorney to create the easiest possible lease terms for you
- Work with your contractor or the buildings’
- Suggest an architect, carpet installation, phone, internet or moving company
- *A strong Tenant Broker has long established relationships with Ownership and Agents. This knowledge becomes very useful and is used in their clients’ best interests when negotiating their lease.
- A tenant broker will give you objective advice because his or her commission isn’t tied to a particular property. A landlord also realizes that you are working with a professional who understands the market and can analyze it correctly for the client needs He understands you are looking at multiple properties and will therefore be more competitive and willing to negotiate favorable lease terms.
There is a Commission in Every Deal
When the tenant is represented by its own broker, a commission is paid to the tenant’s broker. The landlord’s agent also receives a small commission. Those who understand the real estate business are always represented by their own broker. This costs nothing to the client, yet the expertise and skills provided by a professional are solely for the client.
What is a Leasing Agent?
A landlord hires a broker who represents his or her interests. This agent’s responsibility is to rent space. Commission is earned when a tenant signs a lease and occupies a space.
How are Tenant Brokers Compensated?
Although a building owner pays a tenant brokers fee, a tenant broker doesn’t work as an exclusive leasing agent for one property or one landlord. When your work with a tenant broker, he or she works for you. If your landlord or leasing agent refuses to work with your broker, this is a good sign that you are dealing with disreputable people.
Should I take a Direct lease or Sublet a space?
This question has no simple answer. It truly depends on ones individual situation. A direct space (5-10 years) can be designed and created in the image of the client. The term will be long enough that the both the client and landlord will have their needs satisfied. A landlord needs a certain time period (amortization) to recoup his cost of the tenants’ build out.
A sublet space (1-x Years) is already built. The apparent advantage is that the client can just move in. There may also be phones, furniture and internet already in place. Of course the downside is things may not be where you want them. There may be too many or to few rooms. Walls, paint and carpet may be worn. Phone systems may be antiquated. Furniture may not be in the style that you desire. The term may be to short or to long for your true needs. You must abide by all terms of the Primary lease. There are solutions to these situations that a good Tenant Broker can help you to resolve.
What is a Renewal Option, and why are landlords reluctant to sign?
This is a unilateral clause in a real estate lease that allows either a tenant or a landlord a guaranteed right to have a specific term carried out. In the case of a lease renewal it allows the tenant to decide whether or not to extend the lease once the initial lease term expires. The tenant may ask for a 10 year term with the option of renewal every 2 years. This seems that it is in the interest of the client, but from the landlords point of view he can’t build a space for a client whom he is not sure how long he will occupy the premise and it limits his flexibility to market the space to prospective tenants.
Can I Cancel a Commercial Lease?
No, it is a legal document with terms and conditions. However, there are conditions set forth in the lease that does give the tenant certain options. You can expand or contract your space in the building. A good tenant working with a landlord can usually find a new space in the building. A landlord wants nothing more that to have a good tenant grow within his building.
You can sublet your space. Unfortunately, there was no space in the building that was suitable for your firm’s growth. You choose to hire a tenant broker to help you to resolve this issue. The broker works with you to market your space. However, you remain the primary tenant on the lease. If you choose to use the buildings agent to help you sublet your space, remember his first duty is to lease the landlords empty space.
You have a lease assignment. You find a tenant to sublet your space and the landlord feels that the new tenant is financially stronger than your firm. You are released from all further obligations. You “buy-out” your lease. This requires the tenant to make a lump sum payment to the landlord. This may have or may not have been negotiated at the time of lease signing.
What is a “Good Guy Clause”?
In essence, a landlord is asking that a tenant be responsible and pays the rent. If for whatever reason the rent can’t be paid while the tenant occupies the space, the tenant notifies the landlord, gives the keys back and vacates the space. He or the corporation pays the rent up until the vacate day. The Good Guy guarantees that this will occur. The Corporation is still liable, as the lease was signed by the corporation, but the Good Guy has no further liabilities. Today most corporate leases contain some form of a Good Guy clause. Please see example below:
GOOD GUY CLAUSE
The undersigned hereby covenants and agrees that if there shall occur any default by Tenant in the payment of fixed rent or additional rent or any other charges set forth in the Lease, or if Tenant shall default in the performance of any of the covenants, terms, conditions and agreements contained in the Lease then the undersigned shall in each and every instance up to and including the Release Date (as defined below) (i) pay such fixed rent, additional rent and any other charges due and payable by Tenant to Landlord (ii) faithfully perform and fulfill all of such covenants, terms, conditions and agreements to be performed by Tenant as set forth in the Lease, and (iii) pay to Landlord all consequential damages that may be incurred by Landlord as the result of any default by Tenant under the Lease including without limitation all attorneys’ fees and disbursements incurred by Landlord as a result of any such default and/or the enforcement of any of the provisions of the Good Guy Clause. The “Release Date” shall mean the upon which Tenant returns to the Landlord the keys to the Premises and surrenders possession of the Premises in the condition required by the Lease as of the expiration or termination thereof free of all tenancies or rights or claims of occupancy by Tenant or any party claiming through Tenant.