Chapter 1 - Commissions on Commercial Leases

One of the most common questions I get from agents is “how do you get paid on a commercial lease?”

Commissions on commercial listings, just like residential listings, are entirely negotiable between the Landlord (LL) and the Listing Agent (LA). Typically the commissions range from 10% to 6% and are based on the total rent for the Initial Term of the lease. ‘Term’ is the length of the lease, i.e. 3 years, 48 months, 5 years, etc. etc. And, just like residential property, they are commonly shared with a selling agent or cooperating broker.

Let’s say you have a listing for a property and you agree to an 8% commission for the first 60 months of the initial term of the lease. The property leases for $2,000 / month or $24,000 / year with an initial term of 3 years. The commission would be $5,760 (see below). Now if a cooperating broker is involved you will have to share this commission with him. More on that in another session.

$24,000 (annual rent) x 3 (years the initial term) x 8.00% (commission = $5,760.00

If the initial lease term is for 5 years, the commission goes up accordingly.

$24,000 x 5 x 8.00% = $9,600.00

This is fairly simple. However there could be, and most likely will be, a lot of other details involved in the listing agreement. For instance :

· Is commission paid monthly as LL receives the rent?
· Are there staggered commissions i.e. 8.00% on the first 36 months then 6% on the next 24 months?
· Are there commissions on CAM and additional rent? (More later)
· Are commissions due on options and renewals?
· If the LL sells the space to a tenant, is the broker entitled to a commission on the sale?
· What is the commission on ‘free rent’?
· If a tenant leaves the premise before the term of the lease has expired is the LL due a refund?
· What is a cooperating / tenant rep entitled to if he brings a tenant?
· Why is this so much more complicated than it was in Monopoly?

The answers to all these exciting and interesting questions plus many others will be revealed in coming installments of Zen and the Art of Commercial Real Estate. Stay tuned and watch for coming installments.

In the mean time, if you have any burning questions r.e. commercial real estate, please let me know. They might even be the subject of a future installment.