Can I ask Tenant Broker for pro rata return of commission in the event of Tenant Default?

And if so, would anyone be willing to share sample language of such a clause that I could use in an outside broker's commission agreement?
In Leasing Property - Asked by Nolan S. - Jan 14, 2015
Report Abuse
Answer this Question

Answer(s)

Justin K.
Broker/Agent
Dallas, TX

The broker cannot guarantee the success of any tenant, so you need to do your due diligence and financial analysis on the tenant as you are the investor. I doubt any broker would agree to offer any return if a tenant defaulted.

Jan 14, 2015
Report Abuse
Michal B.
Broker/Agent
Miami Beach, FL

You can certainly ask for a portion of it back if it's stated in the commission agreement but it might be very difficult and expensive getting it back plus you might be having hard time getting brokers bring their clients to you in the future. It is landlord's responsibility to qualify the tenant and if any red flags pop up then go ahead and ask for extra security deposit, letter of credit or other type to security to cover yourself in case of default. Also many defaults are caused by disputes over condition of the property between landlord and tenant over which tenant's rep has no control over so refunding a portion of the commission would not be justified. Good luck.

Jan 14, 2015
Report Abuse
Dr Mary S.
Broker/Agent
Bakersfield, CA

No. The commission is an employment contract and it is earned when the Lease is delivered, not when the tenant performs.

Jan 15, 2015
Report Abuse
John L.
Broker/Agent
Lake Hopatcong, NJ

In general, the Landlord is responsible for determining the "worthiness" of all tenants. Brokers should provide you with "credit reports, employment background, income and references". Landlord should call for verification of all information provided. Once tenant is accepted, the brokers job is completed and he/she is paid. Your lease should detail patments and penalties for non-payment/default of lease.

Jan 19, 2015
Report Abuse
Maria T.
Broker/Agent
San Diego, CA

What's most important to me is the relationship. As a Broker I offer a commission credit and get it leased again.

Jan 20, 2015
Report Abuse
Clearstone Ventures L.
Owner/Investor
Brooklyn, NY

As an attorney, the short answer is that you can always ask. The commission agreement is like any other agreement. So long as both (or all if more than two) parties agree to the terms of the agreement and there is no duress, fraud, etc., it is valid and binding. The problem arises down the road if you actually seek to enforce the agreement. This can involve costly legal expenses plus a bad reputation can be created with brokers in the future.

Jan 20, 2015
Report Abuse
Glen W.
Lender/Mortgage Broker
Atlanta, GA

The easiest solution is to negotiate with the broker upfront that you will pay the first year commission at signing and the remaining when the tenant performs (for example if you do a 3 year lease, pay year one commission on signing and year 2 at the end of year one). We structure this on all our leases with non credit tenants

Jan 20, 2015
Report Abuse
Randal C.
Broker/Agent
El Paso, TX

I had this problem A LOT. In my shopping center, the broker would do long leases with people that often failed. I soon got rid of the broker.....Now days I manage the property myself. If a broker brings a tenant, I will do a short term lease. I will only do a long term deal if I lease it myself.

Jan 20, 2015
Report Abuse
Chris W.
Broker/Agent
Plymouth Meeting, PA

As a broker I feel the only logical and fair way is to collect a non-discounted 6% or 5% commission over the life of the lease along with renewals, and expansions paid, only and as, collected. My risk is equal to and aligned with the owner's risk, thus obviating the question. Naturally, most brokers don't want this risk which is the cause of the problem in the first place, so they take a discount, but I feel the discount of up to 15% is too great.

Jan 22, 2015
Report Abuse

Welcome to Answers

LoopNet Answers is where the commercial real estate community shares what they know to help each other out. And it's all for free.

Ask a question to get advice from brokers, investors, professionals and local experts.

Answer questions to raise your visibility as a trusted advisor and build new relationships.

Ask a Question

Post Question