How is the commission calculated on a commercial lease transaction?

In Leasing Property - Asked by Penny R. - Feb 15, 2011
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Answer(s)

Gene G.
Broker/Agent
Houston, TX

Most often a commercial lease commission is based on a percentage of the base rent over the primary term. Some commission agreements may also include the same or different percentage of expense reimbursements over the primary term and a percentage for the renewal period(s). Percentage wise, you are looking at a range of 3-6% of the base rent.
More difficult then commission, usually, is how it is paid out. There are arguments on both sides but the discussion rests on if the commission will be paid when a) the lease begins or b) as the lease progresses. In Texas we do it when it begins, which means the landlord will have to have some money available up front. In other parts of the country they do it annually. Good luck

Feb 15, 2011
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Nick C.
Broker/Agent
Philadelphia, PA

To add to what Gene said, yes, you can do it a few ways. Depending on the strength/credit worthiness of the tenant (and the landlord) some landlords do not feel comfortable or are not financially able to pay the commission in a lump sum at the start of the lease. If that's the case you can agree to have the LL pay you as they collect the rent (write a check every month for the commission amount).
As for actually calculating the dollar amount of a commission you take the amount of rent paid and multiply it by the commission rate (whatever % both parties agreed to). So if the annual base rent is $100,000 and the commission rate is 6% then your commission is $6,000. Assuming the rate doesnt change and the lease is for 5 years the total base rent would be $500,000 so your commission would be $30,000. If the owner can't afford/doesnt want to pay that upfront he can pay you "as-collected" and send a commission check every month for $500 ($6000/12 months= $500/month).
Hope that helps. Nick Cisler

Feb 15, 2011
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Alexis E.
Broker/Agent
Chicago, IL

In the Chicago commercial market, on a commercial lease we will take, i.e., 7% of the 1st year and 4% for each year thereafter up to the option. Of course, due to anti-trust, these commission rates are negotiable. This is just an example as the rates can be whatever is agreed upon between Broker and Lessor.
So, to simplify on a $1,000 a month lease (I know real low---but hypothetical) the commission for year one would be $840, year 2 and 3 would be $480-----------formula is the yearly rent x the % divided by 12. We then take the 3 products of $840, $480, and $480 for a total of $1800 and divide by 3. So annually the commission rate would be $600. Due to the small amount of commission in this example, the commission would be paid in full at lease signing.
Larger commissions could be paid annually, and even larger commissions, monthly.

Nov 28, 2012
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