This is a question that is on the mind of any owner or leasing agent if they are in the leasing business for any length of time.
Usually the practice is that the commission is paid 50% at the execution of the lease, and the remaining 50% at the official occupancy of the tenant to the space.
While an owner may take this position of wanting to pay the lease on an annual basis, or some even a monthly basis, it is not a good practice to enter into a lease under this type of plan.
It should be the agent's responsibility to run credit checks and reference checks on the prospect and to ask for a secured, personal guarantee if it is other than an individual executing the lease, it should not be the agent's responsibility to accept the risk of tenancy. There are many landlord induced actions that can affect a lease after execution.
If an owner is not convinced of the risk, perhaps he or she should enter into a shorter term lease with the tenant. If so, the commission should be greater for the shorter number of years. For example, some commissions are priced on a 5-4-3-2-1 basis. 5% for the first lease year; 4% for second lease year; 3% for third lease year; 2% for the fourth lease year; and 1% for the fifth and all consecutive lease years.
Onward and upward David... Rob Baird, CA RE License #544165 (One of the oldest, active licenses in CA) 951 515-5855 Email: robertbaird@NewportCpC.com
May 4, 2011