Standing Up for Your Rights
If you have been a student of What They Forgot to Teach You at Tenant School, you’ve probably figured it out by now. The money to pay for being represented by your broker to exercise your options is there, you just need to ask. Better yet, you need to demand it (in a straightforward way, of course). It won't be easy unless you have a landlord who has some class.
Who pays and who doesn’t? We have a philosophy in lease negotiations that carries over into the representation scenario. When we find an onerous clause in the lease, our first goal is to either modify it or remove it. The respectable landlord will either comply or, at the least, look for compromise language. Never accept “that will never happen" as a rationale. If it will never happen, then change the language or take it out. Otherwise, assume it will happen.
So, our take on which landlords pay fees for options is categorized in the same way. The classy landlord understands your contractual relationship (note how I keep coming back to that contract), and the value a broker brings to a transaction. If they try to cut out your broker, then it will happen. In this case the "it" advantages the landlord.
Here are some rules of thumb: Even the best landlord has some difficulty dealing with the “commission to tenant's broker" problem. If a broker shows up six months before expiration and says, "I'm representing Cheatum, Robum & Lie and I expect you, Mr. Landlord, to pay my fee," do you know what the landlord is going to say to that request? Boy, do they hate that.
However, if your broker has been working with you for some period of time, preferably he/she is the broker who put you in the space and, most preferably, they have been in contact with you and the landlord throughout the lease, we have a no brainer. If your broker is "new" on the scene, but has been talking to the landlord on your written authorization (again that "written agreement" shows up) regarding those options for a minimum of one year, no landlord should argue the point—again, we have a no brainer. At a minimum, they should pay your broker a percentage of the fee as if this was a new transaction.
Here are some tips and strategies for standing up for your rights: What do you do when the broker you engaged wasn't your original broker (or you made the mistake of simply calling the name on the sign)? How about the landlord who tries to push your broker out by going directly to you? As you’re probably aware, things can get ugly.
Let's start with the first example. Write to your landlord and tell them you are looking at all your options (opportunities), and that since you are not a real estate expert, you are working with a broker (do not use the word hire). Explain that you anticipate he will compensate the broker just as if you were a new tenant. Does that seem too blunt? If you’re worried about that, remember my rule when you hear the phrase “it will never happen?" That same approach should work with the classy landlord (although you may have to have some face to face discussions with your own landlord). Don’t be afraid—it’s your money.
An interesting scenario occurred recently where I was involved with a client whose option to renew was coming up. Throughout the lease, the landlord and I were very involved in various discussions on issues regarding the tenant. The terms pursuant to the option to extend including the economics were clearly stated in the lease. Despite all this, the in-house representative of the landlord contacted my client directly (actually I always looked at it as both our clients) and attempted to cut out my fee. The landlord's position was ”this is our tenant,” like I hadn't heard that before. Ownership recognized what was happening, and we were ultimately compensated. As you might expect, the in-house person has moved on to a new industry. A good landlord realizes that even leasing, despite the different goals of the landlord and tenant, must be a business partnership based on both trust and service.