Why Don't You Pay on Renewals?
Here's your scenario: You've been in your space for four years and three months of a five-year lease. You and your broker have been reviewing your facility needs for the past six months—or at least those of you who have been using our web pages as a guide have been. Suddenly, and without warning, the landlord calls and demands you respond to his request that you either exercise your option to renew (or extend—there is a legal difference), or he is going to lease your space to someone else.
Do you panic? No—even if you didn't do the prudent thing by spending months planning your next real estate move, you're still probably going to call the broker who got you into the space in the first place. Now the plot really thickens.
Thanks for calling, but we don't pay. Boy, will your broker be excited. He either forgot about you, or he had you on his ticker to call you six months before expiration, as that's the minimum time required by the lease to notify the landlord about your intent to exercise your option.
You really want to stay, but you're not sure what the landlord is thinking and, after all, you're not a real estate expert. That's exactly why you hired the broker—unless of course you just consider him a tour guide every five years or so.
Your broker makes the big call to the landlord. The landlord gives his patented response: "Thanks for calling. We'd be glad to speak to you about our tenant's option. Of course you know we don’t pay any commissions on renewals or options. (Of course they don’t). We have no problem speaking with you so long as our tenant pays your fee." With that, your broker returns to you, tail between his leg saying he's sorry, but he can't help you. Or, on the other hand, maybe you feel like the puppy dog begging for a "bone.”
Wrong. What is the landlord really saying? The landlord knows he has a big advantage. First, he knows most brokers will immediately just fade away. If the broker is part of a firm that takes listings, he surely won't want to upset the apple cart. After all, the landlord may never give him or his firm another listing if he pushes too hard for a fee. If he's a tenant rep, the landlord has a little more to be concerned about. Hopefully, that first salvo will scare that broker away too.
Secondly, if he succeeds, he now gets to negotiate directly with you on a playing field tilted much to his advantage. It's him against the widget maker—the real estate professional against the neophyte. While it may seem unlikely, you do have choices here.
Would you go to court without a lawyer? How about a tax audit without an accountant? Even in your primary business, you hire experts for everything from computers to telephones to word processors—unless of course you are an expert in everything. What's wrong with this picture?
Let's take a closer look: First, you as the tenant must demand the landlord pay your broker the fee as if you were a new tenant—a fee he would have to pay to any new tenant’s broker. The landlord's position in most cases is "this is my tenant and it's my responsibility to renew him.” Believe it or not, I personally only heard that argument three times in the last seven days (but ended up getting paid on all three).
What the landlord is also looking at is keeping that extra money, because he certainly would not lower the rate because he’s avoiding paying a commission. Does the Landlord have that responsibility? Competitively, probably the answer is yes. Legally and morally, I have my doubts, particularly if it eliminates the tenant's right to fair and equal representation. Any of you lawyers out there feel free to jump in any time.
You and your broker need to understand the facts and come up with a united front. Despite what the landlord says, you have the right to be represented, and the fees to pay your broker are in the deal already.