Commercial Real Estate Investment/Commssion on Commercial Lease

Advertisement

Expert: - 12/23/2008


Question
Is it standard for Real Estate Contracts between Tenant and Broker to stated that commissions will be paid on Gross Lease amount?  Our board contract says commission will be paid on base rent plus triple net. We have had some push back by clients who don't want to pay on the Triple net portion and only on base lease amounts.

Answer
Tim-
Established commission practices are specific to each market area and product type throughout the country and may change as the market area changes.

It is fairly standard practice in the Washington Metropolitan area for commission on an office space lease to be paid based on the full dollar total of the rental as delineated in the lease for the initial term, not to exceed ten (10) years on a gross lease - including the escalated rent per any scheduled specific increases prescribed in the lease text.  There is no deduction for the dollar value of building standard improvements, although the full value of any rental abatement is deducted from the full lease value.  

Note that the rent for a gross office lease includes the lessor paying: 1.) The cost of the base utility consumption at the start of the lease term, 2.) The base real estate taxes in effect at the start of the lease term, 3.) The cost of the various insurance premiums for the various coverages in effect on the building at the time of the lease commencement -although not including the premium for the tenant's coverage of their own premises, and 4.) Base operating expenses as they exist at the start of the lease term.  As these costs increase over the lease term, the tenant reimburses the landlord for its ratable share of the cost of the increased expenses above what they were when the lease commenced.

Your description of your "board contract" commission appears to be similar to how I have described how commission is paid on an office gross lease in the two paragraphs above including paying commission on the inclusion of "the triple net portion .... on base lease amounts".   One difference appears to be that the Gross Lease commission in the Washington Metro area is calculated with the INclusion of the dollar value of any scheduled increase in the base rent during the initial lease term.  For example, a scheduled rental increase would include a provision that stipulates that the Base Rent for each lease year shall; starting with the second lease year, increase by three percent (3%) over the base rent for the previous lease year on the anniversary date of each lease year.  In this example, the three percent(3%) can be replaced by any other numeric factor agreed to by both parties so long as the factor is specific and causes the rental to increase.    It may be however, that I am not correctly interpreting what you have stated in your question.  You have a better understanding of what you meant by: "and only on base lease amounts".

I hope that I have provided insight regarding what you wanted to know. Please send me a follow-up question if I can clarify anything further for you.

Good luck, - Jim

Commercial Real Estate Investment

All Answers

Answers by Expert:

Ask Experts

Volunteer

Jim Avancena, CPM

Expertise

Best qualified to answer questions that involve commercial leases, that is, basic issues as well as the often unexpected effects of the complexities and inter-relationships of the provisions a lease may contain, explain how seemingly innocuous text in your lease can have a major impact on a Tenant or Landlord and their business operations, and the common practices utilized in the industry. I can untangle most matters that may come up from the time a tenant begins searching for a office or store space and the lease acquisition process, concerns related to remodeling/improving the leased premises, moving-in, subletting or assigning the leased space, and a long list of problems that may come up during the lease term and even after a tenant moves out. I have practical experience with most property management issues and resolving landlord and tenant disputes - especially those involving what may appear to be overcharges assessed for additional lease charges like CAM costs, operating expense reimbursement, real estate taxes, utilities, construction improvements etc. Note that I am not an attorney and cannot provide legal advice.

Experience

Thirty years active experience in the commercial real estate industry as a licensed real estate broker in the Washington DC Metro area (DC, Northern Virginia & Maryland). I have been admitted (approved) by the Maryland and DC courts to testify as an expert witness on the subjects of Commercial Leasing and Property Management in the area of standard industry practices. I have had a business for the last 14 years advising virtually every form of business entity from large national corporations to the smallest ma & pa new businesses regarding a wide range of commercial real estate matters in addition to property management and commercial leasing.

Organizations
Currently my three children keep me so busy that it is difficult to participate in organizations with continuing and specific time requirements.

Publications
I publish a local commercial real estate newsletter titled: "Tenants First". My firm was the subject of a high profile Washington Post business section cover page (2.25 full pages) feature story on January 13, 1993; titled "Overcharging Overhead".

Education/Credentials
BA in Political Science from Memphis University, and five years of study in the real estate development summer program at MIT. I was certified as a commercial property manager (CPM-IREM), and currently hold a brokers license in Maryland and the District of Columbia.

Awards and Honors
The same plaques and honors that most others in my industry have earned. I have none that I consider especially meaningful.

Past/Present Clients
Past clients include: The World Bank, George Washington University, National Association of Criminal Defense Attorneys, US Department of Commerce, The American Benefits Council, K-Mart Development, many law firms, a national union, other major organizations, and many, many small business firms and retail operators that I am most honored to serve. I estimate more than 1,500 firms/organizations.

©2012 About.com, a part of The New York Times Company. All rights reserved.