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Negotiating Broker Agreements
Your company (the 'Company') has decided it needs to find additional space for lease and/or to dispose of excess space and, after extensive due diligence, the Company has identified the ideal real estate broker (the 'Broker') to work with in the transaction(s). You and your new Broker have shaken hands on the basic terms of engagement (such as term and commission rates), and you have received and are now asked to review your Broker's standard form of retention agreement (the 'Agreement'). The Agreement, as is customary with most broker's standard forms of retention agreements, is only a couple of pages long. Should the Company sign it? After you have considered the issues described in this article and negotiated to protect the Company's interests to fit your particular circumstances, the answer is 'yes.' This article discusses some of the common issues that you may want to explore before the Company signs and delivers the Broker's form of retention agreement.
Commission Payable
It is still not uncommon to see broker form retention agreements provide commissions are payable when the Broker has produced a 'ready, willing and able' party to lease the subject property. You should try to avoid such subjective criteria and include a clause such as the following:
Notwithstanding anything in the Agreement to the contrary, all commissions are payable by the Company only upon complete execution and delivery of a [lease, sublease, lease termination agreement, or other agreement representing a transaction contemplated by this Agreement]. The Company reserves the right to reject any offer presented to it, regardless of price, for any reason or for no reason.
Also, 'complete execution' would be intended to include not only the parties to the lease (landlord and tenant), sublease (sublandlord and subtenant), lease termination agreement (landlord and tenant), or other agreement, but also all necessary consenting parties (such as master lessors, or prior mortgagees).
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