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Does a Broker's Tail Ever Stop Wagging?
When an owner engages an individual as its exclusive listing broker to sell or lease his or her real estate, it is important for both sides to fully understand the commission obligations during the term of the listing, as well as any post-agreement protection granted to broker for its efforts during the listing term. One of the most significant and often negotiated terms of the listing agreement is what's known as the “tail period.” It is a standard clause in a listing agreement that requires the broker to register certain parties or transactions and a period of time during which the broker shall be protected and recognized as the broker for the transaction, entitled to be paid its commission pursuant to the listing agreement.
The tail period needs to be clearly defined, since the interests of the owner/seller and the broker appear to differ ' the owner may want the tail period limited as much as possible, in parties and in time, while the broker stands to benefit more from a broad list of parties continuing as long as possible. Although everyone expects that the deal will work out for the best during the listing period, the lawyers must prepare for the worst, protect their clients as best as possible, and make them aware of the issues and risks, without getting in the way of the business deal. It is very important to be clear with the post-agreement language at the start, because once the listing has been terminated or expired without being extended, the parties may not have the same positive feelings about each other that they had prior to negotiating the listing agreement, and any ambiguity can lead to an unnecessary dispute.
The tail period has two major components:
- The first describes the conditions that have to be met to include a given tenant/buyer on the broker's registration list. The parties will agree that certain tenants/buyers are clearly protected (e.g., signed contract, draft lease out, signed or agreed upon LOI, or simply a submitted LOI). Inclusion of other tenants/buyers is generally subject to negotiation.
- The second is the length of the broker's protection. There are several things to keep in mind here: The length of the broker's listing period; the type of property; and the length of time it takes to complete the deal. A term of six months is reasonable. However, in a new construction development, the protection period should be pushed to whatever is a reasonable time for leases to actually get signed based on the status of the project, and the period may also be extended, depending on the type of building or tenant being sought ' if they typically take longer to get leases signed.
Who Is Included in the Tail?
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