Liable for leasing agent commission?

Question

I have a vacant unit in a strip mall that I'm trying to lease out. A prospective tenant contacted me, however he couldn't provide proof of sufficient income, so I declined.

A couple of weeks later, a leasing agent contacted me, stating that he has a client who may be interested in the unit. It turns out that it's the same guy.  I told the agent why I previously rejected his client and told him that I still wasn't interested.

The following week, the prospective tenant contacted me again, directly. He supposedly now has a business partner with a strong financial background who will cosign a lease. Since he and I had been in contact before he began working with the agent, if I now want to lease to him, would I be obligated to pay a lease commission to the agent? There is no agency agreement.

Joel Owens · Answer

Michael are you in this for the long haul or the short term?

If this is one of many future properties than fostering a good relationship with tenant rep leasing brokers is key. You might see this as one lease but if this tenant rep brokerage is a heavy hitter in the market they might put you on their black list to avoid.

Also if you are not an experienced negotiator you will need a commercial retail attorney with experience dealing with these tenants, their tenant rep brokers, and their attorneys.

I would want to research the tenant rep broker and their company before finding a way to work around them.

Damon DiPlacido · Answer

As a matter of law, there's likely no legal obligation. BUT as Joel and Wayne have suggested thinking about it from a long term business relationship standpoint, it may make sense to include the broker.  The world of commercial real estate is a small one, even in a big city. Odds are your paths will cross again and it's often not worth burning bridges in our business.

Larry Rogers · Answer

@Michael W.  Just work the commission into the lease.

Kevin Sobilo · Answer

@Theresa Harris, good point.

Unless of course during that conversation the tenant said that he wanted the agent to be involved. Its better to have all communication go through the agent, but clients sometimes just act without thinking things through.

I personally would try not to let things get this messy and clarify these details from the get-go.

Theresa Harris · Answer

Following Kevin's logic, the third time he came to you directly not through the agent, so I would say you wouldn't need to pay.

Wayne Brooks · Answer

You have not signed any agreement with that agent, so You are not liable for any commission, in any way.  The tenant may have some obligation to the agent, I doubt it as the agent typically tries to get the commission from the owner, but that is really no concern of yours.

Without a signed commission agreement, there is no “procuring cause” issue.

Now, the matter of does it make sense to involve the agent, and pay him from your side, is a different question.

Matthew Olszak · Answer

@Michael W. It depends who you are in this transaction. If you are the owner and you didn't sign anything with the agent, you owe them nothing even if they continue to work with the applicant. If you are an agent, you might be in "procuring cause" territory (although you'd likely prevail).

However if this is a large lease, keep in mind that they tenant may have to pay their agent, and as such they'll be looking to offset that cost with you somehow as part of negotiations.

Michael W. · Answer

Thanks for the input, guys.

Kevin, you made some good points. But in this case, the tenant would still be applying as an individual, but his business partner would be a co-applicant/co-lessee. There is no LLC or other legal entity afaik who would be named as the applicant/lessee.

Theresa, I'm thinking the same...he came to me again on his own, this time with his business partner, who wasn't part of the business when the agent contacted me.

Either way, if I go forward, I think it would make sense to inform the agent in advance just to make sure he won't try to claim a commission afterwards.

Kevin Sobilo · Answer

@Michael W., I think the technical answer is that yes you would be liable to pay a commission because this sounds like a NEW tenant .

Without knowing every detail, I'll make a couple assumptions here.

First the tenant initially applied to rent the space as themselves as an individual and was declined.

Then the same tenant came back through an agent and was declined again.

Then a partnership came to you through that same agent organized through an LLC where one of the members (owners) was the original tenant. Since this is a new entity (LLC) applying to be the tenant it is different than the first tenant who applied as an individual.

I know this sounds like a technicality. However, what if CVS wanted to rent your space and this person owned 1 share of stock. He is an owner in the same way as he is in this LLC that is applying. Would you tell CVS's agent that you won't pay for that reason?!?

Michael W. · Answer

Thank you.

Liable for leasing agent commission?

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