Who pays for tenant representation?
Tenant representatives in San Jose assist commercial tenants seeking office, retail, and commercial building lease space. Although they act on behalf of tenants, their fee usually comes from landlords when the tenant rep splits the lease commission fee as part of the listing agreement with the landlord’s listing agent.
There are times that the landlord’s agent represents both the landlord and the tenant, which is dual agency. Although the agent already has sworn his or her loyalty in writing to represent the landlord as his principal, with a fiduciary responsibility to act in the best interests of the landlord, the dual agent then pledges to represent the tenant prospect, as agent, with opposing loyalties. There is potential for conflict of interests when an agent represents both sides of the transaction.
A tenant is better served with a tenant rep. What the tenant rep does is to perform a site search of all available properties, filter those buildings meeting the tenant requirements, arrange tours of properties the tenant would like to visit, and negotiate letters of intent to lease space on behalf of the tenant. Finally, he or she assists the tenant in negotiating business points for the lease agreement. As exclusive agent for the tenant, tenant reps provide objective, conflict-free advice. Tenant reps do not act as landlord’s agents.
Although landlord agents work to get the best deal they can for the landlord, tenant reps owe their loyalty and fiduciary responsibility to the tenant.
Heretofore, landlords have had an overwhelming advantage of commercial real estate market information, but with the advent of tenant reps, tenants now have a mechanism to fill the knowledge gap. This helps level the playing field for the tenant.
Current soft market conditions have created opportunities for tenants. Asking rents are down substantially. There are many quality buildings available for lease. Tenant concessions are generous. However, in order to exploit these opportunities, a tenant should hire a licensed commercial real estate professional as tenant rep.
With local knowledge of current commercial real estate practices, the tenant rep is an unbiased advocate to provide the tenant with the information he or she needs to deal with market savvy landlords and their listing agents. The tenant rep helps the tenant obtain the best terms, beneficial tenant concessions, and a fair and balanced lease agreement.
In summary, by utilizing the tenant rep’s knowledge and loyalty, the tenant is able to lower occupancy costs, increase productivity with a better building, and secure a fair lease agreement. The tenant gets advice without conflicts of interest. The good news is that the tenant rep is usually paid for by the landlord.
About the Author
Don Kinney of Silicon Valley Land Company leases office space. Our goal is to help you get a better building and reduce occupancy costs, often by 20%, or more.
