- May 31, 2018
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Working with a tenant rep is a valuable tool that can help you to secure a fair deal on your ideal property. A quality tenant rep will be with you throughout the entirety of the commercial real estate transaction process. They will help you to establish the needs of your company, show you prime locations based upon those needs, negotiate the best deal possible, and secure the right space for your business. They offer their expertise throughout the entire leasing process and make sure that your best interests are being represented. So, you might be wondering what an incredible service like this will cost you. What you learn might surprise you.
Out of Pocket Expenses for Tenant
Believe it or not, securing a tenant rep does not typically cost a tenant anything! That’s right, I said anything! In the average scenario, the fees of the tenant rep will be covered by the landlord. This is because a landlord is not making any money if his/her property remains empty. A tenant rep is essentially advertising their space and bringing potential clients in for viewings. Obviously, greater exposure for the landlord means that the space will be filled in a shorter amount of time. This does not, however, mean that the tenant rep is working for the landlord. They have an obligation to represent your interests in the transaction from start to finish.
Are There Exceptions to This?
Naturally, there are exceptions to the idea that the landlord always picks up the tenant rep fees. While this is certainly true in the majority of cases, on rare occasions the landlord may refuse to pay the tenant rep. Typically this will only occur if the landlord feels that they have been asked to make too many concessions in the transaction, or if they feel they are being locked into a rate that is well below market value. In these instances, the possibility that they may require the tenant to cover the tenant rep fees definitely exists. Keep in mind, that should this occur, the tenant rep has likely already saved you far more than their fee just through negotiations alone.
What is Their Fee?
If you were to find yourself in one of these unlikely scenarios, it is important to understand what a typical tenant rep fee is. The fee (or commission) acquired by the tenant rep will fluctuate slightly based on the type of commercial property being leased (office, industrial, et cetera), as well as the type of lease being negotiated (new, renewal, or expansion). Furthermore, each market will have its own variations, but an average tenant rep’s fees may look something like this:
- Office Lease: For an office lease, the tenant rep will receive around 4% of the total gross rent (base rent + operating expenses) multiplied by the lease term. The commission structure for office leases will usually not be dependent on the type of lease.
- Industrial Lease: Typically the same 4% range and commission structure, but the operating expenses will not be included as a part of the equation. Industrial properties are also not likely to be dependent on the type of lease.
- Retail Lease: This pay structure is set up identically to industrial space however landlords may choose to only pay a 2% commission to the tenant rep in the event that the lease is a renewal.
Do These Figures Pertain to Property Purchases?
If your tenant rep is working to help you purchase a property, their fees will be set up a little differently. Brokerage fees are around 6% when it comes to the sale of a commercial property. It’s important to remember, however, that this percentage is split between both the seller’s broker and the buyer’s broker. This fee will always be handled by the seller in the terms of the contract, unless otherwise stipulated.
Additional Fees to Consider
It’s important to keep in mind that just because your tenant rep will likely be of no cost to you, does not mean that you will incur no costs through the transaction. You will be responsible for any legal fees associated with negotiating the contract, and any construction costs for improvements or changes that will need to be made to the property to make it more suitable for your business. Though you may have a tenant improvement allowance clause in your lease, it might not be enough to cover all of your expenses.
Looking for Tenant Representation in the Baton Rouge Area?
Now that you see the myriad, free benefits that working with a skilled tenant rep can offer you, it’s time to find yours. At SVN | Graham, Langlois, & Legendre, LLC, we work tirelessly from start to finish to remove the stress of the real estate process from our client’s minds. You can find your next property knowing confidently that we are there to represent your interests and ensure that you get the best deal! Take a look at our available properties and contact a team member today to start searching!