Sometimes entrepreneurs find themselves the owners of commercial real estate properties.
(article continues below)
If you have purchased a property for your business, but are not using all of the space, you will want to lease your excess space out to help generate revenues for your business. Unfortunately, marketing and leasing the space can be very time consuming. To work effectively you might consider enlisting a commercial real estate broker to help you with your space. In the event that you enlist a broker you may want to consider an exclusive listing agreement. Here are a few reasons why and things to think about including in the agreement.
Exclusive Agreements Get Attention
You can simply advertise vacant space to potential tenants on your own. You may think you are saving yourself money. In reality, if you don't have a broker but the tenant does have one, you will end up paying the full commission to the tenant's broker. Enlisting your own broker just helps your cause. If you sign an exclusive listing agreement with a broker, you will get their attention focused on leasing your property. Here are a few terms you may wish to consider including in the agreement:
It can be difficult to select a broker, especially if you are entering a new market that you are unfamiliar with. Including a specific time horizon in your contract helps you cut losses and hire a new broker if your current one fails. Six months is probably a decent horizon for a new broker. If you don't have leads or leases in that time you may want to try someone new.
You will want to spell out specifics of your commission agreement. There are different conventions in different markets, but a typical break-down involves a 5% or 6% total commission. The brokers split it 50/50 if the Tenant also has a broker. This commission should be paid only on the NNN value of the lease. In other words, you would pay the broker 5% or 6% of the value of the lease to you excluding operating costs.
Timing of commission payments should also be addressed. The conventional method is that 50% of the commission is paid upon lease signing and the other 50% when the Tenant takes occupancy and/or starts paying rent.
General Acceptable Lease Terms
Entrepreneurs are busy folk; you probably don't have time to babysit your broker. So rather than trying to micro-manage all of your broker's leads, simply give your broker the terms that are acceptable to you for a deal. You should spell these out in the listing agreement. For instance, you could say that you are interested in a 5-10 year lease term with $10 per square foot NNN and a $10.00 Tenant Improvements (TI) allowance. If the broker can match these terms (or do better) then you will sign the lease. This will help you stay out of the lease negotiation process as much as possible. The only exception to this is the credit screening you will want to do prior to lease signing.
Make sure that you have a spot for both the broker and you to sign the document. It should be kept simple like a letter of intent, but it will be effective. You may wish to have legal counsel review the document briefly before signing. It should be relatively inexpensive, and once you've done it once you can simply reproduce the documents.