Some of your tenants may have an option to cancel the lease early by paying a cancellation fee. Under many standard brokerage agreements, when and if the tenant exercises that option, you must pay the broker commission on the full cancellation fee you receive from the tenant. That’s a raw deal for you, and you should negotiate for fairer terms.

SITUATION

The owner of commercial property comprised of two buildings with an adjoining lobby hires a brokerage firm to find a tenant for the space. The broker lines up a tenant. The lease runs five years and requires the “Owner” to pay the broker’s commission for the initial lease and any renewal term. The tenant signs the lease and the owner pays the broker a commission on the initial lease term.

In addition to commissions on actual leases closed, many landlords agree to pay their real estate brokers a monthly retainer. This is an effective way to ensure the availability of brokers you know and trust.

But retainer fee arrangements can also make it harder to break up when and if things go sour. Like marriages, every broker-client relationship is different. The one thing that’s certain is that you can’t rely on minor infractions that a broker may commit as justification to terminate a retainer fee.