Comm'l. Classroom: What's in (or not) in your listing agreement?

What's in (or not in) your listing agreement? Our listing agreement basically indicates that the building owner has agreed to pay us a fee if we lease space in, or sell their building. In leasing we may be entitled to collect multiple commissions. If, for example there were an option to renew, extend or expand a lease or an option to buy the building. We may have been paid our fee due on lease signing, but now, five years later, our tenant is extending their lease for another five years. Are we entitled to another commission? What does your listing agreement say? Your agreement should clearly state that if the tenant renews or extends their lease you are due another fee at that time. What happens if the building is sold before the option becomes due? Is the new owner responsible to pay the broker's commission? The answer is no, unless the listing agreement or lease addresses the issue. The listing agreement is between the original owner and the broker. Upon sale of the building that relationship ends. The broker has no agreement with the new owner. The new owner has no obligation to pay a commission to the broker. (This may also apply to an exchange or assignment of a lease). Listing agreements should contain a clause to address this contingency. Typically the clause directs the building owner, if they decide to sell the property, to have the buyer sign an "assumption agreement" (in recordable form). In so doing the new owner accepts the liability for future broker's commissions that may become due if a tenant exercises their option to extend the lease. Without such a clause in your listing agreement an option commission could be lost upon the sale of the building. What if the tenant takes more space in the building? Your agreement should also address if the tenant "expands" or leases more space in the building. Are you entitled to a further fee-what does your agreement say? This contingency should be addressed within the lease negotiations. When working with your customer, ask them where they see their business in the next two or three years, are they growing? If that is a possibility, negotiate a "first opportunity" clause in their lease, whereby if a vacancy occurs in the building in the future, they are given the first opportunity to lease the additional space. Also address the rent for the additional space, "at the rent the tenant will be paying at that time" or a method to determine fair market value. If there is an option to buy the building be sure your agreement specifies your fee if that is exercised. But, what if there is no option to buy in the lease and your tenant decides they want to buy the building. Are you entitled to a fee-what does your agreement say? A "purchase by tenant" clause in the listing agreement covers this contingency. It generally states in that event: the lease ends, any options to renew, extend or expand are cancelled, and an adjustment is made for any "unearned commission." This is sometimes referred to as the "fairness clause." You were paid on lease signing a fee based upon a ten year lease, it is the end of year six and the tenant is buying the building. The part of the commission you were paid representing years seven through ten is unearned commission; this dollar amount should be credited (deducted) from the sale commission due you. Listing agreements need to cover many contingencies, review your agreements with your Broker and an attorney to be sure you are protected for all possibilities. Edward Smith, Jr., CREI, ITI, CIC, GREEN, RECS, is the eastern regional director of Coldwell Banker Commercial NRT, Syosset, N.Y.