Negotiating commercial leases: Beware of the agent’s dual agency
Thursday, March 29, 2018
For many commercial tenants, negotiating a good lease or lease renewal against an experienced agent or landlord can be a challenge. While an entrepreneur focuses on marketing and managing, savvy real estate agents and brokers are specialized salespeople. Their job is to sell tenants on leasing their location at the highest possible rental rate.
Tenants may go through the leasing process only two or three times in their entire lifetime — yet they have to negotiate against seasoned professionals who negotiate leases every day for a living. Negotiating appropriate leasing terms is vital for a business owner as the amount of rent he pays will directly affect the company's financial bottom line.
Whether you are leasing a new location for the first time or negotiating a lease renewal for your business, here are two money-saving tips for tenants:
Management fees on taxes?
Most administration or management fees are based on 15-20 percent of the charged operating costs. Most property managers or landlords apply this management fee to property taxes and insurance.
Since there is inherently no actual management required on these costs, it is considered questionable whether the hundreds of thousands of dollars in property taxes being paid by commercial tenants should be levied a management fee or not. We often try to negotiate for no management fee on property taxes.
Beware of the agent's dual agency
If the offer to lease presented to you by the agent states that you are subject to dual agency, beware. Effectively, this means you are giving the agent the right to represent both you and the landlord simultaneously — one agent cannot serve two masters.
Agents are paid by landlords and are rewarded with commission checks for signed lease deals. These commissions can increase based on longer lease terms, more space leased and more rent paid. Therefore, most landlords believe the agent is working in the landlord's best interest.
You can remove dual agency from the offer to lease before signing; cross this out in pen if you don't like it.
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