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Lease Strategies

Product Overview

This LARG contains the following items:

The Authorization to Lease: Departing From the Printed Form, and the Lease Clause Critique: Departing From the Printed Form.

Number of Single Spaced Pages: 12



The Authorization to Lease

What sort of contract is used most frequently when an owner wishes to retain a broker to lease an office building or a shopping center? Generally, the owner of the property and the broker marketing the property sign a printed form, usually called an "Authorization to Lease" or "Exclusive Leasing Agreement." Such forms are customarily supplied by the broker in a format with which his brokerage company is comfortable. A representative sample of this type of printed authorization to lease appears in this LARG under "A Look at the Printed Form."

Departing From The Printed Form

Sophisticated owners rarely use the printed form Authorization to Lease supplied by the broker without modification. Generally, such owners will prefer to have a specially drafted contract which will be far more specific on the business points concerning the brokerage relationship, and which is drafted from the owner's perspective. Details pertaining to termination rights in favor of the owner or the broker under the contract (with or without cause), the precise marketing plan and type of negotiating procedures to be followed by the broker in marketing the property, the type of marketing materials which will be furnished or used by the broker, the precise type of signage to be used by the broker and where it may be placed upon the property, the amount of commissions payable and the conditions that must be met before payment is due, tenant deposits made under leases, and the manner of lease negotiation and preparation all are issues which might be covered in an agreement specially drafted to meet the needs of the owner.

The Main Choices

While owners and brokers can draft agreements to meet their specific requirements, there are certain typical forms of broker relationships that have been developed over the years. These agency relationships are common in the brokerage business and are easy for owners and brokers to recognize. The main types of agreement for brokerage services are the exclusive right to lease agreement, the exclusive agency agreement, and the open listing.

Exclusive Right to Lease

Under this type of contract, the broker is generally entitled to a commission for leases signed for the listed property even though the tenant signing the lease has not been contacted by the broker. Put another way, if the owner of the property or another broker negotiates a lease with a tenant, a commission would nevertheless be payable to the broker who has signed the brokerage agreement. Obviously, this sort of arrangement is preferred by brokers, since a commission will be paid in the event a lease is signed for the property no matter who procures the tenant.

Exclusive Agency Agreement

Exclusive agency agreements, or exclusive listing agreements, as they are sometimes called, appoint the broker as the exclusive agent to market the property on behalf of the owner. Under this sort of arrangement, the broker is entitled to represent the owner and deal with other parties on the owner's behalf. If a lease is signed with any tenant other than one procured by the owner himself, a commission will be payable. Generally, exclusive right to lease agreements and exclusive agency agreements must clearly indicate an intention to grant the exclusive agency right to the broker, since courts will not construe agreements ambiguous on exclusivity to be exclusive in nature.

Open Listing Agreements

An open listing is a nonexclusive agreement in which the owner agrees to pay a broker a commission if the broker finds a tenant for the property, often described as one who is "ready, willing and able to lease all or a portion of the property." Under this sort of brokerage arrangement, an owner may contract with several different brokers marketing the property simultaneously. With an open listing contract, the broker must produce the tenant in order to receive a commission, since if the owner or another broker produces the tenant, he will get no commission.

As a result, brokers do not favor open listing agreements, and, if they have good leverage or are not seeking to expand their business, may refuse to enter into an open listing type arrangement. One variety of the open listing is a "tenant registration" contract, whereby a broker "registers" a particular tenant with the owner prior to the opening of negotiations. This form of contract entitles the broker to a commission if the registered tenant ultimately signs a lease with the owner for all or a part of the listed property.


End of Excerpt