Dealing with a tenant representative broker.

The advent of tenant representative brokers has brought a new dimension to lease negotiations for commercial office building space. No longer does the property owner sit squarely across the negotiating table from the prospective tenant. Instead, he or she may face a team that includes a professional

In the past, the broker usually either represented the interests of the landlord or acted as a space-shower without an active negotiating role. In either case, the brokerage commission was paid by the landlord.

Under the current rules of the game, however, the tenant rep broker is engaged by the tenant to help define his or her space needs, locate suitable lease space, and negotiate the terms of a lease contract with the property owner. If there is a snag, the tenant rep broker will go to bat for his client, the tenant, not for the landlord.

Despite this fundamental change, however, the property owner still is expected to pay the brokerage commission up front, even when it goes to a tenant representative broker. This paradox has spawned considerable misunderstanding and numerous lawsuits.

The ultimate goal for landlords is to protect themselves financially as well as legally and still make the best deal for themselves when their client uses a tenant rep broker.

Evolution

Several factors have contributed to making the tenant rep broker an accepted and, some would insist, an essential member of the negotiating team.

First, as commercial office building leasing evolved from a simple show-and-tell business into a complex analytical process requiring the use of computerized market studies and cost comparisons, many tenants have felt the need for professional brokerage consultation. And, because they have not been able to turn to the landlord's broker for assistance in drafting leases or negotiating more favorable terms (because that broker is working for the lessor), many tenants have chosen to enlist professional brokers who specialize in helping lessees.

Second, the brokerage community itself has begun to see the need for a dedicated relationship between the tenant and broker. Why, some have reasoned, should a broker spend time and money showing a prospective tenant commercial office space only to have the tenant bypass that broker and sign a lease at the last minute using another broker or working directly with the landlord? In that last-minute switch, the original broker invariably loses both the client and the commission after devoting substantial time, effort, and talent to the project.