Should I Hire a Broker When Renewing My Office Lease?

By Benjamin Osgood - February 17, 2020

The easiest answer to this question is, “Why wouldn't you?”.  Yes, self-serving, I know, but most of the messes we are brought on to untangle are usually the result of a lease that was negotiated without tenant representation.

Conventional wisdom would lead one to think, “well if my landlord doesn’t pay a commission to a broker, I’ll get a better deal,” however this simply isn’t true.  Any professionally owned and operated commercial building has already underwritten leasing commissions into their pro forma projections, and in fact, most lenders won’t even facilitate debt on a building if the borrower hasn’t already accounted for leasing commissions within their financial assumptions.  Lenders and owners know that commercial spaces do not lease themselves, and brokerage commissions, like tenant improvements, are simply part of the transaction’s leasing costs.  The commission has already been set aside, so why not access it to obtain representation? 

In the United States, the landlord is usually responsible for paying both sides of the brokerage commission (tenant and landlord rep), and this is negotiated when the listing broker takes on the leasing assignment, and long before the tenant has even toured the space.  So what happens if you decide to forego professional representation and not access the commission that you're already entitled to?  You'll get a lower rental rate, right?  Absolutely not.  A tenant rep will not only ensure that you're getting the market's lowest possible rate, but that you're accessing other concessions such as free rent and tenant improvement allowances. 

"But my landlord said that if I don’t use a broker for my renewal, they’ll take $2.00 per square foot off my rent."

That’s the oldest trick in the book that most tenants fall victim to.  About 8 years ago I was working with a major Bay Area tenant on a renewal, and that’s exactly what happened.  Prior to my engagement the landlord delivered the message above to my client, and then quickly followed up with a lease amendment to finalize the renewal.  Fortunately, we were hired before it was too late, and after a careful review of their existing Master Lease and First Amendment, it was clear that the minor rental reduction was substantially eclipsed by the exposure to hundreds of thousands of dollars of risk by way of an egregious restoration clause and a base year predating the recent sale. 

"I have a great relationship with my landlord and I don’t want to ruin it by bringing in a broker."

A good broker understands how important a healthy tenant-landlord relationship is, and will strive to help you preserve and maintain it.  It’s easier for your broker to ask the hard questions, and they can potentially take a few “arrows to the chest” so as to preserve your relationship and act as a buffer.  In reality, most landlords are more receptive and accommodating to a broker's proposal since they know it's coming from an informed place. 

Regardless of how friendly you are with your landlord, you still deserve professional representation and should be suspicious of any ownership that persuades you from utilizing an advocate who will level the playing field and act solely on behalf of your interests.  After all, they have such a representative, why shouldn't you? 

"We have no intention to move, so there’s really no reason to look at other spaces."

Unless you're fine with overpaying and not accessing concessions, you should hire a representative to give other landlord's the chance to compete for your tenancy while letting your landlord know that not only are you informed with current market intelligence, but that unless they offer you the best terms the market can bear, you might just accept one of those enticing competing offers.   

Finally, it’s important that you view your tenant advisor as a friend, ally, and invaluable teammate who has your best interests at stake.  They will level the playing field and ensure that you access the very best concessions, inducements, terms and rates the market currently has to offer. Your landlord is engaged in the business of commercial real estate every single day, and it’s only fair that you have someone in your corner that is fighting for you and YOUR interests.  There’s a lot of work involved with this process, which means there are plenty of opportunities for costly mistakes and potential exposure to liabilities. Your advisor will handle the bulk of the work efficiently and professionally on your behalf so that you can focus on what's most important, operating your core business.


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