Commercial Real Estate Broker Engagement Letter: What It Says About Whose Broker This Is

Three kinds of brokerage, and who each works for

• Tenant representation. The company that will occupy the space hires the broker, who then weighs every building that fits.
• Landlord or agency leasing. The broker is hired by a building's owner to lease that building on the owner's best terms. This is the listing agent you meet on a tour.
• Full service. One firm adds the work that follows a lease, the buildout and the running of the office, and often does both of the above for different clients.

All three are legitimate. A company of 40 looking for its next floor will meet all three in a single week, sometimes inside one firm. What Nomad does shows how one firm's services divide between tenants and owners.

The sentence in the letter that proves which one you have

Look for the line that says who the broker represents. In a tenant engagement it names your company as the client and the broker as its representative in leasing office space. If the letter describes the broker as agent for an owner, or is silent, assume you are dealing with a listing agent who is being helpful.

Beside it should sit the disclosure sentence: how the broker will tell you if its firm also leases a building you tour on behalf of that building's owner. One firm can act for both parties only as a dual agent, and in New York that takes informed consent from each. Consent given building by building, when the question comes up, is the form to ask for. Have your attorney confirm the wording.

What else a growing company's letter must state

• Scope: which stages the broker handles, from the search to the signed lease, and whether buildout support is included.
• Compensation: who pays the broker, and what happens if a landlord will not.
• Term: a defined end date, plus how long the broker stays protected afterward on floors it introduced.
• Termination: how either party gets out before that date.
• Exclusivity: whether you may work with other brokers during the term.

A property touring agreement is narrower still. It covers only the floors a broker showed you. The tenant representation agreement explains every clause in one place.

The common mistake: touring with the listing agent

A growing company finds a floor online, calls the number on the listing and tours with whoever answers. That person is courteous, knows the building and has an answer for everything. They are also working for the owner, so think before you share your budget or your walk-away terms.

Touring that way is allowed, and sometimes sensible. The mistake is assuming you are represented. Until a letter names your company as the client, it is a prospect. The floors below are sized for about 40 people and each shows its asking rent, so you can study them without engaging anyone.