REPRESENTING A TENANT: DO YOU GET PAID ON A RENEWAL?

August 31st, 2012 at 7:10 pm

Throughout the course of my career, getting paid on lease renewals has always been a troublesome problem. After all, while we always get paid on the original lease, the renewal takes place usually one year later and we have not been involved in a direct way for that period of time. Further, there is no escrow involved so we cannot use them as protection. When we represent the landlord, and have a Lease Listing Agreement, the legal basis for our claim is very straightforward. Paragraph 3A(1)(b) reads as follows: “Owner agrees to pay Broker additional compensation of ______ if a fixed term lease is executed and is extended or renewed. Payment is due upon such extension or renewal.” So, if you remember to put a number in the blank, the landlord is contractually obligated to pay the commission and we have a very easy claim.

But what happens if we represented the tenant? Well, the Listing Agreement is of no help since it is between the listing broker and the landlord only. In truth, our agreement to get paid on the lease is normally not in a written contract, but is rather through the MLS with the listing agent only. So, the first question is whether the offer in the MLS mentions anything about renewals. I have done a quick, random survey of three of our MLSs and have found them inconsistent in this regard. Two of the three have no field for lease renewals. They only have the “CSO” field, but nothing else. So in those MLSs, it is unlikely that the listing broker’s offer includes a renewal commission. In another one of our MLSs, however, there is a specific filed labeled “Renew/Purch Comp.” This mandatory field allows for multiple answers, such as “Commission on first year only,” “Not on renewal” and others. So, the first thing to do when representing the tenant is to check your MLS and see if they deal with commissions on renewals.

If your MLS does not deal with this issue, or if the property you are looking at does not make an offer including renewals, then what can you do? Obviously, in order to collect a renewal commission, you need an agreement with someone to have it paid. The easiest way to accomplish this is to have either the landlord or tenant sign a Lease/Rental Commission Agreement (Form LCA). This form specifically provides for payment of a commission if the “Lease or Rental Agreement is extended or renewed…” So, the LCA protects your commission on a renewal.

So, remember to deal with this issue when representing tenants. First, check your MLS. If the offer of the listing agent does not deal with renewals, then you need to get an LCA signed. If not, you need to understand that collecting a renewal commission may be impossible.

As always, please contact us with any questions you may have

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