Glossary / Commissions and splits
Also known as: Lease commission, LC, leasing fee
A leasing commission is the fee a broker earns for procuring a tenant for commercial space, generally paid by the landlord. It is commonly calculated as a percentage of total rent over the lease term, or as a dollar amount per square foot.
A.CRE defines a leasing commission as "a commission, generally paid by the landlord to a leasing broker, for procuring a tenant for a rentable piece of real estate," and says it is typically quoted as a percentage of total rent over the lease term. According to Wikipedia, some industrial and large-format retail deals instead use a flat amount per square foot per lease year, and long leases may use a declining schedule with a lower rate in later years. When the tenant has its own broker, Wikipedia notes that the landlord pays the listing broker, who splits the fee with the tenant's broker.
The commission follows the rent and the term, so every concession and every change to the deal changes your fee. Whether free rent or later escalations count toward the commission depends on the Commission agreement. NYC Housing Authority's published broker guidelines, for example, calculate the commission on scheduled Base rent and include free rent periods in that calculation, while other agreements may exclude them.
Timing matters as much as size. Wikipedia lists three payment patterns: in full at lease execution, at rent commencement, or in installments split between the two. A.CRE describes leasing commissions as typically paid at the start of the lease, following execution. If your agreement ties part of the fee to the Rent commencement date, a long build-out can push that money out by months.
Before you forecast a commission, confirm the rent base it is calculated on and the event that triggers each payment.
For example, on a hypothetical 10,000 square foot lease at $30 per square foot per year for five years, total rent is $300,000 per year, or $1,500,000 over the term. At a hypothetical 4% rate, the commission is $60,000. If the agreement pays half at execution and half at rent commencement, $30,000 arrives at signing and the other $30,000 arrives only once rent starts.
