How to Negotiate Leasing Commission and split between tenant rep and listing broker?
Currently in the middle of LOI negotiations with a national tenant that wants to do a ground lease. We are the Landlord in this situation. 

We have our original listing agreement with our broker that was for 3.5% of the 15 year primary term. Tenant rep broker wants 4% of the primary term lease as commission not to be split with listing broker, meaning tenant rep broker wants us to pay a separate commission to our broker. 

Is this normal? How would you negotiate the commission payout between tenant rep and listing broker?

&amp;#x200B;

There's no way we will agree to pay both their asking rates as our agreement with the listing broker was for the commission to be split. It also doesn't make sense for us to pay one years worth of rent in total commission when it would be basically the same commission if we were to sell the building now or later down the road.

&amp;#x200B;

Thanks in advance for everyone's input!
[{"id": "ir7tqh3", "text": "Whatever you negotiate is normal. \n\nTalk to your listing broker. I would try and get them to split it 50/50 with 3% to each broker. \n\nAlso, try and knock the 3% on years 11-15 down to 1.5-2%.", "replies": [{"id": "ir83hri", "text": "If it is a grade a tenant, a lot of times you'll see 4%. Chipotle, Chase Bank. Generally I would say you're going to make the extra money back on the cap rate. National tenant accounts require a ton of work. I would pay the broker 4% and then everyone is happy and he is going to be more of an ally in getting The deal done. If he feels like he is getting shorted on commission he's more likely to be looking at alternatives in the market. That said, if you have the best piece of real estate in the trade area and are not expecting to work with this individual again then push for three. Generally I see 4% on the first 10 and 2% thereafter.", "replies": [{"id": "ir8777j", "text": "We are more of the latter situation. So in your example, is that split between the brokers or just to the tenant rep broker?", "replies": [{"id": "ir8c949", "text": "Yep. Split the fee 50/50.", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}, {"id": "ir86oa7", "text": "This is more along the lines we are thinking. So using a rough example to make sure I'm understanding correctly assuming rent years 1-10 is 100k annually and year 11-15 is $110,000k.\n\nCommissions for Years 1-10 = 100k \\* 10 \\* 0.06 = 60k\n\nCommissions for Years 11-15 = 110k \\* 5 \\* 0.015 = 8.25k\n\nTotal Commission = 68.25k / 2 = 34.125k to each broker?", "replies": [{"id": "ir8cllu", "text": "Is there a rent increase in year 6? If so, you have to take that Into account for years 6-10. If flat 10, then your math is correct.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "ir8crmf", "text": "Brokers with grade A tenants in ground lease situations in Southern California market will typically ask for half the first years ground rent in fee above what you are looking to pay your broker. If I were you I would take the difference of where you are apart in fees and tell them they need to amortize it into the rent with some cost of cash adjustment (8%-10%). This is becoming more and more normal to have TT brokers pushing relatively high fees. We only ever agree when there is a value being added that exceeds the fee as compared to the other offers in hand. If you have the sexy parcel, you may just be able to decline to negotiate the fee and see how they respond.", "replies": [{"id": "ir8h48x", "text": "In that situation where tenant rep broker is asking for half of the first years ground rent, how much would/should the listing broker get paid since that already exceeds the threshold in our agreement? Our goal is to have some decent profit margin in year 1 after paying out commissions. Example if ground rent was 100k, we would want at least 30-40k net rent to us with the rest being for the commission. \n\nAlso, can you elaborate or provide an example on that amortization in let's say for simplicity's sake a $10k disagreement in fees?", "replies": [{"id": "ir8kb8e", "text": "I\u2019m a listing broker. I would typically seek half of our existing agreement. If the initial agreement is 6%/3% I would propose you pay 3%/1.5% to the list side and then whatever you decide to the tenants broker. \n\nIf you are apart 10k on a 15 year lease you would take 10,000 x 1.1 = $11,000. Then I would look to amortize it over 10 years (even though it sounds like you have a 15 year primary term) so $11,000/10= $1,100 annual increase to agreed rent. It\u2019s not going to move the needle much on value but it will pay for itself on your exit when capitalized if your intent is to sell. If you intend to cash flor it, it will benefit you even more assuming you have bumps in years 6 and 11 to compound off of.", "replies": [{"id": "ir8q6af", "text": "Thank you for this explanation. This makes sense and is what we were thinking was the most likely outcome.", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "ir8fol5", "text": "4% to tenant rep and 2% to listing rep is very common on years 1-10. Anything past 10 is half that but negotiable if there\u2019s value being added.", "replies": [], "depth": 1}, {"id": "ir8jt92", "text": "So are you saying 7% total of the base rent? That is not insane. Maybe a little high but I have deals that are at 7% and then split between the 2 parties. Usually by year 10 there is some sort of break in my experience, but credit tenants will help with your CAP sale or if you refinance.", "replies": [], "depth": 1}, {"id": "ir8k4gu", "text": "Very interesting input on this one. \n\nI am in southern CA and most long term leases I see have a commission reduction years 5-10 and again after year 11. We always split the commission 50/50 between LL and Tenant rep on our deals. Tenant reps always ask for 4%. 99% of the time, on my deals, they get 3.", "replies": [], "depth": 1}, {"id": "ir8mow8", "text": "I\u2019ve always seen 4% to tenant rep and 2% to landlord of first 10 years in retail", "replies": [], "depth": 1}, {"id": "ir9wkpp", "text": "Always market specific and negotiable. The tenant rep should get more than the listing agent though in my opinion. I\u2019ve always gotten more as the tenant rep broker and when there is a chintzy broker that accepts a listing agreement with a below market fee, I give them hellfire.", "replies": [], "depth": 1}, {"id": "ira0y4y", "text": "Most of my advice has already been shared in one form or another, but hopefully I can provide some elaboration and food for thought.\n\nAs an example, our firm charges 6% on retail leasing to be split 50/50 with a Tenant rep broker assuming there is one. Many brokers that represent these large national accounts have an agreement in place and charge something like 4% or $3/sf on each deal. In my experience they tend to stick to their numbers and their clients will support it. Now say the listing broker brings in a national tenant whose rep wants 4% of the deal, which exceeds the 3% allotted for Tenant reps in the listing agreement. The listing broker shouldn\u2019t necessarily just have their fee reduced beyond the split they\u2019ve already agreed to pay the other broker. In this instance we\u2019re short 1% to the Tenant\u2019s broker. \n\nSay it\u2019s a 10 year deal at $100,000/year for quick easy numbers. You\u2019ve already agreed to pay $60,000 in total commissions (6%), but are now being asked to pay a total of $70,000 (7%) 3% to listing broker, 4% to Tenant rep. Take that extra $10,000 or whatever it ends up being and amortize that over the term of the lease, meaning, divide that number by the number of years to end up at new annual rent. In this case the rent would be $101,000/year if the Tenant broker insists on their full 4%.\n\nThis way both parties are compensated adequately and although you paid more in commissions, it\u2019s been built into the rent and that affects overall value so you shouldn\u2019t be out any real money in the big picture.\n\n$100,000/yr @ 7% cap rate = $1,428,571\n\n$101,000/yr @ 7% cap rate = $1,442,857\n\nThere\u2019s that extra $10,000 and then some, not to mention the additional rent during the hold period.", "replies": [], "depth": 1}]