Commercial lease commissions - calculated on gross value or actual rents received?
We just obtained a new lease, but the tenant is still building out the space and won't likely move in for another six months.  Is the commission due on the entire 10 year lease? Or 9.5 year?

This was the term in the broker's agreement:

&gt;Five percent (5%) of the net rental consideration for years 1-5; and two and a half percent (2.5%) of the net rental consideration for years 6-10. As used herein, “net rental consideration” means the rent payable by the tenant under the lease for the initial lease term.
[{"id": "ho08crj", "text": "It\u2019s typically gross value less any included expenses like electric, CAM etc. That being said What are the dates involved? \n\nif the lease starts say December 1 and your client is getting free rent until construction is completed then your commission will be based off of the amount from the day they take possession of the space. These are all important points that are typically negotiated in the LOI and brought into the lease agreement.\n\nIf they are burning time into their lease to build out the space themselves then commission is paid as of lease commencement.", "replies": [{"id": "ho08mmk", "text": "Appreciate the quick response!  \n\nThere's a clause for rent commencement date (below), so they are not paying rent until they finish construction.  \n\n&gt;3.5 Rent Commencement Date: The earlier to occur of (i) the date upon which Tenant first\ncommences to conduct business in the Premises, or (ii) two\nhundred forty three (243) days after the \u201cDelivery Date,\u201d, as that\nterm is defined in Exhibit B attached hereto. If the Tenant is not\noperating after 243 days to 365 day tenant rent shall be 50%\nrent. After 365 days, tenant shall pay full rent.\n\nI also edited my OP text to include the details on \"net rental consideration\".", "replies": [{"id": "ho0fc9c", "text": "Honestly, this one is kind of a mess. I\u2019m not trying to bust balls here but the structure to pay out at least from a tenants broker perspective seems quite annoying. Especially when most of the deals I work on are looking at 50% on signing in 50% on commencement if not 100% on commencement. How long is the lease for? Wondering if I can back into it from there Because you can have one portion of the commission paid to account for a certain time. And then have the second portion paid out once the tenant is operating in the space which will be prorated accordingly.", "replies": [{"id": "ho0j406", "text": "50% is due on lease execution with remaining 50% due on rent commencement.  Lease is for ten years.  I'll PM you.", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "ho0aw34", "text": "With out knowing your agreement or specifics of the lease I\u2019ll just assume this is a nnn lease. Typically you receive a commission on what the tenant pays in rent. So rent and nnns are separately defined costs. Billing should typically takes place once the tenant starts paying rent. At that point you would calculate the net rental income for years 1-5 and then for 6-10. Years 6-10 may not be payable immediately. I don\u2019t know what your agreement states but if it isn\u2019t defined it would be best to discuss this with you client.", "replies": [], "depth": 1}, {"id": "ho0e509", "text": "Is your lease term 10years from RCD or 10yrs from possession?  If the latter, then it doesn\u2019t really matter as the gross rents only cover that time (or in your example, 9.5 yrs). \n\nIf the former then I\u2019d say you\u2019re on the hook for the entire 10yrs as that is part of the brokers agreement definition of net rental consideration.", "replies": [{"id": "ho0kdoz", "text": "Lease is 10 years from lease execution.  RCD is earlier of possession or 243 days.", "replies": [{"id": "ho0n8nw", "text": "Kind of answers your question then. If the lease term is only that long the commission can only cover the total rentals to be received through the term. Given your RCD is contingent the big question is when the commission is to be paid because it\u2019s incalculable until you know the RCD.", "replies": [{"id": "ho0nw2w", "text": "Right, so the timing of the payments is weird then as they wanted 50% at lease signing and 50% at RCD.  We'll just have to adjust the second payment then.\n\nThanks!", "replies": [{"id": "ho0pp3b", "text": "Correct. I usually try to wait to pay at all until RCD but any good broker will push back on that. You did it right to make the second half be at RCD so you can true up. And make sure they pay of course.", "replies": [{"id": "ho0rkul", "text": "We are the landlord, I'm just checking the broker's commission calculation.  They got us a new lease and I want to make sure we don't overpay. Sorry if that wasn't clear haha.", "replies": [{"id": "ho0s8oe", "text": "Right. I meant wait to pay the commission until RCD.", "replies": [], "depth": 7}], "depth": 6}], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "ho0tvdi", "text": "In these scenarios make sure the Security Deposit can cover the full commission. Typically if you are working with with a mom and pop landlord they don't want to pay anything out of pocket, so typically the security deposit would cover any commissions that need to be paid out. Good luck!", "replies": [], "depth": 1}, {"id": "ho2w1jk", "text": "The commission is due on the entire 10-year lease from the commencement date. All boils down to if the offer incorporates the fixturing period as a part of the term. if the term starts and they have 6 months net free (or gross or whatever) to build out their space then it would be 9.5 years...still paying for ten years, but there is no commission accountable for the 6 months of which they are building out because they are not paying the net rent. now, if they have (which usually experienced brokers nad landlords will schedule it) the fixturing period is prior to occpancy and commencement, then it would be ten years. you probably want to pay the ten years because that way the buildout is not eating into your term with the tenant. \n\nNot sure if you did this or not, but a common thing to do is charge additional rent to the prospective tenant during the fixturing period (or a split where some of it is gross free and the remainder is net).  Then you arent biting the utility and additional charges to subsidize their buildout. advantage of doing it this way to is you give them the permission to build out the space but they cannot operate. If they finish the buildout ahead of schedule you can permit early occupancy and charge full rent while still maintaining the full term of the lease. \n\nNot sure if you did this or not, but a common thing to do is charge additional rent to the prospective tenant during the fixturing period (or a split where some of it is gross free and the remainder is net).  Then you aren't biting the utility and additional charges to subsidize their buildout. advantage of doing it this way to is you give them the permission to build out the space but they cannot operate. If they finish the buildout ahead of schedule you can permit early occupancy and charge full rent while still maintaining the full term of the lease.", "replies": [], "depth": 1}, {"id": "ho5ki46", "text": "Commission is normally % times BASE RENT AMOUNT.  NNNs (property tax, insurance, CAM) are not included in the commission amount.  Also, commission should be paid 50% on Lease Execution and 50% on Lease Rent Commencement.", "replies": [], "depth": 1}]