Tenant Rep vs Landlord Broker: Who Represents You?

Every leasing transaction has two sides, and each broker in it has a client. The listing broker has a contract with the building owner. Its assignment is to lease the vacant space at the highest rent and on the terms most favorable to the owner that the market will bear, and to do it quickly. The tenant representative has an agreement with the company looking for space. Its assignment is the reverse.

This is not a comment on anyone’s character. Listing brokers are frequently knowledgeable, responsive and pleasant, and a capable one makes a transaction smoother for everybody. The point is structural. A professional who owes loyalty to one party cannot also be the adviser of the party across the table, in the same way the seller’s attorney is not your attorney however cordial the meeting.

It helps to be precise about this, because a listing broker does a great deal for a prospective tenant, and tenants can mistake service for representation.

• Can do: show you the space, send floor plans and building information, explain what the owner is asking, relay your proposal and answer factual questions about the property.
• Can do: describe the owner’s process, approvals and timing, and keep the paperwork moving.
• Cannot do: tell you that the owner would accept less, or how long the space has really been sitting.
• Cannot do: recommend a better building down the street, or tell you that a competing owner is offering more.
• Cannot do: advise you on which clauses to resist, or on what tenants with your profile have obtained elsewhere.
• Cannot do: keep your confidences from its own client.

That last item deserves attention. Anything you tell the listing broker can reasonably be expected to reach the owner. If you mention that your current lease is about to expire, that your board has approved a certain budget, or that this is the only building your team likes, you have handed the other side the three most valuable facts in the negotiation.

Before you have representation, treat a tour like any conversation with the other side of a deal. Be courteous, ask questions and keep your budget, your deadline and your alternatives to yourself.

Tenants sometimes assume a broker sits in the middle, as a kind of market-maker who wants a deal that is fair to both sides. Three things make that assumption unsafe.

The first is duty. The listing broker’s contractual and professional obligations run to the owner. The second is compensation. Brokerage commissions are generally calculated from the value of the lease, so a higher rent and a longer term produce a larger fee, and the listing broker’s continued assignment depends on the owner being satisfied. The third is information. The listing broker knows the owner’s position in detail and knows yours only as far as you reveal it. A negotiation in which one side is advised by someone who knows both positions is not an even one.

A related misunderstanding is that going without your own broker saves the landlord a commission that will be passed to you as lower rent. In most listings the total commission is set in the owner’s agreement with its broker before you appear. We cover that question in a separate guide on leasing without a broker.

Dual agency is the situation in which the same broker, or the same brokerage firm, represents both the landlord and the tenant in one transaction. It can arise in two ways. A tenant with no representative asks the listing broker to handle its side as well. Or a tenant hires a firm that also holds the listing for a building the tenant decides to pursue.

State license laws regulate dual agency, and the rules differ from state to state, including what must be disclosed and what consent is needed. Many firms manage the second situation by assigning different individuals to each client and separating their information. That arrangement has various names, and its legal effect depends on the state.

Whatever the label, understand what changes. A broker acting for both parties cannot push for either one’s advantage at the other’s expense. It can facilitate. It generally cannot tell you the owner’s bottom line, and it cannot tell the owner yours. If you are asked to sign a dual agency disclosure or consent, read it as a document that reduces the service you receive, and have your attorney explain what it means in your state before you sign.

Do not rely on tone, title or business cards. Ask, and get the answer in writing. These questions take a few minutes and remove the ambiguity.

• ✓Who is your client in this transaction: the owner, us, or both?
• ✓Do you or your firm hold the listing for this building, or for any other building we are considering?
• ✓Does your firm manage this property or have another business relationship with its owner?
• ✓Will you sign a written agreement stating that you represent us?
• ✓If we pursue a building your firm lists, what happens to our representation, and what will we be asked to sign?
• ✓What information that we share with you will be kept from the landlord?
• ✓How are you paid on this deal, and by whom?
• ✓Who else at your firm can see our file?

In our home state, the Illinois Real Estate License Act addresses the default relationship: a licensee working with a consumer is presumed to be that consumer’s designated agent unless a written agreement between the sponsoring broker and the consumer provides for a different relationship (225 ILCS 454/15-10). Rules in other states differ. In any state, a written agreement is the reliable way to know where you stand, and your attorney should review it.

With a tenant representative, the listing broker is still in the transaction, doing its job for the owner. What changes is that you now have someone doing the same job for you.

1. Your representative surveys the whole market, including buildings that compete with the one you first liked.
2. Communication with listing brokers goes through your representative, so your budget and timing are disclosed deliberately or not at all.
3. Several landlords receive your requirement at once and respond with proposals, which gives you alternatives.
4. Proposals are compared on total cost and flexibility, with knowledge of what similar tenants have obtained.
5. The letter of intent and lease are negotiated by people whose only client in the deal is you, alongside your attorney.

Tenant Advisory Group was founded in 2008 to work on the occupier side of the table, representing tenants and buyers. Whichever firm you choose, the test is the same: you should be able to state, in one sentence and with a signed document behind it, who your broker works for.