What is Tenant Representation?

Put simply, tenant representation is the act of having someone represent the best interests of a tenant in a commercial lease transaction (a "broker" or a "real estate agent").

Most commercial agents have done tenant representation at some point in their career, and some make it their job to work only for tenants.

If you're a tenant, this amounts to having someone else do all the leg work for you. You'll tell them your budget, give them criteria of what you're looking for and where you'd like to be located. The agent will then tell you if what you're looking for is realistic. If there's a meeting of the minds, and all parties are happy, the tenant rep broker will likely ask the tenant to sign a representation letter, sometimes called a mandate.

This document typically does a few things.

1. It is a written agreement stating that you will exclusively work with the agent on anything they present to you, and
2. It sets out how the broker will be paid

On the matter of payment, there are several ways that this works, and there are benefits to each one.

In most cases, the tenant representative will be paid by the landlord, and is only paid when the transaction is completed. This will be the case in 90%+ of all deals with a broker representing the tenant.

The landlord will not want to pay a broker for the deal in some cases. This is the case with small or private landlords or off-market properties. In this case, the tenant rep broker may come to you (hat in hand) asking you to pay their fee. There is value in engaging with a tenant rep broker. The cost associated with the fee is almost always covered in saved time and money on the deal.

Less common is for the tenant to put the tenant rep broker on retainer, pay them a flat fee whether or not the deal closes, and have the representative agree NOT to take a commission from the landlord, even if it's offered. This arrangement is the purest form of tenant rep since it means the broker will represent your interests and is compensated regardless of whether you close a transaction. The downside of this is that you're out of pocket for the cost of a broker.

Some people will decide to act without representation, thinking that they know enough or how to negotiate. The issue with this is that you don't know what you don't know and will almost always leave money or other incentives on the table.

Your leverage as a tenant

As you can probably guess, a tenant with more experience and an operating business is more attractive to a tenant rep broker than a start-up. Suppose you're a new business looking for 1,000 sqft for a hair salon. In that case, chances are you'll be working without representation or with a very junior broker (a junior broker will still be better than acting without representation, as they should have some firepower behind them if they're a reputable firm).

For this reason, it may be worthwhile to offer a tenant rep broker a retainer to work with you on finding a space or offer to pay them out of pocket for their services. This way, they have insurance that they'll still make money working with you even if you don't close a deal. It also shows that you're serious.

If you have an established business, you can expect to have more brokers willing to work with you to secure space.

The result is that you should have a less stressful experience and have more options tailored to your needs and realistic expectations on the front end.