A representation letter is a document that’s used to demonstrate your commitment to a tenant representation broker and helps to ensure that a broker is paid a commision on your lease if they help you find a space. This is why a tenant rep broker will work harder when they have a representation letter. If you want to get the most out of the brokerage community, we recommend that you sign an exclusive agreement rather than working with several different agents on a non-exclusive basis.
A broker exclusivity agreement ensures that a broker and tenant have a shared interest in finding the perfect commercial space. Tenant brokers require representation letters so that they can secure a commission. If a tenant rep works to find a space and negotiates for a lease, but it falls through, they don’t get paid. This is unavoidable sometimes, but having an agreement in place helps ensure that the tenant does not bypass the broker when a lease deal is made. They have to be compensated for the work that they do, and the representation letter serves to give the tenant rep a fiduciary interest and duty in a successful lease deal for the tenant.
A representation letter is composed of many sections that explain the duties of the broker, the requirements for the client, and the compensation arrangements. The broker promises to work in the best interests of the client, and the client agrees to work exclusively with the broker. Compensation agreements usually revolve around a percentage of a deal that happens within a certain period of time. Since tenant rep brokers are generally paid by the listing agent in a deal, this rate can fluctuate, but it usually has a minimum percentage agreed upon in the representation letter.
The broker and the client also agree to do their best to find the property that suits the tenant’s needs. This may include availability for tours, negotiating sessions, and brainstorming time. Generally, they also agree to conduct business in the best interests of each other. This means that there are no conflicts of interests, like the ones that could exist when dual representation with a listing agent is present.
The decision on whether to sign a representation letter or not is ultimately up to the client. You should only sign an exclusivity agreement with an agent that you trust and want to work with. Having difficulty choosing the right tenant representation broker? Check out our tenant rep selection guide.