A few ideas about who’s who and who does what for whom
My professional specialty is not familiar to everyone. A lot of people have never heard the term office tenant rep.
So this post is about the professionals that can and should be involved in each office lease transaction, whether it’s the renewal of a lease that allows you to stay in your current space or one that involves relocating from one space to another, whether or not in the same building.
This is about “fiduciary duty”, with which some office tenants are unfamiliar, but from which all tenants can and should benefit.
To your landlord: You are the tenant or lessee.
The building is your landlord or lessor.
It’s a safe assumption that the building is always represented by a licensed real estate professional.
They’re called the building rep or building broker.
We tenant reps (brokers) call them product reps (brokers).
The tenant is not always represented by a licensed real estate professional, but they should be!
Sometimes they are being advised only by their accountant and/or by their attorney.
That’s a wasted opportunity, because the services of a tenant rep come at no expense to you, the tenant. And, tenant reps know things that neither accountants nor attorneys usually know.
To your broker: You are the client or principal. That’s why you are owed fiduciary duty by your tenant rep, who is there to advocate for you and you alone, not for themselves and certainly not for the landlords with whom you are negotiating.
The formal way that principal and agent become related is via a written exclusive agency, or representation agreement, referred to as the exclusive for short. State license regulations dictate that certain language be included in all written exclusives and In IL, all exclusive agency agreements must be in writing.
This is a perfect place for me to remind you that I am not an attorney and nothing that I ever say or write should be confused with legal advice. These are just the musings of a duly licensed real estate Managing Broker in IL, with over 30 years of experience as a tenant rep.
Some people see a conflict of interest if the broker that represents tenants also represents landlords. That’s a very good reason for tenants to be represented by a brokerage firm that only represents office tenants – to remove that conflict of interest. And most brokerage companies, and many individual licensees, do represent both landlords and tenants, although not always in the same transaction.
This is the place to raise the idea of dual agency. That’s what happens when the same agent represents both sides of the transaction, the landlord and the tenant. That might not sound like such a good idea to you. Undisclosed dual agency occurs when the same agent represents both parties without telling one or both of them. And that constitutes a License Act Violation in IL. In fact, the Act requires “informed written consent” of both parties if there is to be dual agency.
To paraphrase, The IL License Act differentiates between a client and a consumer and states that a dual agent may provide information to a “client” but may not provide advice. That does very little good for a “consumer” that needs advice. Personally, when I am being represented, I want my agent to be able to give me advice. I want an agent to be an advisor who can counsel me on how to develop a winning strategy, not a messenger who can only repeat the words that the other side said.
In the context of dual agency, it makes you wonder why the word client is even used.
Perhaps for these reasons, IL instituted designated agency. That makes room for the same corporate client, the tenant, to be represented by a brokerage company at which one licensee, or designated agent, will represent you, while another licensee, or designated agent, from the same brokerage company represents the landlord against which you and your designated agent are negotiating.
A word about compensation and conflict of interest. In the Chicago metro market, over the years, conflict of interest has been largely removed from the compensation math equation, too. It used to be that commissions were calculated based on length of lease, amount of space leased, and rental rate. If the rental rate was higher, so was the commission. That equation was replaced by the market norm of using only the length of lease and the amount of space and an arbitrary amount of money per square foot. Years ago, that amount started out around $.70 per rentable square foot. For many years it’s been $1.25/rsf/yr for office tenant rep commissions. So whether the rental rate is $25 per rentable square foot or $45 per rentable square foot, the commission is based on $1.25 times the number of years of the lease times the rentable area of the lease. Generally speaking, the broker(s) compensation is not earned until or unless a lease or sale is consummated and it’s the norm for that compensation to take the form of a commission that’s paid by the Lessor in whose building you sign a lease or by the Seller whose building you buy.
Fiduciary duty is owed by each real estate licensee to their respective client – and only to that party. Truthfulness is all that is owed by a licensee to the other parties to the transaction.
The building is also represented by its management staff.
Building managers, when they are most professional and effective, are skilled at running the building, including making tenants feel comfortable.
The Building Manager may be your friend. But they’re the building owner’s fiduciary, not yours!
It’s a safe assumption that an attorney always represents the building owner. It’s also a safe assumption that their attorney specializes in office lease transactions.
An attorney should also represent you. Your attorney should have office leases as at least a significant part of their practice. Otherwise, you run the risk of the finer points being overlooked or misunderstood.
But attorneys do not know or do the same things that tenant reps do, even if the attorneys are office lease specialists.
Generally, your attorney becomes involved with the transaction after your tenant rep has structured and negotiated the lease terms that involve money.
Your broker negotiates the lease economics. Your attorney negotiates the lease document.
Because many tenant reps have negotiated a lot of transactions, including reading a lot of leases, it seems a wasted opportunity not to benefit from your broker’s ideas about the lease document, in addition to your attorney’s. After all, your broker is probably not billing by the hour.
Frequently, during the course of the lease document negotiations, the broker is relied upon to tackle certain issues and your attorney to tackle others, because some items are much more of a brokerage nature and others of a legal nature.
Usually, buildings have a go-to architect, just as they have a go-to general contractor.
In theory, there is no reason for you not to work with either or both of them when negotiating your new or renewal office lease.
But consider this: If you are shopping the market for space and negotiating with multiple short-listed buildings, as you certainly should be doing, you might not like the idea of having to tell the same things to a different architect for each building. It’s typical in the marketplace for office tenants to work with a single firm that provides specialized architectural services, rather than with the go-to architect for each of the buildings with which you are negotiating. This practice varies with the size of the space. But the norm is for building owners to pay to have a “space plan” made that shows them and the prospective tenant how that space will be laid out and what the cost of creating that layout is. For this reason, it’s frequently possible to get each of the buildings with which you are negotiating to pay for an architect of your choice to provide the needed services. Using a “project architect” is rarer with transactions for smaller spaces and nearly universal with larger ones. Doing so saves you and your team time.
Each space plan is then reviewed with you to correct shortcomings to the extent possible. Sometimes this stage of the process reveals flaws that cannot be corrected. And if they are large enough, they disqualify that space from further consideration.
Your tenant rep should be able to recommend multiple specialist firms for you to consider choosing among. The takeaway here is that you are better off using a single architecture firm and one that specializes in office space, rather than, for example, houses.
Construction-related services generally fall under the purview of the project architect. In fact, many of them are performed by that firm. Services of a consulting engineer for the mechanical, engineering, and plumbing (MEP) sheets of the “construction drawings” and permit expediting are simply coordinated by your architect with the respective specialist firms. The project architect’s overarching role gives you another reason to consider choosing an architecture-design firm at the start to handle those aspects of your project at each shortlist building and then at the finalist building, including: programming; space planning; architectural drawings (aka the construction documents or permit set); interior design; invitation to bid list, bid preparation and bid review; general contractor negotiations; and construction oversight.
We’ve spoken about who you need for the negotiation of your lease and construction of your space. Here are some other relevant skills and professionals to include for a smooth move.
Your tenant rep and your architect should be able to provide referrals to firms that specialize in each of these specialties.
- Furniture vendor for new and/or in-fill pieces (This is often coordinated by the project architect)
- Low-voltage cabling contractor for installation of your telephone & computer systems (voice & data)
- Relocation coordinator (This can be a consultant that oversees your move out & in. In some cases this firm also actually provides these services.)
- Corporate logo design/Signage (There are even artists that specialize in creating original works of art in your reception and other areas of your space.
And, during COVID-time, we include:
- Consultant for Workplace Safety
- Janitorial contractor (often part of the team during normal times, when you own your space and/or your landlord doesn’t provide this service.)