This form is used by a leasing agent as an addendum when entering into a listing agreement or preparing a letter of intent (LOI), offer to lease or lease agreement, to set their fee due on the lease agreement and on any modification, extension or renewal of the lease agreement or purchase of the premises by the tenant.
A leasing agent’s bargain for fees
Consider a commercial property offered for lease by the owner. A broker makes an appointment with the owner to discuss the possibility of employment as their leasing agent.
During the discussion, the broker explains brokers are best able to assist owners locate a tenant who will lease their property when the owner retains one broker to act on their behalf in the leasing market by entering into an exclusive authorization to lease, commonly called a listing and more accurately an employment agreement. [See RPI Form 110]
As explained, the broker will act on behalf of the owner under the listing to:
- market the space and locate prospective tenants [See RPI Form 110 §1];
- publish the terms for a tenant to lease and occupy the space [See RPI Form 110 §4.2];
- share fees with brokers representing the tenant [See RPI Form 110 §4.3];
- conduct oral and written negotiations with tenants or their brokers [See RPI Form 110 §4.3] ; and
- accept deposits with offers to lease the space. [See RPI Form 110 §4.4]
To help distinguish services, a broker acting solely as a leasing agent explains they do not manage or operate the property in an ongoing arrangement with the owner as does a property manager. [See RPI Form 590]
Instead, the duties of a leasing agent are limited to:
- locating a prospective long-term tenant; and
- negotiating a lease agreement for their occupancy of the space.
Right to compensation for services
When you, as a broker or an agent of your broker, enter into an exclusive authorization to lease with an income property owner, you are assured payment of a fee for your efforts when anyone procures a tenant for the described space during the listing period, either on:
- the leasing terms sought in the listing; or
- any other terms accepted by the owner.
Occasionally, owners are reluctant to relinquish their possibility to independently and separately lease the property and avoid paying a brokerage fee. However, this avoidance is not available under an exclusive listing to lease.
Yet an owner’s best overall opportunity for finding a tenant on acceptable terms is realized when they employ a skilled leasing agent who is well known in the community of local leasing agents.
An effective leasing agent typically possesses experience and attributes an owner does not, such as:
- extensive personal experience negotiating various lease arrangements;
- constant present involvement in leasing discussions with others in the trade; and
- vast exposure to prospective tenants and their agents.
Written authorization to lease
Consider an owner whose preference is to agree orally to employ a broker to bring them tenants interested in their property. The owner tells the broker they will work exclusively with them as their leasing agent to market the space and locate a user. The owner does not however believe it necessary to commit all these personal discussions to a written agreement.
The broker explains an exclusive authorization to lease needs to be written and signed by the owner for the broker to be entitled to collect a fee for their time, talent and efforts. No signed writing, no services.
Is the broker correct?
Yes! A written agreement signed by the owner is the only way you can protect your right to compensation for services performed under a California real estate broker license. More importantly, a written exclusive authorization creates an obligation owed the client by the broker to conscientiously and continuously work to meet the client’s objectives, whether the client is a tenant or an owner. [Phillippe v. Shapell Industries, Inc. (1987) 43 C3d 1247]
Editor’s note — When you are employed under an oral agreement to renegotiate an existing lease, the employment agreement does not need to be in the form of a signed written agreement to collect the promised fee. Fees for negotiating modifications, space expansions, extensions or renewals of existing leases are not required to be written to be enforceable. Here, the lease has already been created, taking further employment out from under the statute requiring a writing to enforce real estate fee agreements. [Shell v. Darneille (1984) 162 CA3d 957]
As a comparison, an exclusive authorization to lease functions with the same force and effect as an exclusive right-to-sell listing agreement. [See RPI Form 102]
With a written listing to lease, the leasing agent is employed to “sell the use” of the owner’s property — a leasehold interest granted and conveyed by a lease agreement and transfer of the right of possession. This is comparable to the employment of a seller’s agent to “sell the ownership” by locating a buyer to acquire the fee simple interest in a property. [See RPI Form 102]
Fee schedule establishes broker’s right to a fee
An exclusive authorization to lease calls for the preparation of a fee schedule. [See RPI Form 113]
The fee schedule is attached to the exclusive authorization. It sets out the leasing situations which on occurrence trigger your right to be paid a fee as earned.
The fee schedule includes additional fees without the broker’s further involvement for extensions, renewals and other continuing leasehold and purchase arrangements which might be entered into in the future by the tenant and the owner. [See RPI Form 113 §2.2, 2.3]
The amounts established in the fee schedule are earned and due the broker under the following fee provisions:
- an exclusive right-to-collect clause assures payment of the agreed-to fee when anyone procures a tenant on the terms in the listing, or on any other terms accepted by the owner [See RPI Form 110 §3.1a];
- an early termination clause assures payment of the fee when the owner withdraws the property from the rental market during the listing period [See RPI Form 110 §3.1b];
- a termination-of-agency clause assures payment of the fee when the owner cancels the employment without justification before the listing period expires, whether or not the owner intends to continue to market the property for sale [See RPI Form 110 §3.1c]; and
- a safety clause assures payment of the fee when, within one year after termination of the exclusive authorization to lease, the owner enters into negotiations resulting in a leasing or sale of the property to a prospective tenant the broker negotiated with during the listing period. [See RPI Form 110 §3.1d]
The exclusive right to collect a fee
It is the exclusive right-to-collect clause that makes a listing exclusive. It states you have earned and are due a fee when anyone procures a tenant during the listing period. [See RPI Form 110 §3.1a]
Consider a broker who, as part of their efforts to locate a tenant under an exclusive authorization to lease, places a “For Lease” sign on the premises. The sign is seen by a prospective tenant. The prospective tenant researches and contacts the owner of the premises directly.
Before the exclusive authorization to lease period expires, the prospective tenant and owner enter into a lease agreement. The terms of the lease agreement are different from those specified in the broker’s exclusive authorization to lease.
Even though the owner’s broker had no contact with the prospective tenant (other than the sign exposure) and the terms are different from the listing, the broker has earned a fee. The owner accepted a tenant’s offer to lease during the period of employment under the exclusive authorization. [Carlsen v. Zane (1968) 261 CA2d 399]
Early termination by owner triggers fee
An early termination clause protects you from loss of time, money and talent spent in a diligent effort to locate a tenant when the owner’s conduct effectively removes the property from the rental market before the listing period expires.
When the owner interferes with the objective of your employment — to produce a ready, willing and able tenant on the terms stated — a fee has been earned and is immediately due.
Consider a broker and owner who enter into an exclusive authorization to lease that expires in six months, the listing period. The agreement contains a fee provision with an early-termination clause.
The broker diligently attempts to locate a tenant for the owner’s property. During the listing period, the owner notifies the broker the property is no longer for lease. The broker is instructed to stop marketing the property. In compliance with the owner’s instructions, the broker takes the property off the market.
As a consequence, the broker makes a demand on the owner for a full listing fee. The broker claims the early termination clause provides for payment of the broker’s fee by the owner as earned when the owner withdraws the property from the rental market without legal justification before the listing period expires.
The owner claims the broker cannot collect a fee under the early termination clause since it constitutes an unenforceable penalty provision.
Is the broker entitled to a fee on the client’s termination of the broker’s employment?
Yes! The broker earned a fee that is due and collectible. The early termination clause is not a penalty provision that produces a windfall profit for the broker. Here, the owner has an alternative to interference by withdrawal — allow the listing to expire without interference with the broker’s marketing efforts. Thus, the owner is required to pay the fee on exercise of their option to cancel the listing agreement. [Blank v. Borden (1974) 11 C3d 963]
Editor’s note — See RPI Form 121 for an agreement to cancel an exclusive authorization to lease during the listing period. [See RPI Form 121 §2.2]
Safety clause covers prospects who later lease
A safety clause protects your fee when your efforts produce results during a one-year period after the listing period expires, known as the safety clause period. [See RPI Form 110 §3.1d]
Under the safety clause, the owner owes the scheduled fee when:
- during the safety clause period, the owner enters into fresh negotiations with a tenant you located during the listing period; and
- the negotiations result in a lease agreement.
The safety clause includes a perfection-of-rights provision. It calls for you, on expiration of the listing, to provide the owner with a list of the prospective tenants located during the listing period. Delivery of a list of prospective tenants is a condition precedent to your collecting a fee when a named prospect leases during the safety clause period. [See RPI Form 122]
Consider a broker and an owner who enter into an exclusive authorization to lease containing a safety clause. [See RPI Form 110 §3.1d]
On expiration of the listing period, the broker supplies the owner with the names of prospective tenants they have contacted and who received information regarding the property. Thus, each of these prospective tenants is made known to the owner.
After the listing expires, the owner employs a second broker under an exclusive listing without advising them about the terms of the prior listing.
Within the safety period of the first broker’s listing, the second broker leases the premises to a tenant registered with the owner by the first broker. The lease is arranged without the first broker’s participation.
Is the first broker entitled to be paid a fee on the transaction?
Yes! The owner owes the first broker the entire amount of the agreed-to fee under the safety clause provision in the first broker’s exclusive listing — even though the property was leased while listed exclusively with another broker.
The exclusive authorization to lease entered into by the owner and the first broker promised the first broker a fee when, within one year after expiration of the listing, the owner enters into negotiations which result in a lease with a prospective tenant registered under the safety clause provision with the owner by the first broker. [Leonard v. Fallas (1959) 51 C2d 649]
As a “safety net” for brokerage services rendered, the clause discourages the owner from attempting to avoid payment of a leasing agent’s fee by:
- waiting until the exclusive authorization agreement expires and then directly or indirectly approaching a prospective tenant located and solicited by the leasing agent; or
- making special fee arrangements with a second leasing agent which re-ignite negotiations with a prospective tenant located and exposed to the property by the first leasing agent broker.
Editor’s note — For more on enforcement of a safety clause in an expired listing, see the February 2015 article Demand for broker’s fee earned under the safety clause.
Additional fees under the fee schedule on an extension
The exclusive authorization to lease contains provisions within the form to establish the listing agent’s fee and when it is earned for services rendered. [See RPI Form 110 §3.1]
Further, the authorization to lease entitles the broker to receive additional fees for any extension, renewal or modification of the tenant’s occupancy under the original lease. [See RPI Form 113 §2.2, 2.3]
A more detailed fee schedule may be attached containing formulas for calculating the brokerage fee earned based on the length of the lease negotiated with the tenant and the exercise of an option to renew, extend or buy. [See RPI Form 113]
For example, a broker operating under the authority of a written exclusive authorization to lease procures a tenant who signs a ten-year lease agreement. The broker is paid the fee called for in the listing agreement fee schedule covering the original lease term. [See RPI Form 113]
The fee schedule also provides for a percentage fee to be paid when the owner and tenant enter into an agreement for the tenant’s continued occupancy or purchase of the premises on expiration of the original lease. [See RPI Form 113 §3.1]
On expiration of the original lease, the owner and tenant negotiate a new lease for the tenant’s continuing occupancy and use of the premises. A brokerage fee is not paid for the tenant’s continued occupancy.
The broker makes a demand on the owner for an additional fee under the original listing agreement. The broker claims the new lease, which the broker did not negotiate, earned the broker a fee.
The owner claims they do not owe the broker a fee since the new lease is a separate agreement, not an extension, renewal or modification of the original lease.
However, the broker is due an additional fee from the owner as agreed in the original listing since the new lease constitutes an extension of the original possession.
Here, the tenant located by the broker continued in possession and use of the premises on expiration of the original lease. The listing agreement stated the broker was to be paid a fee on this event. The form of documentation used to permit the continued occupancy of the premises is of no importance. [John B. Kilroy Company v. Douglas Furniture of California, Inc. (1993) 21 CA4th 26; see RPI Form 110 §3.3]
Form updated 06-2017 to include the Form Description at the top, white header/footer convention and RPI branding.
Form navigation page published 07-2017.
