Don't Pay Commissions, Taxes from Tenant's Assignment or Sublet

October 19, 2012

Under certain circumstances, you could get stuck with a big bill for a brokerage commission or transfer taxes if your tenant assigns its lease or sublets its space. For example, you may have a listing agreement with a broker that entitles it to a commission for any transaction involving your building or center. Or a tenant may fail to pay real estate transfer taxes due on an assignment and leaves you with the problem of getting rid of the resulting lien on your building or center. Paying brokerage commissions and real estate transfer taxes could get very expensive.

Under certain circumstances, you could get stuck with a big bill for a brokerage commission or transfer taxes if your tenant assigns its lease or sublets its space. For example, you may have a listing agreement with a broker that entitles it to a commission for any transaction involving your building or center. Or a tenant may fail to pay real estate transfer taxes due on an assignment and leaves you with the problem of getting rid of the resulting lien on your building or center. Paying brokerage commissions and real estate transfer taxes could get very expensive. And you may have to deal with this situation more than in the past, because assignments and sublets are increasingly popular for tenants that are trying to downsize or cut costs.

To protect yourself, make the tenant and its assignee or subtenant agree that you’re not liable for paying any brokerage commissions and real estate transfer taxes resulting from the tenant’s assignment or sublet. And make it clear that they must reimburse you for any commissions or taxes you must pay as a result of their transaction. This language should appear in two documents. Have the tenant add the language to the assignment agreement or sublease it signs with the assignee or subtenant. And add the language to your consent form and then have the tenant and its assignee or subtenant sign that form. Having protective language in these two documents makes it easier to demand that a tenant reimburse you for any brokerage commissions or real estate transfer you must pay as a result of their transaction. Have your attorney review this language before using it.

Model Language

Tenant and [Assignee/Subtenant] hereby agree that Landlord shall not be liable for any real estate transfer taxes, any leasing commission, or other amounts which may be due to a broker or agent with respect to the [Assignment/ Sublease Agreement]. [Assignor/Sublandlord] and [Assignee/Subtenant] hereby jointly and severally indemnify Landlord against any claims for such transfer taxes or brokerage or leasing commission which may be due as a result of the transaction which is the subject of this Consent.

Topics

More like this