For many years, commercial and Industrial leasing commissions were based on the SAPOA commission guidelines. These were deemed uncompetitive by the competitions board along with the Institute of Estate Agents Commission Tariff and abolished in 2003. In practice, the SAPOA Commission payment guidelines still represent the “going rate” for leasing but are not referred to formally and are as follows (Ex VAT):
Monthly Leases or a lease of up to 12 Months = One Month’s Rental
Lease Periods over 12 months
5% on the First Two Year’s Rental
2.5% on the Next Three Years Rental
1.5% on the Next Three Years Rental
1% on the balance
The commissions stated above, are paid in full to the broker when the lease is signed and the deposit and first month’s rental have been received by the landlord.
I now offer landlords an alternative, being a rate of 5% commission, calculated on the monthly rent and payable monthly for as long as the tenant remains in the building. This is geared to short leases where landlords, generally pay one month’s rental (which equates to 8.33% or more if the lease is less than 12 months). It is therefore in the broker’s interest to assist the landlord in keeping the tenant in the property for a longer period.
The monthly payment is a good alternative for the landlord in situations such as where the tenant is a new venture and possibly riskier. If the tenant goes insolvent, the landlord is at less risk, paying 5% monthly rather than the entire commission up front. The following terms and conditions apply:
- If the landlord sells the building, it must either transfer its commission payment obligation to the purchaser or pay the broker the commission for the duration of the lease period.
- If the landlord elects to release the tenant from its lease obligation, the landlord will remain liable for the commission for the duration of the lease.
This monthly 5% option will also assist landlords where cash flow is tight.
Guy de la Port is an experienced industrial property broker specialising primarily in the Airport Industrial areas and then the surrounding Epping, Maitland, Parow and Belville industrial nodes, central to Cape Town.