James A. Hochman, has represented commercial real estate brokerage firms, landlords, tenants, and investors for 31 years, specializing in all phases of Commercial Real Estate transactions, negotiations and litigation. He is a specialist in broker lien law and license portability legislation, having been instrumental in the drafting and adoption of state statutes across the nation. Mr. Hochman is the real estate partner at Coman Anderson PC, and is also an Associate Member of SIOR. He can be reached at email@example.com, or at (630) 946-1666.
Most experienced commercial real estate brokers have been asked,
at one time or another, to defer all or a portion of their commis-
sion. In my experience, deferred commission normally becomes
If the deal is too thin to provide for your full fee
to be paid at closing...
The immediate response is to suggest to your owner that he
shouldn’t make the deal, you can go back to the market for a better
buyer and a better price. In my experience, most sellers who seek a
commission reduction or deferral won’t walk from the deal for 1, or
2, or even 3 percent of the gross sale price. Just say no. Perhaps that
will end the proposed commission reduction or deferral.
If you must defer all or part of the commission...
First, get as much of the fee “up front” as you can. Require security
for the unpaid balance, such as a statutory broker lien or if brokers don’t have lien rights in the state where the property is located,
require a consensual lien. By the way, a mortgage is an example of
a consensual lien, and a mortgage can and should be used to secure
a deferred commission where broker lien rights do not apply.
It is essential to document your claim for the balance of your
fee with a promissory note. The note will confirm the payment
obligation and eliminates any defenses to your (eventual) commission claim. There are very few defenses to a well drawn promissory
note. In the note, require interest on the unpaid balance, more to
deter slow payments than for extra income. You could even agree
to waive the interest if all payments are made timely. Consider a
higher or “default rate” of interest to apply if your client fails to pay
timely. Certainly, add a provision that entitles you to attorney fees if
you have to sue to collect the unpaid balance.
The purposes of the note are many. Any resistance to payment
terms or sanctions in the note should warn you that payment is
not assured. Most important, your right to payment under the note
should be contingent only on the passage of time.
Ask for one or more personal guarantees on the note. Don’t be
shy, ask for all members of the LLC to personally guaranty the note.
I have found that from time to time, if deferred commission
terms are just too painful or inconvenient for the client, he just pays
the fee. That’s really what you wanted, after all.