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What Is an Engagement Letter?

Hand holds pen to sign engagement letter
Hand holds pen to sign engagement letter

If you are looking for commercial property, you may consider utilizing a commercial real estate advisor to help you find the perfect space. Most brokers will require you to sign an engagement letter before representing you. This blog post provides a general overview of the engagement letter.

What is an engagement letter?

An engagement letter is a written agreement between individuals or businesses and their commercial real estate broker. The document defines their professional relationship and outlines both parties’ responsibilities throughout the commercial real estate process. Engagement letters are less formal than some business contracts, but they are still legally binding.

What does an engagement letter entail?

The purpose of the engagement letter is to briefly outline the terms of the agreement, such as the following:

Appointment of broker: As the client, you designate the broker as your representative and give them permission to communicate on your behalf.

Exclusivity rights: You agree to only work with this broker until the agreement is terminated or the services are completed.

Payment: Typically, your broker will sign a separate commission agreement with the property owner.

Client Responsibilities: As the client, you assume all risk during the commercial real estate transaction and have certain responsibilities to ensure a successful transaction.

Scope of representation: Your broker agrees to represent you as you lease or buy commercial real estate. This section outlines what that does and does not look like.

Termination process: The engagement letter outlines how both parties can end the agreement. You often are required to provide 30 days’ written notice.

Is the agreement negotiable?

Engagement letters are designed to protect both parties, and your broker likely has a template they use with their tenant and buyer clients. You can certainly review the agreement with your lawyer and request certain language to be changed or removed before signing.

What happens after I sign an engagement letter?

After you sign the engagement letter, your commercial real estate advisor gets to work. They will ask you a variety of questions to learn your desired property type, size, location and features, as well as your budget and timeline. Your advisor will search for properties on and off the market that match your criteria and present them to you.

Your advisor also will conduct property tours, prepare letters of intent and negotiate a successful sale/lease contract on your behalf. They can also make recommendations for lenders, vendors and other experts such as property and project managers.

Ready to get started? Contact a member of our tenant and buyer representation team today!

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