Q: I represent a tenant who recently signed a lease, but hasn’t yet moved into the premises. As the tenant’s broker, I received the first month’s rent, last month’s rent and security deposit described in the lease. May I deduct my commission from these funds and then deliver the balance to the landlord’s broker?
A: Possibly, although we highly recommend that you receive clear written instruction to do so. The tenant owes the landlord funds described in the lease, which may include a deposit and advance rent. The landlord owes the landlord’s broker the commission described in the exclusive right to lease (listing) agreement, and the landlord’s broker owes the tenant’s broker the offer of compensation described in the MLS. When brokers deduct their commission, they’re typically taking a shortcut from the way the money should flow, based on intertwining contracts.
The following safeguards should be in place each time the tenant’s broker decides to use the shortcut method: First, the funds should come out of only the landlord’s earned money, which would likely be the first month’s rent, at the time the lease term commences. Also, the landlord should clearly authorize the landlord’s broker to deduct commission from the first month’s rent, and the parties (or possibly the landlord’s broker) should clearly authorize the tenant’s broker to deduct the amount described in the offer of compensation.