In the leasing of space Tenant Representation is the advisory role fulfilled by the consultant or broker where the consultant represents the interests of the tenant in the transaction. Under the traditional U.S. system, tenants seeking office or warehouse space often sign an exclusive tenant representation agreement with a local consultant who has market knowledge, a track record with similar projects and expertise in the key issues important to the tenant.
The exclusive tenant representation agreement ensures that the tenant receives comprehensive, objective advice by aligning the interests of the consultant and the tenant. Interests are aligned by ensuring that the fee of the consultant does not depend upon which property is chosen by the tenant. To ensure objectivity in cases of Dual Representation, the brokerage should have a dedicated tenant representation team advising the tenant which does not receive any bonus or fee if the brokerage company also receives a fee from the landlord.
In the U.S. it is common practice for the landlord to pay the fee for tenant representation – if the consultant is able to get the same fee on all potential properties then its objectivity is retained and there is no conflict of interests. However, often in Russia under “structured tenant representation” the consultant seeks to get the fee from the landlord but not all landlords agree and some pay larger or smaller fees. Such landlords also often expect that the consultant will give preference to their property. Thus under “structured tenant representation” the consultant’s objectivity is often lost.