Form K1281, the Exclusive Right to Lease Listing Agreement (ERRL), NVAR’s agreement for brokers and landlords in rental listings, was updated for January 1, 2025. Paragraph 6, which addresses broker compensation, did not substantially change from the previous version; however, the addition of the checkbox in front of subsection B for Tenant Broker Compensation has created some confusion.
Remember that the ERRL allows for the option of sharing broker compensation with a Tenant’s Broker, if any. Thus, if your landlord agrees for the Landlord’s Broker to share a portion of their compensation with a Tenant’s Broker, they should select the checkbox in 6(B) and enter any amount that is offered to any Tenant’s Broker in the corresponding blanks.
Where does the confusion come in? In the January 1, 2025,
update to the form, the word “total” was bolded in 6(A), the section
which refers to what Landlord pays as broker compensation in full. Unlike sales
forms, where a Seller puts an amount going to the Listing Broker only in
6(A), the ERRL contemplates a total broker compensation, which covers both
the amount going to the Landlord’s Broker and to the Tenant’s Broker, if
any.
Here are the steps for two common scenarios (any numbers
used below are for demonstrative purposes only):
1. Landlord agrees for Landlord’s Broker to
share a portion of the broker compensation with a potential Tenant’s Broker.
Step 1: Landlord consents to Landlord’s Broker
making an offer of compensation to any Tenant’s Broker bringing a ready,
willing, and able tenant.
Step 2: Fill an amount as broker compensation in
6(A) of the ERRL. Remember that this amount contains the total of what is going
to Landlord’s Broker AND to Tenant’s Broker!
Step 3: Select the checkbox in 6(B) of the ERRL.
Step 4: Fill an amount as Tenant’s Broker
Compensation in 6(B) of the ERRL. This number cannot exceed the amount in
6(A). Remember that Tenant’s Broker Compensation is a portion of the
total broker compensation paid by Landlord, and thus subtracted from the
amount in 6(A).
Step 5: Prior to lease ratification, both Landlord’s
Broker and Tenant’s Broker come to a written agreement finalizing Landlord’s
Broker’s offer of compensation to Tenant’s Broker, which amount must mirror the
number agreed to in 6(B). Feel free to use our new Form K1404 – Tenant’s Broker Compensation Agreement to memorialize the agreement
between the Brokers!
Step 6: (If applicable) If the amount of Tenant’s
Broker Compensation changes in this final written agreement between the Brokers,
then Landlord and Landlord’s Broker must amend the ERRL to reflect the final
Tenant’s Broker Compensation.
Practice tip: When is paragraph 6(C) for Additional
Listing Broker Compensation for Unrepresented Tenant checked? This is an
optional provision that may come into play when there is no payment
between brokerages (i.e. paragraph 6(B) is not filled out). This is only applicable if the
tenant is unrepresented, and this amount would be paid to Landlord’s Broker in
addition to the broker compensation in 6(A). In the event of an
unrepresented tenant, Landlord’s Broker would get the entire amount in 6(A) +
6(C). Tenant’s Broker Compensation in 6(B) would never be subtracted.
2. Landlord does not agree upfront for
Landlord’s Broker to offer any portion of their broker compensation to a
Tenant’s Broker.
Step 1: Landlord either wants to consider Tenant
requests for financial contribution at the time of application or does
not wish to offer Tenant’s Broker Compensation at all.
Step 2: Fill an amount as broker compensation in
6(A) of the ERRL. This amount would go to Landlord’s Broker in its entirety.
Step 3: Skip 6(B) of the ERRL.
If the landlord later wishes to
offer some compensation to a Tenant’s Broker by lease ratification, the
following steps apply:
Step 4: A tenant requests a financial contribution
for Tenant’s Broker Compensation at the time of application.
Step 5: Prior to lease ratification, both Landlord
and Tenant’s Broker come to a written agreement finalizing Landlord-Paid
Tenant’s Broker Compensation. Feel free to use our new Form K1404 – Tenant’s Broker Compensation Agreement to memorialize this
agreement!
Step 6: Landlord and Landlord’s Broker do not need
to amend the ERRL.
For any questions or to request more information, please contact .