Last Updated on May 26, 2021
This article is the first in a series that helps to define terms used in commercial real estate and concepts that a lessee, buyer, seller or landlord may come across during a transaction.
If a lease is expiring, a tenant can do one of a few things: renew it, move, upgrade their space or downsize. If they choose to renew it, they may want to use a different broker than the last time they signed the lease. But, does the building owner have to pay both brokers for the renewal? The simple answer… no.
A vulture clause is a provision in a commission agreement between the owner and the procuring broker (the broker who introduced the tenant to the owner) that protects the owner from paying a second commission to another broker upon renewal.
At a minimum, the commission agreement will stipulate that if the tenant renews the lease or expands the space in the building, the broker is entitled to a commission for a period of time. Here’s where it could get tricky. Let’s say the tenant decides to use another broker for the renewal. Will the owner be required to pay two commissions—one to the initial procuring broker who’s protected by the commission agreement and a second one to the new broker? Enter the vulture clause.
The vulture clause stipulates that the procuring broker will be protected for a period of time unless the tenant uses another broker to represent them. Oftentimes, in fact, the procuring broker will add an additional layer of protection in the agreement stipulating that should a new broker be hired, it will be done so in writing. This helps to prevent a new broker from calling the owner and starting to negotiate the deal.