2019-09-16-TransactionalServicesProposalDechertParisFINAL

Fee structure

1. Market Commissions : common practice in France The French commission structure is very different from the US. For new lettings traditionally both the incoming tenant and the landlord each pay a commission of 15% of the first year’s full annual (headline) rent. This remains the case for small requirements ; less than 8 000 - 10 000 sq ft. Landlord letting mandates are usually co-exclusive or tri-exclusive and formally permit the letting agent to take a complementary fee from the tenant they introduce. Letting mandates usually also make provision for a third-party agent (or tenant agent) to receive a proportion of the landlord letting fee if they introduce an occupier to that building. There are however no fixed rules for letting mandates; both conditions and fee-sharing arrangements vary from one landlord to another. It should be noted that, unlike in the UK for example, the majority of landlords conduct their own negotiations with tenants, whether in the case of new lettings or lease renewals. Letting mandates are therefore principally intended to cover marketing and tenant- introductions by the letting agents. Most letting mandates provide a base fee of 15% of the net effective annual rent, split between the letting agents, but depending on market conditions landlords may offer bonus payments, for example for rapid letting of a building. Concerning tenant search instructions, as in most other international markets discounts are offered by agents for larger missions. The availability of landlord fees for new lettings can result in substantial discounts being offered. In the case of lease renewals or re-gears there are no fixed rules although market practice is for the tenant representation fee, often composed of a base fee plus an incentive element, to equate to 50% of a full fee for taking new space (i.e. 7.5% of annual rent). This percentage can however be greater when there is a full market search for a ‘stay-versus- go’ project, with formal RFP to a short-list of landlords of alternative buildings. By way of example, for a lease renegotiation for 40 000 sq ft (roughly 3 700m²) at a rent - including parking and archives – of say 900€/m², the new annual rent would be around 3.3M€/pa. A market commission at 7.5% of annual rent would then be in the order of 250 000€. Since they typically conduct their own negotiations, landlords do not pay fees in respect of lease renewals or lease re-gears.

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