Tenant Representation Cost in South Africa | Galetti

Tenant Representation Cost in South Africa: What It Actually Costs and How the Fee Model Works

Tenant representation cost depends on what you are asking the adviser to do. A commercial tenant acquiring new premises may not pay the commission directly because the landlord can fund the transaction fee. A tenant renewing or regearing an existing lease may instead pay a performance-based fee linked to the savings achieved.

That distinction matters. Saying tenant representation is simply “free” because the landlord pays commission only explains one type of transaction.

Tenant representation is a commercial property advisory service where an adviser acts for the occupier during a lease acquisition, relocation, renewal, regear, surrender or other property transaction. The fee model can change depending on the mandate and who receives the measurable financial benefit.

Key takeaways

• There is no single tenant representation cost that applies to every commercial property transaction.
• For a Galetti lease acquisition or relocation, the landlord typically funds the commission using an agreed commission structure.
• For a lease renewal or lease regear, the tenant pays a performance fee linked to the savings achieved.
• Galetti’s current tenant representation mandate calculates renewal and early-renewal fees at 25% plus VAT of defined savings and qualifying additional incentives.
• The fee calculation and the circumstances that trigger payment should be documented in the tenant representation mandate before negotiations begin.

What Does Tenant Representation Cost in South Africa?

Tenant representation cost in South Africa varies according to the transaction. Lease acquisitions are commonly structured differently from lease renewals because the work, payment source and financial outcome are different.

At Galetti, the clearest way to understand the cost is to separate the mandate into transaction types.

The important point is that who pays the fee and how the fee is calculated are separate questions.

A landlord-funded acquisition commission does not mean every tenant representation service is free. Equally, a tenant-paid renewal mandate does not normally mean the tenant pays a conventional brokerage commission based simply on the lease value.

How Do Tenant Representation Fees Work?

Tenant representation fees generally follow either a transaction-based or performance-based model. A transaction-based fee is linked to completing a lease, while a performance-based fee is linked to an agreed financial outcome such as reducing the tenant’s occupancy cost.

Galetti’s mandate demonstrates both models.

For a new acquisition, the work can include:

• establishing the property requirement
• surveying suitable premises
• comparing market rentals
• evaluating tenant incentives
• conducting financial comparisons
• shortlisting properties
• negotiating with landlords
• assisting with Heads of Terms or an Offer to Lease
• facilitating lease documentation

The mandate specifically provides for comparable market rentals, potential incentives and financial analysis to form part of the acquisition business case.

A renewal works differently. The adviser first needs a baseline against which a negotiated improvement can be measured.

Galetti’s mandate requires the adviser to review the existing lease, comparable market rentals, proposed renewal terms, potential incentives and financial implications before negotiating the renewal.

That baseline is what makes a savings-based fee measurable.

Who Pays Tenant Representation Fees?

For a new lease acquisition, the landlord can pay the tenant representative’s commission. For a lease renewal or regear, the tenant may pay the adviser based on the savings achieved. The payer therefore depends on the service being performed and the agreed mandate.

This is the distinction that gets lost in many explanations of tenant representation fees.

If you are moving into a new building, the landlord has a financial incentive to secure the tenancy. The brokerage commission can therefore form part of the landlord’s transaction cost.

If you are staying in your existing premises and appointing an adviser to reduce the financial burden of your renewal, the economic benefit is being generated for you as the tenant. A savings-based fee can therefore be structured between you and the adviser.

The signed mandate should state who pays, how the amount is determined and when payment becomes due.

How Does Lease Acquisition Commission Work?

For a lease acquisition or relocation, Galetti uses a commission structure linked to the duration and rental value of the lease, with the fee recovered from the landlord or developer.

The current tenant representation mandate provides the following structure:

• 3-year lease: 15% of first-year total rental, plus VAT
• 5-year lease: 21% of first-year total rental, plus VAT
• 10-year lease: 30% of first-year total rental, plus VAT

The mandate states that Galetti will look first to the owner, landlord, sub-landlord, assignor or seller for payment in an acquisition or relocation transaction.

These percentages should not be interpreted as a legally prescribed South African commission tariff. They describe the fee structure contained in Galetti’s current mandate template and the signed mandate applicable to a specific transaction should always be checked.

For example, if the first-year total rental on a five-year lease were R1.2 million, a 21% commission would equal R252,000 plus VAT. In a landlord-funded acquisition mandate, the landlord would ordinarily fund that commission rather than the tenant paying R252,000 directly.

That is an illustrative calculation, not a quoted fee for a particular property.

How Are Lease Renewal and Lease Regear Fees Calculated?

A Galetti lease renewal or lease regear uses a savings-based fee rather than the acquisition commission model. Under the current mandate, the fee is 25% plus VAT of the defined financial savings achieved through the negotiation.

A lease regear usually involves changing the commercial terms of an existing lease before its natural expiry. This could include an early renewal, rental adjustment, revised escalation, downsizing or another restructuring that improves the tenant’s position.

The important part is establishing the baseline first.

For a standard renewal, the mandate compares the rental that would have applied if the existing rental were escalated into the new lease period against the renegotiated rental.

For an early renewal, the comparison looks at the tenant’s current financial obligation against the renegotiated position up to the existing lease expiry.

A simple worked example

Assume a tenant’s baseline occupancy cost over the relevant comparison period would be:

R4,800,000

After negotiation, the comparable cost becomes:

R4,200,000

Rental and occupancy saving:

R600,000

Assume the negotiation also secures an additional:

R100,000 landlord contribution

Total measurable benefit:

R700,000

At a 25% performance fee:

Tenant representation fee: R175,000 plus VAT

The tenant retains R525,000 of the measured benefit before considering VAT treatment and any other transaction-specific factors.

This example is purely illustrative. Actual calculations depend on the lease, landlord proposal, negotiated terms and definitions contained in the signed mandate.

What Counts as Savings in a Tenant Representation Mandate?

Savings should be defined before negotiations start, not decided afterwards. Galetti’s current renewal methodology looks beyond headline base rental and includes other occupancy costs and negotiated incentives.

The mandate identifies the comparison as:

• rental
• operating costs
• parking rental
• tenant incentives
• rent-free periods
• landlord capital contributions

For a renewal, the escalated rental, operating costs and parking are compared with the renegotiated position. Additional tenant incentives, rent-free periods and landlord capital contributions can then be added to the financial benefit achieved.

This is important because focusing only on the advertised rental can give you the wrong answer.

A landlord may refuse a major reduction in base rental but offer a lower escalation rate, rent-free period or capital contribution. Another proposal may look cheaper per square metre but become more expensive after operating costs and parking are included.

That is why total occupancy cost is more useful than comparing rental in isolation.

You can also use Galetti’s commercial rental rate calculator as an initial benchmark before a more detailed lease analysis.

What Is Included in Commercial Tenant Representation in South Africa?

Commercial tenant representation in South Africa should involve more than asking a landlord for a lower rental. A properly structured mandate combines market evidence, financial modelling, property alternatives and negotiation.

For a lease acquisition, Galetti’s process can include assessing:

• location
• occupation date
• lease term
• space requirement
• staff requirements
• electrical supply
• air conditioning
• parking
• meeting facilities
• yard requirements
• warehouse eave height

The adviser then builds a business case around lease terms, comparable rentals, incentives and financial analysis before suitable properties are shortlisted and negotiated.

For a renewal, the process starts with a different question:

What would happen financially if you simply accepted the landlord’s proposed terms?

That becomes the baseline.

The adviser can then compare the landlord’s offer with market evidence and alternative premises. This gives the tenant something that is often missing in a direct landlord negotiation: a credible alternative.

For a broader view of occupier advisory, see Galetti Corporate Services.

Why Can a Performance-Based Fee Align the Adviser and Tenant?

A performance-based tenant representation fee links part of the adviser’s remuneration to a measurable financial improvement for the tenant. The larger the qualifying saving achieved, the larger the fee, while the tenant retains the majority of that saving.

This structure can create clearer commercial alignment than paying solely for hours worked.

It does not remove the need for scrutiny.

Before signing a savings-based mandate, ask:

• What is the baseline?
• Which costs form part of the calculation?
• How are incentives valued?
• Is the saving measured monthly or across the lease term?
• Does a rent-free period count?
• Do landlord capital contributions count?
• When does the fee become payable?
• What happens if the transaction is not completed?

In Galetti’s current mandate, renewal fees become due on the earlier of signing the new lease or addendum, or commencement of the renewal or early-renewal period.

The formula matters as much as the percentage.

What Should a Tenant Representation Mandate Say?

A tenant representation mandate should define the scope, exclusivity, closing event, fee calculation and payment trigger in writing. You should be able to understand the commercial consequences before appointing the adviser.

Galetti’s mandate, for example, distinguishes between lease acquisitions, relocations, renewals, early renewals, lease surrenders and subletting. A fee becomes payable when the applicable closing event and contractual payment conditions are met.

The mandate should answer at least:

1. Who is appointing whom?
2. Is the mandate exclusive?
3. Which properties or transactions does it cover?
4. What services will the adviser perform?
5. What constitutes a successful transaction?
6. Who pays the fee?
7. How is the fee calculated?
8. When is the fee payable?
9. What happens if the transaction changes or falls away?
10. How can the mandate be terminated?

[VERIFY] Regulatory point: The PPRA Code of Conduct states that an estate agent may not represent a particular commission or fee as being prescribed by law, the regulator or an industry association. Commercial fees therefore need to be understood from the applicable agreement rather than treated as a statutory tariff.

The Property Practitioners Act also deals with situations where a practitioner acts for parties with materially different interests and receives remuneration from more than one party. Section 62 requires written agreement from all affected persons in the circumstances described by the Act. [VERIFY]

The Property Practitioners Regulatory Authority’s Code of Conduct is the appropriate regulatory reference.

This article explains commercial fee structures and should not be treated as legal advice. The signed mandate and lease documentation should be reviewed where contractual liability is uncertain.

Is Tenant Representation Worth the Cost?

Tenant representation is worth the cost when the financial and commercial improvements achieved exceed the fee and give the tenant a better overall property outcome. The correct comparison is therefore not “fee versus no fee”. It is the negotiated outcome with representation versus the outcome you could reasonably have achieved without it.

Consider a lease renewal.

A landlord may initially offer:

• a higher starting rental
• an unchanged escalation rate
• no rent-free period
• no capital contribution
• limited flexibility on space

An adviser may identify that comparable properties are offering stronger terms and use credible relocation alternatives to negotiate.

The outcome might include a combination of lower rental, reduced escalation, incentives and capital contributions.

The value is therefore not necessarily found in one headline number.

Mid-article action

If your lease is approaching renewal, start by comparing your current lease, the landlord’s proposed renewal and current market alternatives. Galetti Corporate Services can then establish the baseline and determine whether a renewal, regear or relocation case should be tested.

[DATA NEEDED: confirm Galetti’s typical initial review turnaround and whether the initial assessment carries a separate charge.]

When Tenant Representation May Not Be Right for You

Tenant representation is not automatically necessary for every lease. A tenant should consider whether the potential commercial value justifies the advisory process and any applicable fee.

It may be less appropriate where:

• the lease exposure is very small
• there are few meaningful terms left to negotiate
• the transaction is already substantially concluded
• the tenant is unwilling to consider alternative properties
• management has already decided to accept the landlord’s proposal regardless of the market evidence

Timing also matters.

A tenant representative has more negotiating leverage when there is enough time to test alternatives. Approaching an adviser immediately before lease expiry can reduce the ability to run a credible market process.

That does not necessarily make representation worthless. It simply reduces some of the options available.

Tenant Representation Cost: What Should You Compare Before Signing?

Before agreeing to a tenant representation cost, compare the calculation method, scope of work, payment trigger and likely financial benefit. A lower percentage does not automatically represent better value if the mandate provides less analysis or negotiation support.

Ask for clarity on four areas:

For lease renewals in particular, insist on seeing the baseline.

If the adviser cannot show how the original financial position was calculated, it becomes difficult to verify the claimed saving later.

The strongest mandate is therefore not necessarily the cheapest one. It is the one where the fee formula, financial baseline and adviser responsibilities are clear before negotiations begin.

FAQs About Tenant Representation Fees

How much does tenant representation cost in South Africa?

Tenant representation cost depends on the mandate. Galetti lease acquisitions generally use landlord-funded commission, while lease renewals and regears can use tenant-paid performance fees. Under Galetti’s current mandate template, the renewal performance fee is 25% plus VAT of defined savings. Actual terms should always be confirmed in the signed mandate.

Who pays tenant representation fees?

The payer depends on the transaction. For a new lease acquisition or relocation, the landlord can fund the commission. For a renewal or regear where the adviser is generating measurable savings against the tenant’s existing position, the tenant can pay a percentage of the financial benefit achieved.

Is tenant representation free for commercial tenants?

Not always. A new lease acquisition may involve no direct brokerage payment by the tenant because the landlord funds the commission. Renewals, lease regears, surrenders and other advisory mandates can use tenant-paid fee structures. You should therefore check the mandate rather than assume all tenant representation is free.

How is a lease renewal fee calculated?

Galetti’s current lease renewal model calculates a 25% plus VAT performance fee against defined savings. The baseline considers escalated rental, operating costs and parking, while the negotiated position and additional incentives such as rent-free periods and landlord contributions are used to determine the resulting financial benefit.

Does a tenant representative get paid if there are no savings?

That depends on the signed mandate and the type of transaction. A savings-based renewal fee relies on the defined savings calculation, while an acquisition commission is triggered differently. Tenants should confirm the fee trigger, closing event and payment obligations before appointing a representative.

What is the difference between tenant representation fees and broker commission?

Broker commission is commonly linked to completing a property transaction, such as a new lease. Tenant representation fees can also be performance based, with remuneration linked to savings or another measurable outcome. The terminology matters less than the formula, payer, scope and payment trigger contained in the mandate.

Should I use a tenant representative for a lease renewal?

A tenant representative can be particularly useful when the landlord’s proposed renewal needs to be tested against current market rentals, alternative premises and the tenant’s total occupancy cost. The business case is strongest where there is sufficient lease exposure and time to create genuine negotiating leverage.

What to Do Before Your Next Lease Negotiation

Do not start with the fee percentage.

Start with your lease.

Review the current rental, escalation, operating costs, parking, expiry date and landlord proposal. Then establish what comparable premises and current market terms tell you about your negotiating position.

Only once that baseline exists can you properly evaluate the tenant representation cost against the potential financial benefit.

If you want Galetti Corporate Services to assess a renewal, regear or acquisition, the next step is to provide the current lease and available landlord proposal so the appropriate mandate and fee model can be explained before negotiations begin.