It strikes us that a lot of lease forms have provisions that never make it to the end of the process. Basically, even the people who put the form “on the table” know the changes that will be made. Before decrying this part of the negotiating process, we’ll begin with some (ever) familiar examples (the “low hanging grapes”).
Our hope is that after you’ve read this pretty simple posting, you’ll go back to your own “sacred” forms and modernize them by making them say what they are goin to say anyway. Your reward may be a more quickly made deal at a lower transaction cost.
- How about the default clause that gives a party (usually the tenant) merely 20 days (or less) to cure a humdrum breach? Doesn’t that always get changed to 30 days?
- That same lease provision often “forgets” that a breach shouldn’t be a default if the (allegedly) breaching party has timely begun its cure and is still diligently prosecuting that cure. Doesn’t that always get changed?
- How about where the form lease says that failure to pay rent within 3 days after it is due will be an event of default? How often does “3” remain when a tenant objects? Isn’t this commonly 10 days? And, why don’t form leases speak of “after tenant’s receipt of notice that rent has not been received”? Yes, we know the arguments that (some, mostly, but not exclusively, junior) attorneys and other negotiators make: essentially, why should my client or company have to make the effort? We also know that every landlord will send a notice anyway. No one is evicting a tenant when the rent is only 3 days (or 10 days) late.
- And, since almost every lease holds off on a late charge for 10 or 15 days after notice is sent (perhaps with an annual limit of two such notices), why don’t form leases just start that way?
- How about rules and regulations (and for a discussion of that topic on a stand-alone basis, click HERE)? Why do negotiators have to spend time on having the lease say that they will be uniformly applicable (with some specific exceptions) and uniformly enforced?
- Should form leases recognize that tenants are going to use some hazardous materials for cleaning and maintenance and might be selling some (think of a supermarket)? Of course they should.
- Do landlords really intend to materially impair visibility of a tenant’s premises and signs? Tenants are going to (or should) ask for this protection. So, why doesn’t the form lease just come right out and says so?
- Everyone knows that a tenant isn’t going to pay for damage that is covered by its landlord’s insurance. [After all, the tenant is actually paying the premium.] So, why do some landlord lease forms start off by saying that tenants will do so?
- How about tenant forms that “forget” to give the landlord any self-help rights (after notice and opportunity to cure)?
- Then, there are the tenant forms that ran out of room for the landlord exculpation provision that will certainly be added.
ENOUGH FOR NOW. We could list at least a dozen more. So can nearly every one of our readers.
Readers may ask: “what’s the big deal”? After all, negotiating parties work these things out all the time. And, if a landlord or tenant isn’t sharp enough to ask for these things, “tough cookies.”
Well, here are some of the reasons why we think it is bone-headed and short-sighted to have a form that invites such overwhelmingly common changes.
- It just plain wastes everyone’s time, including that of the “word processor.”
- Doing so sets the wrong tone for an “adoption”; it sets a tone more commonly associated with a “divorce.”
- Yes, it starts negotiators off on an adversarial trail. Even little things matter.
- Using such forms makes it seem that the party initially reviewing a proposed lease has “hacked it up to shreds,” when that’s just not the case.
- Inexperienced negotiators are fooled into thinking that the form “must be right” and are fearful of making such simple and common changes, let alone dealing with meatier issues.
- Starting out this way gives everyone the false belief that they have “already compromised” their company’s or client’s positions. So, they have to be leery of “giving in” any further.
- The process leads to legitimate lease provision that, at a minimum, look like they were drafted by a committee and, at worst, are incomprehensible.
- Basically, it frustrates the negotiating parties, especially those who long, long ago realized how wasteful the process of getting a lease to the “real” starting point can be.
We’ve said enough for today. We’ve spoken our piece. Now, we invite you to challenge Ruminations on today’s blog entry. Our guess is that most readers have their own gripes to add to our (intentionally) limited list of examples. If you are inspired to do so, just add your comment by clicking just below the headline where it says “Leave Your Comment.”
I will give an answer that might not be liked… Not enough deal making attorneys as there are deal breaking attorneys. People in some geographic areas believe that posturing and blustering are the only way to fully negotiate. I worked for a Fortune 500 company in the NE. I was told in writing that during the negotiations I had to lie more. The standards for negotiations expected at some point in the negotiations were for expletives to be exchanged and a call for everyone from the company to walk out. Lease forms have been set up to be the start of a litigious future that can be billed at a higher hour by the litigators. Hate to be cynical but, there ARE attorneys and negotiations that fit the statements I have made. Some people can live in this environment. I call it brain damage.
Ira,
You hit a “point” that I have been driving for with talking with several attorneys about in New Jersey :
“Standardization Of Leases”
By having uniform leases that “cut to the chase”, will save everyone involved with any type of Commercial and Industrial Real Estate transactions both time and money!
Best regards,
Howard Applebaum, President
Corporate America Realty & Advisors
Starting with a strong “pro landlord” or “pro tenant” lease is not good business for our clients because it inevitably elongates the negotiation process unnecessarily running up the clients legal expenses. Additionally I agree that it sets an adversarial tone to a process that should be about bringing the parties together to accomplish the businesses goals of the respective clients rather than starting a litigious process that results in empty space for the landlord and the tenant restarting their search process. We use a base, fair lease which is then tailored to the transaction and which is designed to protect our clients’ interests.
I don’t know about Deal Breaking Attorneys but I do know about Hourly Billings. I also know that too many companies have decided their real estate team should just be LOI n GO, dropping it into an attorney’s lap who is usually not in the local area. It used to be that tenant reps understood the nuances of leases enough to get to a decent draft lease. Believe or not, some companies even let the R E folks create the draft lease..a rare situation now.
A suggestion to consider: Offer a bonus payment if a lease is put together quickly. “Use our draft lease, review it, we have an agreed LOI that will be incorporated into it. If we have a completed deal within three weeks, we’ll pay $3000 ($5000?) bonus you can use toward legal bills, If your attorney is a dealmaker, they should be able to focus on the true issues and get back to us quickly” Of course, starting off with a draft lease that is not adversely worded is a key component.
I just finished reading a marvelous book called “Zoo Story,” and so read your post, Ira, filtered through the lens that we are all primates and as such much of our behavior as a species is related, naturally, to “primate behavior.” (Yes, our species has made some civilized advances over the millenia – there’s this discussion forum, for example – but in many ways we are still working our way out of the jungle…) So here’s my point in response to your column:
Yes, of course you make sense – no one likes to waste time. BUT there is that primate part where we instinctively take an initial aggressive stance, puff out and pound our chest, and generally show just how big and bad and tough we are. The lease form equivalent of the Killer Form. And then, having made that initial alpha sign, we negotiate from there and end up more or less in the middle, negotiating leverage depending. In contrast, if we primates start out by being reasonble, with no chest puffing and thumping and no initial Killer Form, then the Other Side may consider the non-chest puffer-outer to be a total weenie and will then seek to draw blood to move the needle way over to the other side of the deal versus ending up in the more or less middle.
Pathetic? Yes. But we’re all primates, and so that’s my cynical take on this issue.
I would add to your thoughts the similar issue of the party who sends out an initial document in PDF form asking that it be signed and returned. I guess there are small companies like the proverbial Mom and Pop (and what a way to pick on them!) that sign something “as is,” but overall what a freaking waste of time. Either you have to ask for it in Word or other word processing format – waste of time – or print it, mark it up, and fax or scan and email it back – another waste of time (and paper!). Again, I view this through the We Are Primates lens: The (alpha) company with the Killer Form can aggressively control its format while asking for it to be signed As Is, and so will go ahead and do so, just to put the other side in its lowly, non-alpha place. It’s really that simple.
I think a lot of it has to do with a attorney has to make a certain number of comments to a document. What I have found is that when I make a form more fair, I still get a lot of comments. When I start with a negotiated lease, I still get a lot of comments, partly because everyone has different issues that they focus on.
They only way to do this is to really make an effort to make teh form fair and then have the business person tell the other side from day 1 that you have already made a significant number of concessions and won’t accept a lot of comments.
I couldn’t agree more with Jim’s approach. If you’re going to start off with a neutral form, it’s best to have the client temper the counterparty’s expectations with respect to the concessions that will be made. If it’s not appropriate or feasible for the client to do so, I have had success with approaching the counterparty or its attorney with a preliminary or introductory call to explain that an attempt has been made to “start in the middle.” However, I don’t think it’s always justifiable to start with a neutral form. Bargaining power must be considered. After all, the client with greater leverage has usually invested much time and resources to achieve the stature indicative of a superior bargaining position. Many such clients expect counsel to take advantage of it, or to at least avoid squandering it.
I do commercial lease negotiations and find that the quickest and fastest way is when lawyers on all sides are reasonable ; i do not think the yelling and screaming is the tactic used today — its the past era of Mad Men and not today’s method — sure there are one sided leases but as soon as you indicate the changes usually the other side agrees without fuss
I believe that one of the major hurdles and concerns of the lease preparer is to avoid claims from your client, now or in the future, that you did not attempt to get the maximum protections/concessions from the other side. When representing a landlord, I usually avise my opposing counsel that they get 15 use anywhere insertions of “reasonable”. I have tried to insert in all leases a general all parties to act reasonably and usually the clients make me take it out