The Perils Of Overreaching

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How aggressive should we be when drafting agreements? How about when responding to someone else’s version? Of course, it depends on a lot of factors, but what about the factors within our own control?

One thing to be kept in mind (or to be implanted there if it isn’t already there) is that we are rarely “doing” an agreement for ourselves. Instead, almost all readers have been entrusted with the responsibility to handle someone else’s business. Nonetheless, a good place to start is to contrast those two situations: that of our own agreement and that of a client’s or company’s agreement.

Where the agreement on the desk or screen has us a party, we get to decide what risks to take, what opportunities to seize, and what opportunities to forego. When the agreement is for someone else, we need to stand in that person’s or entity’s shoes. That’s a tough task, but one not to be forgotten. Here is a conversation heard by us. Two attorneys were talking to each other and the name of a third came up. One attorney said to the other, “So-and-so is very difficult to deal with. Do you know so-and-so?” [In actuality, the description was a lot more colorful than “very difficult.”] So, what did the second attorney reply? He said, “No, so-and-so isn’t like that at all in real life, it is just that for any particular deal, she is whoever the client is.” Within limits of decency, civility, and professionalism, Ruminations thinks that’s the way it is supposed to be. Decency, civility, and professionalism should never wane, but the deal is the client’s or company’s and the risks and opportunities are for them to choose.

Why did we posit the situation where someone is working on their “own” agreement? That’s because such a hypothetical situation might teach us something about ourselves. For example, if you were to negotiate a lease for your own office, how much effort would you put into negotiating the default provisions? How much wiggle room would you fight for when it came to non-payment of rent. Well, if you have a healthy service business with a steady cash flow, why would you bother? Perhaps, it could be said that if you can’t pay the rent, then you should close the business. How much concern would you have about getting a subordination, non-disturbance and attornment (SNDA) agreement for your own 500 square foot office in a high-rise building when paying market rent?

Now, think about the same lease for someone else? Do you know their degree of risk aversion? Are you fearful of being blamed for bad results from something whose chance of happening is quite remote – possible, but hardly probable?

OK, most readers know all of that, even though they’ve hardly taken time to think about the challenge. Today, we invite readers to think about those issues on their own and if inspired to do so, to add their comments (for others to read) by going to the comment feature at the end of today’s posting.

So, what did all of that have to do with the word “overreaching” in today’s title. Our explanation comes by way of a single example.

A buyer agreed to acquire the seller’s shopping center. The seller’s attorney drafted a contract very favorable to the seller. The buyer’s attorney, for whatever reason, probably good ones, focused only on business issues raised by the buyer. Yes, a few other items were raised, but not many. Agreement was quickly reached and the contract was executed.

The contract called for apportioning all rent, whether paid or not, at closing. There is nothing wrong with such a business arrangement, but it is an uncommon one (as leasing people will tell you). So, what’s the problem? Simple, came closing time, the seller and the seller’s attorney found out what the contract said. The buyer didn’t want to credit the seller for delinquent rents. They insisted that apportionments be done “in the customary” way, whatever that might be. Experienced readers know there are at least several different “customs,” similar in principle, but differing in application. All, however, put the risk of non-collection on the seller. This contract placed that risk on the buyer.

What do you do when the contract clearly says one thing and you should have known on “day one” that the other attorney or party didn’t realize what it said? Is it important enough to refuse to proceed? In the example given, certainly not. After all, had the issue come up during negotiations, the rent apportionment provision would have become one of the various forms of “customary” provisions.

Instead, the principals dug in as to their respective positions, something that would not have been the case as the contract was being negotiated. Time was spent by the attorneys, and that cost money. Collateral parties, such as brokers and closing agents, got involved and that’s was not a good thing. All of that led to ill words and bad feelings all around.

So, Ruminations asks: “Was the form’s rent apportionment provision overreaching?” Was it worth it?

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Comments

  1. Overreaching yes. Inequitable maybe yes – maybe no.
    We simply don’t have all the necessary information to make the call.
    I have been involved in such transactions in the past and usually the purchaser has their reasons to do what they have done. It could be that the purchase price was so good they wanted to finalize the deal quickly before the vendor changed their mind. Or the parties had other existing business dealings which were more important to maintain.

  2. A follow up to your statement about how detailed lawyers might (or not) be when negotiating their own agreements: I used to run a large TI construction company in San Francisco and we built out new offices directly for over 30 law firm tenants.

    With few exceptions our construction contracts for those projects came back with very few comments or red lines from our lawyer clients — very unlike the contracts that came back to us on projects for other clients represented by those same law firms.

  3. Kathleen Jones-Robertson says:

    Anyone drafting a document should have read and understood the underlying document they are amending along with any other document (ground and mineral leases, deed restrictions). If the draftor does not completely understand how those combined documents work together, the intent of both parties, and future known ramifications than they have no business drafting the amendment to start with. You don’t know all the relevant facts? Pick up the phone. The amendment language also needs to be generally unbiased enough to cover future parties that may be impacted by the document.

  4. This is an assumption of risk matter, which attorneys understand better than non-attorneys (like me). Also, in the spirit of CYA, attorneys generally, and reasonably, feel they need to provide the client with a suspenders AND belt document… just in case.

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