Whose Deal Is It Anyway?

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Two stubborn mature men arguing with each other isolated on white background

Rules are made to be broken even if no one knows there was even a rule. In this case, it is Ruminations violating its own rule against two consecutive screech-blog postings. Over the last 300+ postings, we’ve “salted” Ruminations with observations about our own bad habits and those we’ve seen in our generally great real estate community. We’ve tried to space them about a month apart. Last week, we wrote about an all too common way that a minority, but a disturbing minority, of our colleagues try to put the “other” negotiator down. This week we address another one of our “bugs.” That’s a rule-breaker.

To make matters worse for us, we are breaking another one of our rules – the one that has kept us from singling out one subset of our community – this week, the lawyer subset (of which this writer is a very proud member). Our distress isn’t limited to this subset. Certainly we of that persuasion hold no monopoly on the tendency to be complained-about today. Yet, we in that profession certainly suffer more frequently from this affliction than do members of any other subset of the real estate community.

Alright already, what is it? It is thinking that we are the business people who are actually making the deal – forgetting that it is our client’s (or principal’s) deal. How do we do this? We do it by arguing pure business terms as if the money to be paid or received will be coming out of our own pockets.

At the end of the day, agreements about monetary issues such as what is or isn’t going to be included within operating expenses, whether a tenant will pay “supervisory” fees, the amount of late fees, and lots and lots of things like that, are to be resolved between principals. Yes, there is actually no “law” that allocates those costs. Even those laws that say “who pays” the government, such as who is responsible for deed transfer fees, are only between the government and the person designated in the law. There is no law saying that private parties to a deal can’t shift the cost as between themselves. So, let’s please don’t say: “the law says that your client has to pay the charge.” That wasn’t the question. The law doesn’t say that the same client can’t get the money to pay the fee from the other side of the deal.

Then, there is the “that’s market” argument. Setting aside whether there is or isn’t a “market approach,” even one that everyone agrees exists (although the disagreement is usually over “what is market?”), why does it matter? “Market” is the “norm.” It is what the principals should have known was “assumed” when they made their deal but never specifically discussed the issue. Yes, it is a starting point. But, it isn’t necessarily a finishing point. And, certainly, it isn’t a controlling law. Basically, “market” is a business term. It is a “gap” filler for a business deal. It supplies a business term that the negotiating principals never spoke about. But unlike an actually agreed-upon business term such as the “rent,” it is a term no one can be sure that it was what one principal or the other had in mind at the time of the handshake.

So, as we see it, “market” or one’s personal experience as to a business term is relevant when advising our own clients or principals. But, it has a different role as between negotiators. In that case, that knowledge is useful to inform the “other” side. It has persuasive value, but it is not dispositive. Let’s stop talking as if it is.

Ruminations even sees this outside of the negotiating room. We see this as we read industry newsletters aimed at advising their readers as to what agreements should or should not say. By way of example, those aimed at the landlord-side tell readers to “always” make sure your leases include certain provisions. Otherwise, your tenants will take advantage of you in such and such a way. Newsletters sold to the tenant-side insist that leases must include certain provisions in favor of a tenant. Otherwise, the world will come to an early end. Seemingly, apocalypse sells newsletters.

Without doubt, these publications provide very, very valuable advice. They are important education tools and we highly recommend that negotiators subscribe to them and not just to their own “side.” Does that mean we think every article is of equal, strong value? No. Our objection is to those articles that forget that deals are “exchanges” between parties who voluntarily agree to do business together for a period of time in the future. Who wouldn’t want to hold onto her or his money or, if that isn’t possible, to pay less for something rather than more for that thing? Yet, a tenant agrees to pay rent and a landlord agrees to improve a leased space. Why? That’s easy to answer. Each thinks it will be better off signing a lease than keeping its money in the bank, piggy or some other type.

So, it is too often that we read advice telling us that if we don’t include some particular provision in a lease, we will have improperly exposed the landlord or tenant (depending on the newsletter) to a catastrophic risk. The problem is: “What tenant (or landlord) on the other side would sign such a document?” Our role is to get the deal done. It isn’t to “have it our way” unless we are doing a deal for a particular quick service (fast food) tenant. Taking a “my way or the highway” position is for the principal, not for those who don’t make the business decisions.

No reader would be surprised to learn that Ruminations is exposed to the legal community far more than to any other segment of the larger real estate community. So, we don’t know to what extent any other segment, such as the brokerage community, sits around and acts as if its members think they are the principals to a deal. Our experience at seminars and roundtables is that our own colleagues too often tell others in the room about what  the “business” terms of a deal should look like rather than telling us how to get to an agreed-upon resolution of opposing bargaining positions. Teach us the various ways cost caps can be constructed and the implications of each. Don’t tell us: “If you represent a tenant, then it must be done this way because to do anything else will be a disservice to the tenant.” Tell us the solutions you’ve seen. Tell us about new things, such as what the implications of self-driving cars might be to shopping centers or office buildings. Teach us about automated building systems; don’t tell us that every tenant must pay for those systems and we should never yield on that position. That’s a business matter.

Basically, there is no shame in agreeing that some matters are for the business people to decide. There is no shame in admitting that we don’t have the authority to accede to the other side’s position. There is no shame in admitting that we, in our negotiating role, only have limited authority when it comes to certain issues. Let’s just put those business issues on a list for our principals and move on to issues where we can add value. If we do that, our real problem will be what to do with all of that extra time given back to us when our conference calls get remarkably shorter.

Thoughts?

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Comments

  1. Peggy Israel says:

    It’s up to the client. Many of my clients empower me to negotiate what you are calling business issues because they believe I know what they want on those issues and because they do not want to deal with a big open issues list. Sometimes we add value by keeping our clients off the phone (we “take it for the team” on our long calls, so they don’t have to).

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