September 8, 2022
Many busy, successful people like to get to the point quickly. They favor actions over words, they like to make decisions quickly and firmly, and they DEFINITELY do not like “legalese”. Perhaps you know someone like this. Perhaps you are someone like this. If you have ever replied, or thought of replying, to a long text or email with “TLDR” (too long, didn’t read), raise your hand.
It’s true that succinctness and being a so-called Big Picture Person can be good and positive qualities in many respects, but if you are planning to enter into a lease or sublease of commercial space, it is a mistake to approach the transaction thinking “the shorter and more succinct, the better”. A commercial lease is a document memorializing a legal relationship that may last for many years, with a substantial amount of money involved, and in such a document, details matter. They matter at the letter of intent (LOI) or term sheet stage of the negotiation, and they matter even more in the lease agreement itself.
Many times I have had clients who wanted to spend little time and money at the LOI stage, resulting in a very short set of key leasing terms, often negotiated directly by the parties themselves without any attorney involvement. The result? Negotiating the lease agreement itself was a longer and more difficult process, which led to the client’s incurring higher legal fees, because so many of the key terms of the transaction needed to be worked out in real time between the parties’ attorneys over a “live” draft of the full-blown lease document, when the parties, with advice from counsel, could have reached agreement on those issues much more efficiently at the LOI stage. And sometimes clients (particularly clients who are the tenant in the transaction) rushing through the LOI stage miss opportunities that might have been available to them to negotiate terms that matter to them, such as an “exclusivity” right – ensuring that no other tenant or occupant at the property is allowed to offer the same goods or services as the client’s business – or the assurance that the landlord will not have the right to relocate the client’s business to another space in the building during the lease term, or other important terms such as signage rights, customer and employee parking rights, or the right to have operating hours that are not necessarily identical to the operating hours of the building or project as a whole. When material terms and conditions such as these have not been locked down at the LOI stage, the landlord may be unreceptive to attempts to negotiate them at the lease agreement stage.
When it comes to the lease agreement itself, some clients may experience a case of “MEGO” (My Eyes Glaze Over). I get it. Nobody would mistake a 45-page commercial lease for a summer beach novel or other form of pleasure reading. But the point of a good commercial lease is not for it to be read, and re-read, like a book, from front-to-back every now and then; rather, it is to have a document that will, if well prepared, be in some respects like a user’s manual, addressing the many various scenarios that may arise over the course of this years-long relationship between the landlord and the tenant, so that, if any such scenario does in fact arise, the parties can turn to the lease and say, “we already considered what we would do in this situation if it were ever to occur, and this is what we agreed upon.” A good real estate lawyer can help the client spot these possibly-down-the-road issues that should be considered during the lease negotiation – there are MANY of them – and help ensure that the final lease affords the client reasonable protection against severe, possibly one-sided, and perhaps very costly consequences, if one day that potential future “what if” situation should become a very real, “now” problem.
A short and simple commercial lease form, such as those that can be downloaded from the internet, may be a lot easier to read from front to back, but keep in mind that the reason it is so short and simple is that it overly condenses or eliminates altogether important details that would typically be addressed in a longer, professionally drafted and negotiated lease; in other words, that inexpensive off-the-shelf form lease could end out costing you much more in the long run. And it’s not just a question of how many pages in length the lease is; there are plenty of longer form leases in which a skilled lawyer may find dozens of drafting concerns that should be negotiated, or attempted to be negotiated, in the interest of fairness and commercial reasonability.
So, what’s the bottom line here? (This is for all you “bottom-line” people who have read this far, assuming this article is not “TLDR”.) Do you remember that old auto repair commercial where the guy says, “You can pay me now or pay me later”? A commercial lease is sort of like that car. [But, to be clear, one without any manufacturer warranties or governmental oversight!] You don’t have to master every detail of how a car is built or what keeps it in good operating condition to enjoy driving it, but it pays in the long run to have a good mechanic who does know all of those details, who can perform preventive maintenance to help you avoid a costly repair nightmare down the road. Likewise, you don’t have to master every detail of a commercial lease as long as you have a good real estate lawyer who can look it over and tell you what parts are good, what parts are bad and need to be fixed, and what parts are missing and need to be added. This can save you a great deal in the future, to help you avoid a scenario in which the lease appears to dictate an adverse outcome that you never knowingly agreed to, or in which the lease fails to address a reasonably foreseeable circumstance, which, when it occurs, causes a dispute to arise between the parties that may require protracted and costly legal proceedings to resolve.
If you are considering or need assistance with a commercial leasing or sublease transaction, the Real Estate attorneys at RKW Law Group are here to help you get your deal done right – on the details as well as in the big picture!