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Smart Lease Drafting Adds Efficiency to Lease Transactions

Posted on March 21, 2012 by A.L. Braun

In my previous blog posts I have been focusing on strategies for being more efficient in lease transactions. In this post, let’s drill down on two of my suggestions: (1) well-written agreements; and (2) less one-sided documents.

A poorly-drafted agreement is inherently inefficient. Sloppy drafting should be fixed, which adds time to a transaction, resulting in higher transaction costs. So how about simply not fixing the poorly-drafted document, you ask? “Why, Ms. Attorney, are you wasting time modifying this and that in this agreement we received from the other side?” The significant danger in failing to fix a poorly-drafted document is that the parties will end up with an agreement with provisions that do not reflect a party’s intention or can mean more than one thing, leading to misunderstandings, disagreements, and possibly litigation, much of which could have been avoided (or at least the risk of these unfortunate events could have been minimized). “Cleaning up” a poorly-drafted agreement also creates an agreement that reads well and is understandable by lawyers and non-lawyers alike. On the flip side, not only do your edits add time and cost to a transaction, they can be taken poorly by the other side—the drafter may be offended or patronized—but saving the drafter’s feelings is not a valid reason for not making an edit.

So if your goal is to be more efficient in a lease transaction, lease edits should focus on those that minimize future misunderstandings, disagreements and litigation. Arguably then, one should not waste time making a document “pretty” just for the sake of satisfying the curmudgeonly grammarian in you (guilty as charged). For example, it bothers me when “which” is used when “that” is the proper word, drives me crazy when “therefore” is used when it should be “therefor”, and makes me batty when an agreement says “for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged”, knowing full well that the receipt and sufficiency are acknowledged. I also want to fix typos and words erroneously capitalized, change “on going” to “ongoing” and “cross-hatched” to “crosshatched”, and bring consistency to formatting and references. (Yes, I am the life of a party when the discussion turns to the use of Oxford comma.)

CONTINUE READING . . .

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    Letters of Intent, Proposals and Term Sheets in Lease Transactions

    Posted on February 16, 2012 by A.L. Braun

    In a prior blog post I discussed strategies for being more efficient in lease transactions. In this post, let’s focus on letters of intent, lease proposals and term sheets. One of your first requests when getting involved in a new transaction should be for a copy of the LOI/lease proposal/term sheet. Read it and ask questions—lots of questions.

    At the most basic level, there is a simple term sheet. If you’re involved in a transaction without even a term sheet, pray that there’s a happy ending and no misunderstandings or false assumptions. A deal without at least the fundamentals agreed to at the outset is a recipe for disaster. At a minimum, the term sheet should contain:

    • Names of the landlord and tenant. Ah, one would think that this should be the easy part! But not infrequently the tenant requests later in the process to enter into the lease under a name that is different from the one which the landlord reviewed when it approved the deal. Changing players midstream adds delays and can even kill a deal. Similarly, if the tenant is counting on significant tenant improvement dollars from the landlord, it’s important for the tenant to ensure that the correct landlord entity is on the lease.

    • Description of the leased premises. Again, a simple concept that is often overlooked. It is crucial to have a meeting of the minds regarding exactly what space is being leased, and if not included with the preliminary materials, the parties should agree on a location plan of the premises sooner than later in the deal. Don’t wait to attach a premises description until after the lease is negotiated and/or signed, lest you find out at the twelfth hour that there was a huge misunderstanding on this point.

    CONTINUE READING . . .

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      Efficiency, Predictability and Alternative Fee Arrangements in Commercial Lease Transactions

      Posted on February 9, 2012 by A.L. Braun

      In my last post, I argued that fewer lease drafts in a lease transaction improves efficiency and adds predictability. Predictability, in turn, is a necessary ingredient to making fixed or alternative fee arrangements feasible and, to those attorneys clinging to the billable hour, less scary.

      I know attorneys who refuse to bill clients for their work on any basis other than the billable hour. When talking to folks in this camp, I get the impression that there is no other option, and that this is simply how it’s done and how it’s always been done. However, this is not true.

      In “More on the Billable Hour, Charting Your Own Course” by Luke Gilman, we learn that the billable hour was born around 1914 from “the then nascent theories of ‘scientific management’ and (ironically) a Legal Aid society.” Quoting Douglas McCollam in a 2005 article in American Lawyer, “The Billable Hour: Are Its Days Numbered?”, we learn that in 1914 Reginald Heber Smith, a recent Harvard Law School graduate, took over the Boston Legal Aid Society and enlisted the Harvard Business School to help him devise a detailed system to track and manage the organization’s finances. One of his innovations was to have the lawyers begin keeping detailed records of their time on different cases. Smith took his methods with him to his new firm, Hale and Dorr, where he became managing partner and wrote that “the service the lawyer renders is his professional knowledge and skill, but the commodity he sells is time.” The commodity he sells is time.

      CONTINUE READING . . .

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        Fewer Lease Drafts—More Efficient and Adds Predictability—Next Step, Fixed Fees?

        Posted on February 2, 2012 by A.L. Braun

        In my last post I discussed strategies for being more efficient in lease transactions. In this post, let’s drill down on my suggestion to have fewer back-and-forths of lease drafts.

        I have empirically proven by researching time sheets related to leasing matters for multiple clients over an extended period that, lo’ and behold, each round of negotiation over another lease draft resulted in more time (and thus fees billed) spent on the particular matter. Thus each new draft adds both time (we all know what time can do to a deal), and cost to the deal (bad for everyone except the time-churning attorney).

        Further, I can use the data to predict how much time, on average, I will incur on behalf ofa particular client for each draft prepared/reviewed and negotiated. For example, for client X, I know that the time spent on each lease transaction increases by an average of Y hours for each subsequent lease draft. The variable Y is different for each of the clients I tracked. But what this means is that I can provide predictability to my client, whether it is upfront at the start of the transaction (“If we draft the lease and then exchange two drafts, it will cost approximately $A”), or midway through (“If we don’t reach agreement on these issues and exchange two more drafts, it will cost approximately $B”).

        CONTINUE READING . . .

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          Efficiency in Commercial Leasing

          Posted on January 31, 2012 by A.L. Braun

          According to the 2011 Hildebrandt Law Department Survey by Hildebrandt Baker Robbins, companies are increasing their reliance on the in-house legal function to handle continuing growth in legal demands. “We are hearing from our consulting clients across industries that they are limiting the use of outside counsel to high profile matters or specific areas of expertise rather than to support the growing volume of work. With the rising cost of outside counsel, we expect this trend will continue….It is no surprise, in view of these trends, that law departments are highly focused on their efficiency and effectiveness in delivering and managing legal services.”

          Is “efficiency” just another way of saying that we must do more with less? That is certainly one way to look at it, but I like to think of it as being smart–with a bit of stinginess (or, as my dad likes to call it, frugality) mixed in.

          I welcome your ideas and would love to start a conversation about strategies for being more efficient in commercial leasing. Here are some thoughts to get us going, in no particular order (feel free to tell me I’m nuts!):

          • Fewer back-and-forths of lease drafts. I have empirically proven by researching time sheets related to leasing matters for one client over an extended period that, lo’ and behold, each round of negotiation over another lease draft resulted in higher fees which, on average, added a fixed number of dollars to the overall bill. And each additional draft further delays the ultimate goal of a signed agreement.

          • Well-written agreements. Easier said than done!

          • Use a broker, on both sides, and keep the broker involved and accountable. This is a no-brainer to me. I may be a tad bit biased being that I’m married to a broker, but I felt this way before meeting the love of my life.

          CONTINUE READING . . .

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            Court Ruling Points to Need for Retailers to be Vigilant About Defective Goods

            Posted on January 30, 2012 by LeClairRyan Admin

            The following blog post was written by veteran products liability defense attorney Thomas C. Regan.

            •  •  •  •

            In a case involving a car battery that exploded in a consumer’s hands, a federal court in New Jersey has reaffirmed the longstanding notion that retailers can be found strictly liable when they sell defective products. The Nov. 2 decision by U.S. District Court Judge Peter G. Sheridan potentially places a heavy burden on home improvement chains and other retailers considered “experts” in their industries.

            The implications of this ruling could be far-reaching. For example, it puts the onus on retailers to be thoroughly familiar with the products they sell and the packaging in which those products are delivered. Further, it is likely this opinion will be cited in other product liability actions, including failure-to-warn cases in which plaintiffs sue retailers because they were not told about product defects.  It is imperative that retailers deal with these issues proactively in order to protect their consumers and themselves from liability.

            In the case (DeGennaro v. Rally Manufacturing, 09-cv-443), the plaintiff claimed injury after a lead-acid battery he had just bought at a New Jersey Pep Boys location exploded in his hand and against his body. He sued both the manufacturer and the retailer. Based upon the evidence, the judge ruled that Pep Boys’ management “knew or should have known” that the battery had the propensity to explode because of the heat sealed packaging.  Pep Boys was therefore not allowed to take advantage of certain safe harbor provisions that can protect sellers from product liability.

            CONTINUE READING . . .

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              Does Fairness Have a Place in Commercial Leasing?

              Posted on September 28, 2011 by A.L. Braun

              If you’re like me, you’ve reviewed a proposed lease from the other side and on one or more occasions found yourself fuming, “that’s not fair!” I tend to mark these sorts of provisions on my paper in red ink with either a big exclamation point, an inordinate amount of cross-outs, or a forceful “NO”, or maybe all of the above.

              But does fairness have a place in commercial leasing, especially if both sides are sophisticated real estate players?

              Let’s take an example: It is now standard practice for a Landlord to limit the satisfaction of its liability to its interest in the real property at issue. I understand that this is now the “rule of the game”, but is it fair? Why should Tenant’s recovery be limited to what is potentially an asset with no equity? How about the Landlord that takes this further, and limits both Tenant’s recovery and the overall liability amount to its equity interest? Or how about this one where Landlord adds that the cap is the lower of its interest in the building, or the equity interest Landlord would have in the building if the building were encumbered by third-party debt in an amount equal to 70% of the value of the building? (God forbid Landlord not have a mortgage on the building.)

              CONTINUE READING . . .

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                Remember that lease you worked on?

                Posted on September 13, 2011 by A.L. Braun

                As a lawyer, I always get a knot in my stomach when I receive a call from a client asking me about a signed lease I worked on. Usually the angst is for naught, but sometimes there’s a substantive issue revolving around language I drafted sometimes years ago. What does the language mean? What do we do if there are multiple, valid readings for the same words? How do we avoid these stomach-wrenching calls?

                Focus on drafting. Remind yourself (and the others who may be pushing you to wrap it up) that the language must be clear and concise and have meaning throughout the term of the lease.

                I once worked for a partner who taught me to never use illustrative language in a legal agreement. I respectfully disagree. A “For example only…” is a valuable drafting tool. I talked in a prior blog about caps on controllable expenses–a perfect topic for an illustrative example of what the parties really mean. Often in doing so the parties realize that they’re not on the same page. It’s a big plus to figure that out at the drafting stage rather than during an audit years later.

                Another suggestion is to watch out for using “notwithstanding” too freely. You can easily end up with contradicting uses of “notwithstanding anything to the contrary” in your agreement.

                I’d love to hear your suggestions for tight drafting.

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                  Who killed the deal?

                  Posted on September 7, 2011 by A.L. Braun

                  I take pride in being a deal-facilitator; a transactional lawyer; a deal maker–not a deal killer.

                  But can an attorney kill a deal?

                  To the lawyers out there: How many times have you been told that you or the other side is “over-lawyering” the deal? Maybe you’ve made the accusation before. I know I have. That’s because I believe that a good deal-maker must have perspective. Which brings me back to my question whether a deal can be killed by one or both of the attorneys.

                  I recently advised a prospective tenant with respect to the landlord’s lease agreement. We–client, broker and myself–discussed my comments and the client asked many questions regarding the implications of particular landlord language. Based on this discussion, I sent the landlord’s attorney a revised lease. The landlord’s eventual response was that we made too many revisions and they refused to even read it. (Yes, in this market!) We pared down our revisions and sent a “must-have” version. The landlord’s response was that it didn’t want to do the deal with us, bye-bye. I unsuccessfully tried to resurrect the deal with the landlord’s attorney.

                  CONTINUE READING . . .

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                    Audits of Landlord’s Operating Expense/CAM Statements

                    Posted on August 16, 2011 by A.L. Braun

                    Landlord does not want Tenant questioning every OpEx/CAM statement and tying up resources providing backup and answering questions. Multiply this by the number of Tenants in the Project and Landlord has a mini-nightmare on its hands. But it is reasonable for Tenant to have the right to ensure that Landlord is on the up-and-up, so Landlords generally will grant a limited audit right to any meaningfully-sized Tenant upon request. Note to Tenants: Many Landlord lease forms do not include an audit right so be sure to ask for one to be added.

                    Important points in a Landlord audit provision: short deadline after receipt of the reconciliation statement to both request and perform the audit (so Landlord can close its books), confidentiality of the results (so Tenant doesn’t run around telling everyone what it found out), prohibition against contingency fee auditors (so the auditor is not incentivized to find a problem), limit the number of times an audit can be performed as well as the look-back period (keep the audit manageable and reasonable in scope) and, if Landlord agrees to reimburse Tenant for its audit costs if a significant problem is found, make the threshold for error high.

                    CONTINUE READING . . .

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