Q: Why did God invent lawyers?
A: So that real estate agents would have someone to look down on.
All kidding aside, long term contracts are nothing to laugh about… This may be hard for some to believe, but both parties (landlord & tenant) can actually win in a lease negotiation. There is no need for blood to be left on the floor after every round of negotiations. This may also be hard to believe, not every deal can be the ‘steal of the century’. A good deal does not mean ‘cheap rent’ as there are other provisions to the contract beyond rent terms that hold tremendous value.
It is important that you understand (in laymen terms) the complexities of your long term lease agreement and work with an experienced ‘deal maker’ that has the capacity and talent to create long term value in your Letter of Intent (LOI) and Lease documents. A good ‘deal maker’ is worth his/her weight in gold and can protect your interests for years to come. Make sure that your representation is knowledgeable, experienced and has a good understanding of your business model.
Regardless of the economy, great sites in great trade areas are going to move fast so be ready. Speed matters and the best way to increase your speed is to have your systems in place prior to seeking real estate. This means having a template Letter of Intent (LOI) already drafted along with an understanding of fall back business terms that you are willing and not willing to accept. Also have your proforma ready, regardless of what anyone tells you, as you should never execute and agreement without a full understanding of the projections needed to make this deal work. Have a draft lease prepared and ready to modify as soon as the LOI is executed. Some people hate LOI’s and some people swear by them… Regardless of your position on the matter, know your business and understand what you’re obligating your company to prior to signing anything.
Relationships matter in this business and they can often help during difficult points in the negotiation process. However, do not double down on folks with great relationships and then discount those with subject matter expertise. Experience in this profession always trumps relationships! This is extremely important to understand as there are people out there that will try to play dual roles without the experience necessary to produce a solid deal. These folks are hard to identify at first but ultimately present themselves in the end. Unfortunately, at this point of discovery, you are too invested in the transaction and too invested in the relationship to stop and course correct. Again, an experienced attorney that can create leverage/value in your real estate contract and is knowledgeable about your specific business model is hard to find and worth every penny.
As a tenant your goal is to create as much flexibility as possible in your deal terms and if you’re a landlord your goal is always to negotiate ‘iron clad’ deal terms. These opposing positions make the process difficult at times which is why you need the right adviser working on your contracts. These are long and expensive endeavors that you do not want to oversimplify. The most important provisions of any lease are the following:
You may think an experienced real estate attorney is too expensive in the beginning but you are negotiating a long term agreement to occupy someone’s real estate with possible personal guarantees, mortgages, letter of credit or whatever to secure your commitment. IF you think your attorney fees are expensive, think about the costs associated with a poorly negotiated lease agreement… We realize that your clock is ticking and that you’ve spent too much time analyzing the potential space and selling your business partners on this deal. You just want to get past this phase as soon as possible and open your doors for business. Be careful! This process will try your patience and unfortunately there are no short cuts to the process. Communication is incredibly important as well as responsiveness and a little tenacity. Having your approval process in place, staying up to date with the proforma, communicating with your partners, understanding your fall back positions and trusting your advisors will help expedite this process. Know the impacts of your decisions and remain confident in your approach. Do not force or rush this process as it may cost your dearly down the road.
There will be no shortage of pressure applied to this process by you, the landlord, your advisors, investors, other disciplines, attorneys, operations, construction, architects/engineers and basically anyone associated with this site.
There is a value associated with just about every provision in a real estate contract. Make sure that you are working with a legal advisor that understands these values and can translate these provisions to you in laymen terms. Everyone wants to be the smartest person in the room. Don’t fall into this trap! Ask every question, especially the dumb ones, so that you fully understand what you are committing to in this long term agreement. A good attorney will walk you through this process. An impatient attorney will drive you and him/her crazy in the process. Be upfront and let your advisor know that you are going to ask a lot of questions and need to be ‘walked through’ the entire agreement before signing. It may cost you a little extra in attorney fees but you’ll sleep much better at night knowing what you just signed. These are long complicated agreements written by people who speak in their own language. It has taken them years to master this craft and you should never be intimidated by their expertise.
For more information on our unique approach to legal representation, please do not hesitate to call us direct anytime or shoot us an e-mail with your questions and we will be sure to promptly respond.