You will pay tomorrow! (maybe)

Today I'm reflecting on the many deals I have helped negotiate - whether a licensing agreement, purchase/sale agreement or a lease. So what does the topic of this blog have to do with that?

The following several loosely connected thoughts, that's what!

1. Understandably, I have often seen clients blanch at the prospect of paying a lawyer $400-$500/hour for a lease review. While indeed a hefty fee, the rent commitment for even a smallish space can run in the hundreds of thousands of dollars to a couple of million dollars over the life of the term. Add to that the the significant investment that will be made beyond rent (e.g. construction, FF&E, staff, marketing, advertising, inventory) and several thousand dollars for a lease review would seem to me to provide some peace of mind in knowing that you have obtained qualified legal advice that could protect you against some potentially costly pitfalls.

2. How many lawyer hours will it take to negotiate the lease? How long is a piece of string? It's impossible to say. Depends on how many back and forth rounds there are between the parties. And that's where many tenants can do themselves a favor by recognizing the extent to which they have leverage. If you are an anchor tenant (e.g. a large grocery store) or an Apple store you've got a good deal of leverage. But if you are looking to lease 1,500 sf in a 750,000 sf shopping center, you probably don't as much as you would like. So in those circumstances you shouldn't spend inordinate legal fees trying to rewrite the lease. Choose the several things that are most important to you and go for them. If you are going to be the sole tenant in a freestanding building, that would be another story.

3. Most leases are written by the Landlord so don't be surprised that the lease is seemingly written in the Landlord's favor. If you wrote the lease you'd probably write it in your favor too. Indeed some leases are Draconian (another reason to have a lawyer look at it) but most are not.

4. While leases are intended to clarify and remove ambiguities you will most likely end up with some ambiguous terms and both sides will let it go at that, hoping that the ambiguities will never become an issue.

I used to do a lot of contract negotiation in Asia. I remember one time in South Korea presenting a 50 page CNN contact to the Korean Broadcasting System negotiating team. I could see the shock on their faces. Through their translator they told me they were really expecting something more like a 5 page document.

Contracts can grow in length over time based on the experiences of using that contract form many times over, finding new things to address based on things that have become issues in the past. That's the American way - anticipate all problems and try to address them in the contract.

There is an old Chinese saying which I've always liked - "the negotiation begins once the contract has been signed". Now I'm not advocating signing a lease as cavalierly as that might suggest. However, at the same time recognize that (a) there will end up being some ambiguities in the lease (b) you should perform ample due diligence about the party with whom you are signing the lease and (c) the relationship you establish with the Lessor can be as important as the effort you put in trying to nail down every point of the lease to your satisfaction.

p.s. I thought about entitling this blog "Penny-wise, pound-foolish" but thankfully I was hard pressed to find a song with that phrase in the lyrics - opening the door for me to use this classic Karl Wallinger tune which is what I wanted to do all along!

Hope you enjoy!