This summer has been hot, dry and pretty predictable. Good time for some pondering. We certainly get a wake up call when work picks up in late August after vacations burn off and folks head back into their routines. This weeks’ stock market tumble got everybody’s attention right away as well. Having time to think often leads to contemplation on how to better and more creatively craft and interpret these creatures known as leases and contracts. Before diving back into specific topics, I wanted to share some nuggets of wisdom – you decide whether it’s wisdom or not for yourself – as well as some thoughts for the rest of 2015 that may be helpful.
Too often, as attorneys, brokers, asset managers and developers, folks get stuck in reflexive methods of putting together leases and contracts dealing with real estate. Yes it’s trite to say let’s “think out-of-the-box” (I hope that’s my last buzz word in this post) but it’s really the only way to move forward and be effective at what you do. There also some very bad habits that can be developed that although they might get the job done, end up creating situations where there are no real winners, a landscape of unforeseen circumstances and unexpected costs and delays.
Here are just a few:
1. Hide the Ball !
If you know you have information or other advantages over your opposing negotiating party, why not just keep your mouth shut and use all of that to your advantage, or even better for your client’s advantage!?! Here’s why that never works: the secret advantage is really not going to do anything but win you temporary brownie points and in the end when everyone knows how the deal is actually going to play out, you look like a schoolyard bully.
Example: in representing a landlord, you’re aware that a tenant who is struggling and is up for renewal can be replaced if a couple other pieces fall into place on a new deal. Why try to work with them? Why shouldn’t you just let them fail and let them leave or kick them out and put in that brand-new great tenant? Sometimes the eventual answer to this is yes, you should do that! But what about this as an alternative: work with the struggling tenant while continuing to nurture the potential relationship/deal with the tenant not at the center, business park or building? No reason you can’t do both. You’re talented, creative and you can juggle! If the struggling tenant does fail, you’re ready to move on to the next phase by helping them exit gracefully and you move your new tenant into their space. You’ve ended up with a better situation for the landlord, left an existing relationship intact in a positive way – especially if the tenant re-invents itself as a positive moneymaking force – and created the opportunity with the new tenant that you were after all the time.
And yes, especially to the lawyers, you’ll probably make less money doing this, but if you get it accomplished, don’t you think your clients are going to come back to you with more business rather than just use you as a one shot? Think about it.
2. My Way or NO DEAL!
This is certainly the lead off position for most negotiators who want to stay tough and accept something less but closer to what they really want. There is a logic in taking this approach. But how far? Brinkmanship as term of art and method of negotiating was certainly invented it a long time ago (even before a certain German military leader coined the term), but it certainly can be taken too far and drive the other party doing the deal or resolving the dispute out of the room and into a nonnegotiable position.
Certainly this is an area for much debate, but doesn’t it seems that restating your position as “this is where my client is now and they are strong on this term” is a better way of getting your point across and getting to a resolution efficiently and effectively. It will also save everybody a lot less sweat, money, anger, frustration, stress, etc. etc.
Using the example above, let’s say that the tenant who is struggling takes the position that they are going to stay and make it insufferable and extremely expensive for the landlord to remove them from the premises or otherwise resolve the situation. Putting aside mega big boxes and Billion dollar corporations, most folks simply can’t back this up. If you’re really struggling, work with your landlord, be ready to give some things back that you expected to keep. On the landlord side, don’t assume you can be a steamroller and just ignore any of the upstart tenant’s utterings. You may be in for an expensive bath, filled with cold water, attorneys fees and no positive results. Gauge your limits as well and be honest with that struggling tenant.
3. There Is One Best Lease For Every Situation. I Am Absolutely Sure Of It!
Whoever proves the above axiom true will certainly be one of the richest folks in the real estate world. However if we step back from fantasy land and look at this situation from a realistic standpoint, logic and experience dictate that a solid core form lease is certainly a wonderful asset to have. Yet, that document must have flexibility. In addition, the PARTIES and their attorneys dealing with the document must adopt flexibility as to what it may take to alter the form to close the deal or settle their disagreements.
The easy and swift moneymaking deal using a short form agreement and limited negotiation is often followed by a transaction that drags along and becomes mired in pages and pages of warranties, covenants, restrictions, exclusives and other “requirements” of the contracting parties. Know your limits and know your property, but be flexible and realize that your form lease will likely have to be altered in every transaction.
4. Share My Work? What?
This is my favorite position/statement that I hear during negotiations. As attorneys, and leasing negotiators, people work very hard to craft articulate and effective means of conveying their positions and concerns in contracts. Why in the world would you ever want to share that with someone, especially someone with whom you may be in a tough negotiation?
Again, the answer is not that hard to figure out. The more good knowledge that is spread through creative drafting, sharp thinking and effective negotiating, the better for all involved. Time to put down the egos and realize that you are probably not the first person to come up with that great idea. Really? Do you think otherwise?
In the landlord/tenant example we have been using, the landlord who has crafted a very erudite and strong paragraph concerning how to apportion expenses between the parties is likely to want to hold on to this nugget as a trade secret. However, sharing that information with others pays back a lot more than holding it in a Safe. Over the years, the more I have seen folks communicate innovations, creative thoughts that seem to work well etc. with others, the more it has paid off in the end with additional work, referrals and (gasp) perceptions of “thought leadership”.
So if you have found a canny way to divvy up the expenses and costs that the parties will have to deal with during the term of the lease or contract, the better to share with other folks who are dealing with similar situations or even the other party that you’re negotiating with. It will pay dividends.
And the penalty for being open is rarely punitive.