Using Your Lawyer During Lease Negotiations
If you’re an experienced negotiator, you may feel you’re able to do a reasonable job of negotiating your lease by yourself. But even a pro will benefit from at least a little professional help—and if you’re relatively inexperienced, you may need a lot more assistance. Your broker, if you have one, will of course be helpful. And, as we recommend in Finding Lawyers to Review or Negotiate Your Lease, a lawyer can round out the team.
The Minimalist Approach
The typical business tenant tries to get by with a minimum of legal assistance, bringing in a lawyer after the lease has been pretty well negotiated and the landlord has prepared a lease to be signed. At this point, many commitments have been made already—some perhaps unwisely. While a lawyer can help by trying to reopen the important issues, it’s an inefficient way to proceed.
Here’s an example of how it pays to enlist your lawyer early on (though, as shown below, bringing in the lawyer even earlier is a better approach). Let’s imagine Andrew, who needed new space for his graphic design office. He answered a newspaper ad for available space and it turned out to be just right. He and Bob, the building manager, talked over the lease terms and Andrew extracted three important concessions. The landlord would pay $2,000 toward the expense of moving Andrew’s equipment from his current location and $5,000 toward the cost of renovations; and he would waive the usual security deposit.
A few days later, Bob gave Andrew a 25-page lease that contained the agreed concessions—along with a bunch of other terms that never really came up during the negotiations. Andrew marked up the proposed lease with a yellow highlighter and put notes in the margin about items he didn’t understand or would like to change. Andrew called Lucy, a lawyer who was recommended by one of his business associates, and arranged for her to review the lease within the next four days. Andrew dropped off the lease at Lucy’s office and two days later she called him with answers to his questions. She explained the legal gobbledygook, suggested how Andrew could rewrite some clauses to meet his objections, and discussed some of the new issues that needed to be addressed. Lucy offered to prepare a letter to the landlord’s lawyer, summarizing changes that Andrew would like to make.
For negotiating purposes, the letter included some requests (such as “Landlord will provide daily janitorial services”) that Andrew could easily drop if he needed to. After getting Andrew’s approval, Lucy faxed the final draft to the landlord’s lawyer. Phone calls ensued—landlord’s lawyer to landlord, landlord’s lawyer to Lucy, Lucy to Andrew, Lucy back to the landlord’s lawyer—and a deal was struck. However, in order to prevail on the added clauses he wanted, Andrew had to make do with a smaller moving allowance and less money for renovations. The landlord’s lawyer made the agreed changes. Andrew and the landlord signed the lease.
Involve Your Lawyer Early
You might decide that using a lawyer the way Andrew did in the example above is good enough. After all, a lease got signed, although Andrew had to compromise on some early concessions he thought he had nailed down. But Andrew’s method isn’t the only way to get the job done—and it’s not necessarily the best.
Bringing in your lawyer before you wrestle with the landlord over concessions and expenses gives you the benefit of professional expertise from the start. If Andrew’s lawyer Lucy had been present at the conversation with Bob, for example, she might have asked for a broad outline of the proposed lease and then pressed for an even higher improvements and moving allowance. Lucy would do this knowing that the clauses she intended to add would meet resistance (which she could overcome by agreeing to back down on her improvements and moving demands). But because Andrew didn’t even know that he had to bargain for additional clauses when he struck the initial deal with Bob, he lost that chance to gain an advantageous negotiating position.
Especially if you’re new at this game, considering a long-term lease, paying top dollar for the space, facing complicated issues, or up against a stubborn or sophisticated landlord, you should consider having your lawyer do more for you. In particular, you can have your lawyer do any or all of the following:
- Sit with you at all bargaining sessions and serve as your spokesperson.
- Draft a letter of intent or rewrite the one the landlord prepares.
- Make sure your legal interests are protected in negotiations over a build-out of new space or major renovation of existing space.
Naturally, you’ll be concerned about the added cost of involving your lawyer earlier. To understand the real cost of the lawyer’s work, however, you need to consider what’s at stake. Let’s say you’re leasing 3,000 square feet of space at $20 per square foot per year—and you’re committing yourself to a five-year tenancy with two options to renew for five years each. Well, if you stay only for the basic five-year term, you’ll be paying $300,000 in rent over the course of the lease, plus property taxes, insurance, and maintenance charges if yours is a triple net lease. And over a 15-year period, you’ll be closing in on $1million in rent and related charges! Mind boggling, isn’t it?
Now suppose an experienced small business lawyer in your city charges $200 an hour and you use six hours of the lawyer’s time to help you negotiate the lease from the get-go. Your cost will be $1,200 (and it’s normally tax deductible as a business expense). That’s very little compared with the expense of the lease over time. Even for a cash-strapped business, hiring a lawyer can be a worthwhile investment if it leads to years of peaceful coexistence with your landlord and money-saving terms in the lease.
This article was excerpted from Negotiate the Best Lease for Your Business by Janet Portman