Just a Simple Lease? Think Again.

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Downtown Denver Early A.M. photo by David C. Uhlig

AFTER LANDING A POSITION WITH A 17TH STREET LAW FIRM I SPENT THE NEXT 5 YEARS FOCUSSED ON LEASING

     In May of 2000, after graduating from law school, I packed all my possessions into a Ryder truck and headed west. I’d recently turned down a generous offer with a reputable firm in Texas because, well, it was in Texas, and instead I started sending resumes to every law firm in Denver with over five lawyers; none responded.  It was a risky move but I was 25, full of confidence, ready for adventure and excited to finally execute on a dream I’d had since I was a kid, moving to Colorado.  I grew up around the oil business and was mentored by a couple oil and gas lawyers, so while I would’ve taken just about any job offer, in my heart I wanted to be a deal lawyer more than anything, like those early mentors.  Long story short, after a couple weeks I landed a part time job in the legal department of a national hotel company where my first assignment as a new lawyer was to draft a display window lease for a hotel. I'd arrived!  A couple months and hundreds of cover letters later, I landed a position with a 17th street law firm and then spent the next five years, day in and day out, drafting and negotiating leases: cell tower leases, office leases, storage space leases, retail leases, airplane hangar leases, trans-loading facility leases, and leases for national restaurant chains.  I used to dream about leases.  Former colleagues of mine from certain firms that shall remain nameless, who may be reading this, are currently nodding their heads – or maybe shaking them!  That story is the long way of circling back to the title of this post.  There is a statement every real estate lawyer has heard, probably more often than he or she cares to admit; “Its just a simple lease, take a quick look and let me know its okay.” As often as I’ve received the request, I’ve yet to see a “simple” lease. They may have short terms of duration, be for small spaces or involve low rental rates and I’ve definitely seem them drafted on short forms (short in both length and in thought), but leases are contracts, and like any contract, lease provisions, or lack thereof, can have serious consequences for both landlords and tenants.  Any lease, whether for a display window or several thousand square feet of space, involves many issues.  Parties proceeding on their own, without competent counsel, do so to their detriment.   

EACH CLAUSE IN A LEASE HAS AN OPTIMAL POSITION FOR EITHER SIDE AND USUALLY SEVERAL FALL-BACK POSITIONS

     Whether you are a landlord or a tenant, the lease you are considering was likely drafted, at some point, by a lawyer. While very desirable tenants may control the form of lease initially presented, its been my experience that the initial lease is usually prepared by the landlord’s attorney.  Love us or hate us, an important thing to remember about attorneys is we have an ethical duty to vigorously advocate for our clients.  That means the lawyer drafting the initial version of the lease, if competent, drafted it to their client’s ultimate advantage and in their client’s favor. Every clause in a lease has an optimal position for either side and usually several fall - back positions.  Whether representing landlords or tenants, a competent leasing attorney always asks for certain things and will know the appropriate counter-proposals to changes proposed by the other side.  So, when one chooses to go it alone, without a real estate lawyer involved, or if they engage a lawyer without leasing experience, the attorney who prepared the lease notices. The drafting attorney often reminds the soloist that they do not represent them (we always should) and asks if they have an attorney.  If the answer is “no, its just a lease”, their eyes light up!  It’s the small pleasures in life after-all.

     A few examples of leasing issues to think about follow below; it’s the least I can do if you’ve suffered my reminiscence this far.  Commercial landlords usually require personal guaranties from smaller, “mom-n-pop” tenants and its not an uncommon request of sophisticated and proven tenants.  Tenants with enough clout may be able to get around that requirement.  Even a smaller tenant may be able to negotiate some burn off or other relief in the guaranty agreement.  There are many possibilities and while it never hurts to ask; from a negotiation standpoint, it can hurt not to ask.  What does the lease say about assignment?  If a lease silent is silent about assignment and/or subletting, then the tenant is free to assign or sublet at their discretion.  Landlords don’t like that much.  Conversely, there are usually circumstances when tenants should be able to assign or sublet the space, perhaps with just an advance notice to the landlord and a copy of the documents. The landlord’s counsel won’t be surprised by the request.  What state will the landlord deliver premises to the tenant in?  When?  Is there an outside date for delivery? A landlord’s form lease is sure to specify that rent will commence upon delivery of the Premises but it might not provide for a pre-delivery inspection, not to mention consequences to the landlord for failing to deliver on time.   Landlords typically prefer to prevent dark space.  Post occupancy, what if the tenant pays rent but doesn’t open for business or ceases operations in the premises?  What if the tenant doesn’t operate during the hours the landlord prefers?  Form leases typically describe the tenant’s maintenance obligations but often contain sparse, if any, details about the landlord’s obligations.  If the landlord fails to satisfy its obligations does the tenant have any recourse other than a lawsuit for breach of contract (an expensive and thus, impractical solution for many tenants)?  I could go on but suffice to say, for nearly each of the 35 to 55 clauses in a proper arms length commercial lease there are several negotiation points and changing one clause often requires conforming changes to other provisions in the lease.  If a commercial lease is on 1 to 3 pages, or only has clauses addressing term, rental amounts and identifying the parties, such a state of affairs, while it is certainly “sloppy” is far from “simple.”  Believe it or not, I see those from time to time and when they are already signed its always bad news for the client.  Fixing such leases, or getting out of them, if possible, invariably costs the client more than it would have to negotiate an appropriate document in the first place.   

     See, not so simple, right? You should feel sorry for your real estate attorney.  Real estate attorney training is grueling and by all accounts, is similar at most big law firms: i. partner hands new lawyer a lease document and informs them whether the client is the landlord or tenant, ii. new lawyer revises the lease and returns it to partner, iii. depending on partner’s mood, new lawyer is either mercilessly berated on each counter they missed, or walked through every point he or she missed with the stern admonishment, “don’t make me show you this again” before being handed a fresh lease to review, and iv. new lawyer stays up all night and is extra careful to catch all of those changes, only to be admonished for missing a whole new set of points.   Once you start catching all of the negotiation points, you are rewarded with more leases at once and shorter deadlines!   It goes on like that for a few years, until you are dreaming about leases between being awakened by the dinging crackberry on the nightstand; remember those?  Eventually, usually after the partner observes a dangerous glint in an associate’s eye, they’ll take the associate off lease patrol and give them something more complex and humbling. However, there is always leasing work, its part of a real estate practice.

A REAL ESTATE ATTORNEY CAN IDENTIFY THE PERTINENT ISSUES AND HELP YOU FOCUS ON THOSE

     If the other party hands you a “simple” lease to execute, whatever you do, don’t go it alone, even if your budget is limited.  It’s a better use of resources to make sure the lease you sign is properly balanced than to try to fix it after the fact.  Negotiating a lease doesn’t have to be a protracted process.  If nothing else, a seasoned real estate attorney should be able to identify which issues are most pertinent to you and your business and help you focus in on those.  Regardless of how simple the space may be, or how complex the negotiations prior to the lease, there are always issues to think about in the lease, even the “simple” ones.

Thanks for reading!

Dave