Unnecessarily complex legal agreements can be costly for businesses.

What does this statement mean for my business? In appropriate instances, the detail and complexity is required by the parties or the circumstances to the deal. However, in many other situations, when one party to the deal insists on starting with a “one size fits all” approach with their legal agreements, this translates into increased legal fees for your company.

I see the overly-detailed agreement come up frequently with lease agreements. Recently I helped a client negotiate a ridiculously long retail lease agreement. As the attorney that is also concerned with my client’s bottom line, this project was frustrating. My frustration came from the landlord insisting on using their “one size fits all” lease rather than tailoring the lease to meet the business terms negotiated on my client’s letter of intent.   

With the lease example, the client was negotiating a new lease for a retail facility in the southeast USA. The owner/developer of the facility has a strong southeastern presence and their retail center is large enough to include several ‘big box’ nationally branded retailers. This background is helpful because it directly translated into significant extra costs for my client. The extra costs happened because the landlord insisted on using a lease agreement that was designed for a 75,000 sq ft or larger big box retailer – where my client leased approximately 1,100 sq. ft. 

Within my client’s lease, there were many sections in the lease that are either ‘overkill’ or not even needed for a tenant this size. We had to work through each of those provisions and help the client understand the impact to their business of those ‘over kill’ provisions to them.

Following is one example (of many!) from the lease that required extensive review and negotiation:

“Odors. Tenant shall conduct its business in a manner so as not to generate from the Premises odors that are offensive to the Landlord or other occupants of the Shopping Center in Landlord’s discretion…. “

For the “Odors” provision, this was materially significant because the client is a food service business that produces some enticing smells when manufacturing their food products.   The landlord knew the client’s business prior to presenting the draft lease yet the landlord was all-but non-negotiable on this term until the client advised it was going to look elsewhere for its new retail location. We had negotiate the lease like this provision-by-provision and that added hours of additional legal fees to the client’s startup costs.

What could my client have taken to better help manage its time and resources on the lease? One recommendation that I make is that my clients ask to the see the landlord’s lease agreement as soon as possible in their lease negotiations. Seeing the lease agreement will help in setting the client’s expectations for its legal budget to negotiate the lease (e.g., is this a fairly simple and straight forward lease, or has the landlord attempted to address every contingency under the sun and by doing so created a 60 page lease?). 

Many times small businesses like my client will not hire counsel to help them review a lease. Having seen the lease that was submitted by the landlord, I have no doubt that some of those businesses simply signed the lease without looking at its terms. I can only hope for those tenants that there are not any issues because they will have little-to-no contractual protections in their lease for addressing their grievances with the landlord.

Bottom line with any legal agreement is that ‘an ounce of prevention is worth a pound of cure.’ I recommend that you ALWAYS have your attorney review your business’s next lease (or any other legal agreement) before signing it.

Have a question about your company’s legal agreements or anticipated needs? Send me a note and let’s schedule an introductory conversation soon.

Rob

Rob Turner is the founder of InTown Legal, an Atlanta-based law firm with a broad range of commercial experience. InTown Legal serves businesses and individuals as their "on-demand legal department" in a host of business, communications and commercial real estate matters. www.InTownLegal.com

LAWYERLY DISCLAIMER: this post should not be construed as legal advice; you need to hire legal counsel for that!