5 Ways To Keep Legal Costs Down For Landlords In Office Leasing
Keeping legal costs down is one of a landlord's primary concerns in office lease negotiations. Casey Sobhani and Eli Diller at Liner Law share a few insider tips on how to achieve this.
1. Establish roles for your team.
Designating roles in advance and knowing what to expect from each person will help you budget hourly legal costs and plan for negotiations in the long term.
Leave as much of the negotiation as possible to your broker, especially with respect to business points in the early stages of a deal when many issues can be resolved. Brokers work on commission and can resolve issues for you without incurring additional costs.
Your attorney, on the other hand, should be directed to focus on the legalities of the negotiation and drafting. You should also use your property managers to provide your attorney with factual information for leases, such as square footages, tenants with potentially conflicting rights and parking ratios.
2. Streamline costs by knowing what you want from each transaction.
How much are you willing to spend on legal fees? What are the terms you absolutely cannot compromise on? What do you feel most and least comfortable with when it comes to compromising?
These are vital questions to ask as a landlord—and your attorney needs to know the answers. Knowing the answers ahead of time will save hours in your lawyer's office. When it comes to shelling out money for a leasing lawyer, a solid rule of thumb (though not always attainable) is to try to keep legal fees below one month of rent. Furthermore, you should compare the scope of the comments to the size of the deal. If appropriate, ask for a streamlined set of comments before allowing your attorney to address them, or have your attorney craft a "best and final" draft to address as many of the tenant’s comments as possible, with the expectation that additional comments will not be accepted.
3. Know the other side.
One key to successfully keeping legal costs in check is to ask the correct questions about the other side.
Try to determine the tenant's attorney's reputation before a letter of intent is signed. Attorneys who work for larger, corporate firms often represent clients willing to pay higher rates, which can result in more comments to your leases. In-house counsel attorneys aren’t paid by the hour, and may not have the strongest real estate backgrounds, which could also result in more comments. Attorneys who are or were law professors may speak more to theory than to practice, which may raise further obstacles in lease negotiations.
Knowing who you're dealing with in advance will predetermine the angle from which to "attack" negotiations, which in turn will help define how much time to set aside to work with your own attorneys (another key factor in controlling legal fees).
4. Avoid unnecessary phone calls.
It sounds like common sense, but phone calls can be surprisingly difficult to avoid and to control. If possible, only allow conference calls between your attorney and the tenant's attorney toward the end of the negotiation. Getting on phone calls too soon can ruin your chance to resolve concepts using the preferred legalese and terminology of your attorney instead of the tenant's attorney. It also does not make the best use of brokers, who may be able to take many open issues off the table between lease drafts.
5. What's the deal?
All parties should begin with the goal of agreeing on critical deal points in the letter of intent instead of leaving them for the first lease draft. Everyone should be fully aware of what conditions trigger the commencement date; what backup plans should be implemented in case the space cannot be delivered in a timely manner; whether the tenant will receive special rights, like termination, expansion or renewal rights; and, of course, what lease contingencies should be put in place—for instance, the termination of an existing tenant's lease to make way for a new tenant.
Furthermore, avoid including in the letter of intent promises of building amenities that may be taken away (for example, perks like conference rooms). Avoid including "boiler plate" language that need not be addressed and can only be used against you in the lease, such as information regarding the condition of the building.
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