THE ESSENCE OF COMMERCIAL LEASING – THE RELATIONSHIP WITH THE CLIENT
Kenneth Glasner, Q.C.
Copyright © All rights reserved by author April 22, 2010
The practice of law contains many pitfalls. None more I suggest than the area of commercial leasing. Being mindful of the nature of commercial leasing and its objectives, I propose to deal with the relationship between landlord or tenant and the solicitor.
The lease document binds the landlord and the tenant to a long term relationship, each dependent on the other to some degree for economic gain and in certain circumstances to some extent for economic survival. The covenantor, if any, has a substantial stake in this relationship.
The lease has similarities to a collective agreement in that both documents set out the rules of conduct, obligations, duties, and benefits for each party. As such, the negotiator for each side (whether they be the principal of the party or its solicitor) has the burden to consider a plethora of possible scenarios which could occur over the life of the agreement and its renewal.
Together with these obligations one must also consider the financial investment each party incurs in this venture, together with the expectation of economic success.
All too often we fail to define who is the client and the purpose of being retained by that client.
Is the client:
- an existing company, or
- a company yet to be formed, or
- an individual, or
- a partnership, or
- some other entity, or
- a combination of the above, or
In addition are we being retained to:
- review an offer to lease, or
- review lease document, or
- to advise either orally or in writing on the existing document, or/and
- take an active part in the negotiations.
All too often we are faced by a client who requires us to review a “standard” 46 page lease they are about to sign the next day.
Coupled with the standard request is the additional request to, “give a quick review of any major problems”, but don’t spend too much time as I want to keep the bill down to a couple of hundred dollars”.
The lease is usually delivered to you at 3:45 p.m. the day before, with the additional requirement that the leasing agent needs it to be signed before noon the next day. The client fails to inform you that he has had the document in his possession for the last three weeks. The client does inform you that he has, “a good rate at only $7.25 per square foot”.
As you scan the lease for the quadruple net clause: net – taxes; net – insurance; net – maintenance; and the new net – everything else; your attention is generally drawn to those “new items”, such as: the payment of depreciation on fixed assets; the 15% administration fee based upon the “quadruple net”; the 22% gross-up between rentable and useable space; the lack of waiver of right of subrogation in favour of your client; the one sided indemnity clause; and the assignment of your client’s authority to the lessor re the estoppel certificate if he or she or it fails to sign the document within three clear working days; the new “shotgun” clause allowing the lessor to terminate the lease if you wish to assign or sublet the remainder of the term; and other such matters of a trivial nature.
The converse of the situation occurs when your client, the landlord, leases the premises, giving you standard instructions that all he or she wants you to do is, “prepare a short lease, like those printed on the stationary store forms, but please protect him or her”.
At this point I usually hand the client the most applicable 26 to 54 (double spaced, including index) hard copy standard lease that I may have on my computer, requesting that the client review the document and delete those items which do not concern him or her.
By this time whether you are acting on behalf of the tenant or the landlord, red flags should be appearing everywhere. As sure as day follows night if you do not take control of the situation immediately, you will have an unhappy client. It is imperative that you explain to him or her the process involved in reviewing or preparing, or negotiating a lease. Contemporaneous with this education procedure is the necessity to cap in writing the instructions you have from your client. If those instructions vary or expand then this alteration should be reduced to writing by way of an amendment to your already existing written retainer agreement.
As a lawyer one cannot predict when a file is opened how much time will be required. Generally you can predict within an hour or two the time it will take you to review (but not report to the client) a complicated commercial lease.
The process or procedure to negotiate the lease can take on many forms. To this extent I recommend the book titled The Commercial Lease A Practical Guide (2nd edition) written by Harvey Haber, Q.C. and published by Canada Law Book Inc. In addition, the various periodicals and CLE material are invaluable in this process.
In discussing with your client the nature of the lease, you must take into consideration the nature of your client’s business, both short term and long term.
Once you have established the ground rules with your client (after having spent a short time reviewing the lease in order to better assure yourself of the nature of the task at hand), I recommend that you prepare, send out and receive a signed copy of the written retainer agreement.
There is no magic in preparing a retainer agreement save and except that you should ensure to cover most eventualities.
I have added as an addendum to my comments a retainer agreement which may for the basis of the retainer between you and your client.
Kenneth J. Glasner, Q.C.
Tel: (604) 683-4181 / Fax: (604) 683-0226
Suite 1414, Nelson Square, Box 12156, 808 Nelson Street
Vancouver, British Columbia, V6Z 2H2 Canada