Should you add or suggest a modification to a contract or lease when it is not to your client’s best interest? No? Never? The answer is Yes and here’s why.
Competing Motivations and Goals
In the process of negotiating a business transaction, many attorneys are left to ponder why their opposing counsel or his or her client did not suggest (or even demand) a contract term that is clearly to that side’s advantage or even failed to discuss an important concept that affects all parties to the agreement. As an advocate for the client, one might stay silent in order to preserve the benefit of the absence of such matters. Certainly, it is a “win” for your client? And it won’t hurt your relationship with them to happily announce that the opposing party and his lawyer “left one out that will hurt them and help us!”
However, as an adviser to your client, and for their long-term benefit, there are many instances where leaving out a key substantive or procedural term will end up causing more problems than raising the subject and negotiating terms that both sides can agree to.
For the purposes of this post, I am not talking about core terms such as consideration, proper identification of the property location, the term of the agreement, notice addresses etc. No one benefits if those are left out or are hopelessly ambiguous as the enforceability of the agreement is put in direct peril.
When Does This Make Sense?
Suppose you are negotiating a 10-year triple-net retail lease which includes boilerplate language for common area maintenance charges to be paid on a monthly basis by the tenant. However, what if the form lease is silent AND the tenant does not request language that provides procedural and substantive guidance for reconciliations and/or review rights? That is no skin off the Landlord’s back, right? As landlord’s counsel, remain quiet on that term and move on to the next negotiation point. Big win for the owner, right? Arguably not.
When the tenant wakes up after year 1 of the lease and determines that it has not received an accounting of CAM charges and the net owed by or due back to them,they will likely demand that landlord provide this information. Landlord then points to the lease and shows there is no obligation to provide any reconciliation. Tenant disagrees and their counsel says the landlord has a common law (or in some States statutory) duty to provide an accounting and return any overpaid CAM fees per the tenant’s pro-rata share of the total square footage of the shopping center.
At that point, there is at best a dispute, if not a threatened lawsuit against the landlord for unjust enrichment and potentially other claims. Sure, the landlord may prevail in litigation. But what if they don’t? And what if the Court deems the entire CAM obligation unenforceable? What about the relationship status of the parties for the next 9 years?
What happened to your big win?
Other Examples Where Lack of Terminology or Silence Can be Harmful
- Relocation Rights and Obligations – what happens when the landlord has no mechanism (outside of eviction) to move a struggling or holdover tenant to a vacant space to make way for a replacement tenant who is paying 200% higher rent and taking more term?
- Rules Regarding Recording of the Lease – if nothing is stated what happens when the tenant records the landlord’s full lease in the public record?
- Parking Rules – how many spaces is the tenant allowed? what if they fill up the parking lot with a special event?
- Holdover Status and Increased Rent – the landlord may be at the mercy of the common law as to what type of tenant they are dealing with and how much rent the tenant owes per month is anyone’s best guess? How long will it take to evict them when the replacement tenant comes along?
- Right To Accelerate Rent – as the landlord, do you want to be left with the right to seek only past due rent as a remedy? where does the landlord’s leverage go if the amount owed is accruing one month at a time?
- Landlord Breach and Tenant Remedies – if not spelled out, both parties may be at the mercy of that State’s law on the issue instead of what the parties intended.
Think carefully before you advise your client to ignore these issues even where there might be a short-term gain. The long-term effects of such an action may be painful and costly!
“I suppose it is tempting, if the only tool you have is a hammer, to treat everything as if it were a nail.” – Abraham H. Maslo
ABOUT HENRY PHARR
Henry Pharr concentrates on real property and landlord/tenant litigation, real estate purchase sale negotiations, lease drafting and negotiation, commercial and residential real estate practice disputes, and general commercial litigation.
For 27 years, Henry has been actively engaged in negotiating, modifying and litigating leases involving retail, industrial, office, and residential properties. He maintains a pro bono practice, which includes landlord/tenant work for Mecklenburg County Legal Aid. In 2014, Henry was certified by the N.C. Dispute Resolution Committee as a Superior Court Mediator.
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