Unless you want to end up like the clients who call for help only after they sign a contract, though, you’d better pay attention to the various tricks that may be up your landlord’s sleeve. A “standard” lease is anything but. Fortunately—depending on your leverage and local market conditions—you have more power to shape your lease than you may think.
The best approach is a proactive one. Identify the objectionable language at the outset and don’t immediately assume that anything is non-negotiable. After all, you’re not renting a car—and frankly, good tenants like you aren’t necessarily easy to find. Here are tips to get you off to the right start.
1. Forget You’re a Lawyer
Unless you are a real estate attorney (and perhaps even then), your legal pedigree will unlikely be sufficient to duplicate the efforts of a professional real estate broker who is in the trenches every day. Hire one—they make their living by knowing which landlords will do what, what the market is doing, what items are negotiable, and what buttons to push when. Best of all, because their fees are paid by the landlord, they cost you nothing.
2. Date Around Before You Get Married
As any car dealer knows, the best customers are those standing in the showroom and pondering a deal without having seriously considered other makes or dealers. Negotiate several deals simultaneously to create a competitive environment, even if you are focused on only one. When your prospective landlord knows you aren’t shopping elsewhere, you can be certain that she will try to wait you out rather than make concessions. Fear of losing the deal to someone else will get you to the landlord’s best offer much more quickly.
3. Don’t Put Your Spouse’s Assets at Risk
Or your children’s. Or your own. In any market where the landlords lack the power to demand personal guaranties, you assume additional risk by signing one. It’s not that you intend to walk out on the lease—but things can and do happen, like health problems, firm breakups, even a judicial appointment. At the very least, should you have to walk away later, you will feel much better about facing both your landlord and your spouse if you know that the vacation lake house isn’t at risk.
4. Peek Around the Corner
As difficult as it is to predict the future, any lawyer or firm considering a long-term lease must spend some quality time on strategic planning. Entering into the appropriate lease arrangement requires answering certain fundamental but potentially perplexing questions. What is the firm’s direction? How many lawyers will it have in two years? In five? Who will the clients be? What will they expect? Most firms will want to negotiate a right of first refusal on adjacent space and to provide for both expansion or contraction in the lease. Also, try to require the landlord to provide reasonable consent to your subleasing space and to assigning or transferring the lease.
5. Look Beyond the Sticker Price
To make an intelligent decision about what is frequently a firm’s second largest expense, you need to be able to adequately compare the costs of each potential lease against the others. While rent is usually calculated by the square foot—as in $20 per foot per year, broken down into monthly payments—this is not always the case. Subleases and executive suites are often priced by the individual office or cubicle. The per-office cost may or may not include use of conference rooms, coffee rights, copy services or use of a receptionist. Look beyond the overall price by translating all costs and putting them into a spreadsheet so you can compare them side by side.
6. Don’t Be the Ugly Stepsister
If you are thinking of subleasing the entire space from a firm that has moved on, be wary. While they are often cost-effective, these arrangements have a downside. The building owners may act like you don’t exist because—from their standpoint—you really don’t. They get their money from the original tenant whether or not they make you happy, and they may not be inclined to be helpful when you need signage, repairs or changes to the building directory. Even worse, if the original tenant stops paying its rent without telling you, you might get booted out without notice, even though your rent is current. Get everything you want or need put in writing in the lease.
7. Don’t Play Musical Chairs
One of the little time bombs to look for is the right-to-relocate clause. It gives landlords the option of moving your firm to “comparable” space somewhere else in the building should they need yours to take care of a bigger fish. While smaller firms have more trouble having these clauses deleted, you can insist that the landlord cover all of your relocation costs, including moving costs, cabling, telephones and new stationery.
8. Look in the Shadows
While the amount of rent is usually straightforward, there are often various costs buried in the fine print. These can include CAM (common area maintenance, or your share of maintaining the building’s common areas), escalation provisions (which escalate the rent payments over time), minimum insurance provisions that increase your insurance premiums, parking fees, holdover percentages, cleaning fees, security service fees, trash collection fees, capital expenditure fees, after-hours heat or air conditioning, and repairs to plumbing or appliances. Make sure these are factored into your budget.
9. Embrace Trial by Jury
Many lawyers, at least on the defense side, reflexively include arbitration clauses in their contracts to avoid the uncertainties of a jury verdict. Commercial brokers, however, will tell you that because many jurors despise landlords, it’s best to leave that option open. Even if trial is a remote possibility, a landlord’s fear of jurors can give you additional leverage in a serious dispute.
10. Like Mom Said, Cohabitate With Care
Okay, so maybe your mom didn’t tell you that, but she should have. Office sharing is a common and efficient arrangement for fledging law firms. But doing so on a handshake or a sweetheart deal is playing with danger. Failure to have clear, written agreements concerning how to keep your respective clients separate can ultimately result in your colleagues’ malpractice becoming your problem. And even if that doesn’t happen, office mates who drink your coffee and “borrow” your copy paper and postage machine can become a major headache. Spell out everything in a way that benefits you and protects your practice.In sum, when dealing with your law firm lease, do what you tell your clients to do—know what you want, do your homework and don’t leave any stones unturned. Because if you don’t pay attention now, you will pay later.
Jonathan E. Smaby (jonathan.smaby@ leganomics.com), a lawyer and former managing director of a Dallas law firm, is a co-founder of Leganomics, a firm that offers management and operations assistance to law firms. He is co-author Opening and Managing a Law Practice, 3rd Edition (Texas Center for Legal Ethics and Professionalism, 2004).