Watch the Small Details

Published on Sunday, 16 February 2014 07:09:19    Written by Marc
We sometimes hear the expression that the devil is in the details. Well, in real estate it often does seem to be the case. I once posted a blog here that talked about one single word that cost the company where I was working for about eight million dollars. A simple word "not" inserted in a clause did that. I remember thinking how that was an expensive word and I was lucky not to have been the person to negotiate that lease, but the unlucky one to have to "deal with it" during my time. I did suppose that the person who negotiated that lease did not watch the small details.

Question-mark-on-piece-of-paperSo what are the devilish details that we should look for when negotiating a lease?

The answer to this is that there are many, but you should not only be careful when negotiating the leases, you should also be careful to remember them at the appropriate time.

Take a small example I think I briefly touched on a few months ago. A few years ago, we were leasing a site and were trying to sublease it in a difficult market. Then another tenant in the same building approached us and told us they were interested in our site. Ours being on the sublease market was priced lower than other head leases in the building, so that tenant was thinking of moving from their existing site into ours at the end of their lease which was coming up in a few months. After our negotiation, they proceeded to send a letter to the building landlord to let him know that they would not extend their lease. However, their lease had a clause that stated that all official notices had to be sent by registered mail.

By the time that the landlord informed them of this, the notice date had passed, and another clause in their lease mentioned that without notification from the tenant, the lease would automatically extend for another five years. Of course, the tenant felt cheated and relations between that tenant and the landlord turned sour. Nevertheless, the landlord stood his ground and collected the rent. Because of a small oversight, the tenant was locked in for another five years in his lease and missed a great opportunity for saving money by coming to our site. Obviously, the person that sent the letter did not take the time to watch the small details in the lease and probably assumed it was okay to send a standard letter to the landlord.

Small details to look for can be from

  • Dates. Obviously, all dates are important "details" if we can call them like that here, be it for a renewal, for an extension, for taking more space, for a lease termination, for payments of all kinds, for security deposits, insurance, rights (such as first refusal and others). I probably forget a few here, but in essence, anything that needs to be done by a certain date is an important "detail."
  • What you can do in the site. This could include what you can install or remove (business or to sublease a site). These clauses can also have small details. The example about the eight million dollars cost (about subleasing) said that we could "not" exercise our termination clause if we decided to sublease the site.
  • How you need to do things. This includes how notices are sent (in the example above, notices from the tenant needed to be send by registered mail only) and to where (in some cases, sending the right information in the right format to the wrong address is the same as sending nothing at all). It also includes what you need to submit, like for getting drawings approved before doing renovation.

    A good example of this is that we once were delayed a few days because the lease stated that we needed to send five copies of plans to the landlord for approval of our renovation and that landlord would only start the revision process once he received all five copies. We had sent three copies, waited a few days, and then called the landlord to see if he had questions. The landlord told us that as per the lease, he did not start the revision process and did not submit the copies to his professionals because he was still waiting for the two extra copies from us.

    By the time that we made the copies, and they were delivered, we lost one full week. To make things worse, we were already late in the process, so people had to work overtime (at extra cost) in order to catch up. We, including myself, were banging our heads on the walls for having missed that small detail, but we were also upset with the Landlord which would not have lost anything on his side by at least starting the process and informing us of the missing copies. However, the landlord was going by the book, of in this case, by the lease. Talk about watching the small details.

When going over the lease in detail, there were a number of details worth remembering such as dates. Ideally if you have a system which you can enter all dates and have them reminded by your system will help you enormously. With a little luck, your system will pay for itself in no time simply by avoiding you miss some important dates. While dates are important to be remembered, other items can be reviewed at the time of the specific action.

For example, before sending a document, it is good to review the clause that explains how documents need to be sent. If your lease management system allows you to add important comments, it may be a good time saver to put down a few comments to avoid having to go over some clauses in the lease each time you need to do something. Finally, other details will only need to get your attention at specific times, like if you decide to sublease your site, or want to install something new. Still, remember that some clauses can have small details, which can cause many headaches if not properly dealt with.