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There’s No ‘I’ in ‘Lease’

02/02/2017

NEWARK, NJ—A perennial truth about commercial real estate is that it is a relationship-driven business. In today’s hyper-competitive environment, savvy operators have started to scrutinize their key relationships—with tenants, competitors, service providers, the list goes on—as never before. However, it is easy to overlook one strategic relationship that can be important in real estate: the relationship between brokers and attorneys as they negotiate leases on behalf of a mutual client.

In my former role as CEO of LeClairRyan (I returned to my corporate/real estate practice at the national law firm in 2016), I witnessed the unmistakable benefits of teamwork many times. When lawyers from diverse practice teams pool knowledge on a case, clients win. The same is true at the real estate negotiating table, where teamwork by attorneys and brokers can add value in manifold ways. Nonetheless, in my 30-year career I have run across plenty of lawyers who, perhaps out of arrogance or shortsightedness, deemphasize collaboration. Operating as though they were being handed a baton in a relay race, they essentially say to the brokerage team, “Thanks. I’ve got it from here.”

But giving short shrift to collaboration is a mistake, especially when it comes to large-scale deals. Last year, I represented a Fortune Global 100 company in negotiating the lease for its US headquarters, working closely with my client’s broker. The annual rent in the offer here ran into eight figures, and the negotiations were lengthy and complex. Fortunately, the broker I worked with was outstanding. We worked closely to dig into the details, structure the economics of the transaction and carefully consider business issues as they affected legal considerations in play. In working out differing positions, we huddled with our client’s businesspeople to develop solutions that ultimately led to excellent results.

By contrast, a silo-style approach (“I’ll take it from here”) would have sharply limited the amount of knowledge, as well as the multiplicity of perspectives, available to the client. Why do that?

Neither brokers nor their clients should accept a truncated relationship with the legal team. When attorneys and brokers collaborate, they make each other’s jobs easier and raise the overall quality of strategic analysis and intel. From the start of a high-stakes deal, brokers and their landlord or tenant clients should strive to be explicit about their expectations for extended collaboration with the legal team. Ideally, the collaboration should start as early as the letter of intent. After all, term sheets are not just about the economics of the deal; they may carry significant legal implications as well.

If you get a sense that an attorney you plan to work with fails to appreciate the value of collaboration, think carefully about the potential implications. While lawyers certainly know how to draft documents and finesse the push and pull of negotiations, brokers have market intelligence that can be critical to the process. When the negotiations get heated, for example, a good tenant rep can honestly say to the prospective landlord, “Listen, I live and breathe this market and am aware of a number of other viable sites. Your property is not the only game in town.” On the landlord side, a good broker understands how well (or poorly) competing properties in the marketplace are actually performing; has a realistic grasp of tenant expectations; and knows the prevailing concessions typically demanded by tenants and granted by landlords in the marketplace.

Combined with the expertise of the legal team, broker knowledge can translate directly into leverage. Experienced brokers know their markets—right down to the different players and even their personalities. Meanwhile, the attorney needs to bring a lot to the table as well with respect to legal and negotiating skills, creativity, efficiency, technological savvy and other value-adds. Simply put, an unwillingness to collaborate is a red flag—a sign that the lawyer could be stuck in an old mentality based on maximizing billable hours rather than competing through superior service and providing value to the client.

Forward-thinking brokers and attorneys alike should see large-scale, high-stakes deals as a team sport—and play to win. 

Source: GlobeSt.com