Following is a transcription of episode 16 of the LeaseSmart Commercial Real Estate Podcast.
Craig: Okay, this week I wanted to speak about something that I personally find a little humorous. This is when landlords say “This is our standard lease. We don’t make any changes to it.” So, picture this: A very successful, highly educated, doctor that’s out there saving lives. Nobody smarter or more up on things than you. You’re at a cocktail party talking to several of your doctor friends. You’ve all just moved in a nice new medical office building and the topic of discussion turns to the new space. Everybody is lamenting: “Yeah, it’s a beautiful building in a great location. We’re happy. But it’s too bad about that darn lease though. It had a lot of stuff in there I would have rather not agreed to, but you know, the landlord said that there can be no changes to their standard lease.”
Imagine being the one who says, “Oh really? I made a dozen or so changes to my lease.”
C: Yeah. It’s like, “What?” You’re like pretty much a hero at that point. So, the point of this story is, unless you’re dealing with a massive company like Walmart, you can make changes, and you SHOULD make changes. And I’m going to tell you how we do it, and others can do the same.
When the landlord says, “don’t touch the lease, we never make changes to it.” Don’t argue and push back directly or you’re going to get into a battle of egos. We say, “Okay I understand that’s fine. But let me ask you a question. Paragraph 27, where it says blah blah blah, what if this happens or what if that happens? Landlord says, “Oh well, then we do such and such.” We say, “Okay let’s make that clear then. Let’s put that in there.” So there’s a change we get. Or this happens often: “Paragraph 32, if such and such happened that would mean this and that . . . is that what you intend?” Landlord responds, “Well that’s not what we meant.” Okay let’s change that too.
And on and on. When you can give a specific example of circumstances where a certain clause would not be fair, then reasonable Landlords will make changes – and maybe change their Base Lease too, so all future leases are clearer.
I’ve talked about in previous discussions about the need to put a Kick Out Clause in there. I have clients that have Standard Lease Addendums – that’s their corporate standard addendums. It’s like: “Fine we’ll use your lease. Here’s our standard addendum”. A lot of times, much of that language gets put in to the final lease.
I personally have never seen a lease that couldn’t be changed except for Walmart and in truth I’ve never seen a landlord lease that shouldn’t be changed in one way or another. They seem to me to always have clauses that need changing and they never have all the clauses that you really want in there.
Which reminds me! I was working on a lease yesterday that basically said, buried in the fine print: “If we decide to demolish the shopping center, we can cancel your lease after 5 years”. Well this is a 10-year lease and the tenant put a lot of money in this business, so when I brought it up to the landlord, “We don’t like that clause. We don’t want you to be able to cancel our lease after 5 years. Do you intend to knock the building down?” He says, “No we’ll never knock the building down. We just have it in there.” Okay, well we don’t like it. So, they’re going to pull that out. Now, this person has been using this lease for 35 years and said “No one has ever complained about that before.” So, I said, “Well, you’re making me feel pretty good then – perhaps I should raise my rates! – because we don’t like it. Pull that out.”.
Another example in the same lease was “The landlord at any time during the lease or extensions can require additional security or personal guarantee.” I couldn’t even believe it. Is that even legal? How do you do that? How do you enforce it? If no one comes on to the guaranty, then the lease goes into default?
N: What does that one mean?
C: To me it sounded like they were thinking, “You’re my tenant and if your business starts not doing well or you’re late in rent or something then I can require someone, probably an officer or owner of the company, to guarantee the lease personally at that stage.” I’ve never heard of such a thing. I brought that up and they immediately cancelled that one out too.
So, you must read the lease and you must ask and again that’s a business point. I’m not an attorney but I understand the English language pretty well and that’s not a business term we can agree with and so the landlord pulled it out with hardly any fuss.
N: Yeah, they’re like “Okay, you got us.”
C: It’s like, “Well no one else is complaining.”. I can’t help that. They’re not my clients. Anyway the point is I can’t imagine a lease that you don’t want to have a bunch of changes with. All the landlord’s I deal with would expect it. It’s fine. So plan on it.
We go through to 2 stages of lease negotiation: 1) We hammer out all the business points we can first, so 2) the more final version of the lease goes to our attorney so he can do his/her job a little quicker, easier and just look at it from a legal point of view.
So, there’s 3 levels of negotiation from start to finish: #1 is the Non-Binding Letter of Intent. #2 is the actual lease where you’re getting into the details, and #3 is the legal review.
Finally, back to Wal-Mart since it’s an interesting story. I did a deal with Walmart once and they said “This is the form you will use. Don’t change a word on it. Fill in the blanks if you want the deal and then submit it to us and we’ll decide.” You know, we didn’t believe them. So, we made some changes and submitted it. They called back and said “Do you not understand plain English? You can not make a change to this document – you can ONLY fill in various blanks which we have provided (things like price, timing, location, etc.), so try again if you want to attempt this deal. It is dead as of now.” So, okay, alright. But unless you’re Walmart, that’s the only time I’ve seen or heard where you can’t make a change to the lease.
N: Gosh! Well thanks for that great information
Closing: Alright! That’s our show for today. We hope you found it interesting and that the information will help your business grow and prosper. If you have questions you’d like answered on future shows, contact us thru LeaseSmart.com or if you’d like expert one on one help with your lease or site selection, please contact us there also. www.LeaseSmart.com or you can call us at 800-962-2419.