Guerilla Leasing Tactics for the Space-Challenged Tenant
I recently gave a Continuing Legal Education (CLE) lecture and called it “Guerilla Leasing Tactics for the Space Challenged Tenant.” I thought Commercial Observer readers might enjoy listening in.
The Program Preliminaries
[Embarrassingly over-the-top thank-yous and kudos to all concerned for putting together this momentous program of clearly historical proportions].
That obligatory stuff having been taken care of …
GOOD MORNING, FELLOW GUERILLA LEASING LAWYERS!
Of course, thank you all for showing up.
I hope to make this early-morning exercise worth your while.
That’s guerilla (G-U-E-R- … etc.) leasing: in-close fighting for the smaller (say under 5,000 rsf) tenant. Guerilla, to define: a member of an irregular armed force that fights a stronger force by sabotage and harassment, from the Spanish “guerra,” meaning “war.” Yes, while we love repping whale-size tenants, more often we’re part of the guerilla tactics leasing team. We’re lean and mean and sometimes a bit devious (well, O.K., in my own case, maybe not so lean but …). A full-floor, 40,000-square-foot tenant can dictate a lot of what goes on in a lease, but, alas, there are many more smaller fish.
Guerrilla leasing tactics. We are not going to sabotage our adversaries, but we will probably do some limited harassing; and, by sniping and carefully picking our fights, try to tip the balance a bit more in favor of the ‘clout challenged’ smaller tenant.
You well know that the reality of office leasing is that the landlord’s lease, whether the REBNY form or a custom transcripted 100-pager, is immodestly one-sided (or, as others less beholden to New York landlords have put it, “onerous,” “unfair,” a “contract of adhesion” and similar). Well, having spent the past 30 years working both sides of the street as landlord’s counsel and tenant’s, having written these megillas, there is little pretense that the proffered forms are “fair and balanced,” and, yes, every attempt I’ve heard of to promote the “fair” form has failed with a distinct thud.
WHY? WHAT LED to the evolution of the totally lopsided landlord form?
Not to spoil the ending, but it certainly did not start that way. With props and apologies to Carl Reiner and Mel Brooks, I present The 2,000-Year-Old Lease Lawyer (a very brief foray into legal history-a story of biblical proportions).
The scene: The Century 1 commercial brokerage office of Edwardus Gordenensis.
The dramatis personae: Edwardus, the owner, Abraham of Rudin and the tenant, a new player in the burgeoning equestrian transportation sector, CX Chariots LLC (100). (Their slogan: an ‘XC drachma ride for only L.’ O.K., let that one sink in.)
The story: Edwardus has prepared a term sheet on parchment with just three or four lines of hieroglyphs-landlord’s name, tenant’s name, the rent and the description of the premises quote “being a portion of Lot’s cave 7, as more fully delineated in Ex. A.”
Then, enter stage right, Abraham of Rudin’s lawyer bearing a stone tablet in his arms. No, this one has only one commandment: “Thou shall timely pay the rent.”
O.K., so far, so good.
Then, enter stage left, Chariots’ attorney. He carefully examines the tablet and says out loud: “Parties, check; term, check; rent, check.” Then he looks up and says, “Wait a second. How about a Non-Disturbance Agreement, and rent abatement if the cave becomes untenantable (remember those floods?) and a ROFO on contiguous caves 6 and 8?’
Of course, the answer even then was a thunderous NO of biblical proportions. IT IS WRITTEN IN STONE.
The point I am trying to make here is that there was little more to the lease of yesteryear then a grant of a certain amount of land or a structure, for a certain period of time, and at a certain rent. As to mostly everything else, the tenant was free to do as it wished, perhaps with the sole proviso that there would be no waste (harmful and destructive use) committed and that at the end of the term, the res-the land or building-would be returned in something akin to the same condition as at the time it was rented. The judicial input here? Time and again the courts opined as to the law not favoring restrictions or forfeitures; thus, if the certain activity was not explicitly prohibited, the tenant might do as it wished.
SO, GETTING BACK to our story, what happened next? Well, a few years into the lease, when CX Chariots, which initially had some very grand and ambitious plans for its latest models (I think their advertising slogan was “The Forward Look of CXXX”), lost its wheels, so to speak, and its stock tanked; it fell on hard times, and to recoup some of its investment, it assigned its lease to the notorious Bacchus’ Bed Bath and WAY Beyond. So, landlord Abraham of Rudin went to his lawyer and bitterly complained:
“We run a family business, and I’d rather have the Gomorrah Consulate as a tenant than Bacchus and his nefarious crew. DO SOMETHING!”
But, Abraham’s lawyer could only shrug his shoulders and say that as the lease did not prohibit what Chariots had done, there were no legal remedies available. But … but from that point on, a second commandment (“Thou shall not assign or sublet without landlord’s consent”) appeared in every standard Rudin, REBNY and Blumberg stone tablet lease form.
And now we leap forward to modern times, when the assignment and sublet clause runs a good 10 pages of single-spaced type, covering every possible scenario and contingency. The one constant: “Tenant shall not.”
O.K., so to get back to the topic du jour, where is this all again in the context of leasing for the smaller office or retail tenant? So maybe some of you are thinking, “Well, Jeff, we’ll just ask the landlord to make all changes needed to even up the form.” Send in a 200-comment lease memo on a 2,000-square-foot deal? Duh. Counsel gets little more than a whole lot of negative feedback, from all sides-the landlord’s attorney, the broker and (eventually) his/her disenchanted client. To put it in the vernacular: “Either this guy has never done a lease before or (even worse) comes from some place called ‘outta town.'”
Well, maybe not “outta town” but out of touch with small office leasing realities.
To conclude: In our guerrilla leasing scenario, we throw a narrow beam focused on three well-delineated areas.
1. The economics of the deal where we try to protect our client from any unhappy economic surprises (especially as to escalations and hidden charges);
2. The suitability of the space for our client and its intended use;
3. And lastly, some forecasting either as to an exit strategy (clients done very well/poorly, broad assignment/sublet rights) or as to a way to grow without moving (a Right of First Offer, or ROFO) or to extend the term (renewal rights).
Jeffrey A. Margolis, Esq., is founding principal of The Margolis Law Firm in New York City, where he specializes in “dirt law”-buying, selling and leasing. He writes monthly for The Commercial Observer on legal issues.