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A Lease Should Never Taste Like Chicken

EDITOR'S NOTE: This month's guest blogger, Eliot Wagonheim, has been the attorney for PBI Restoration Resources for nearly 12 years.  As you'll see below, he not only boasts an impressive resumé, he's a very entertaining writer.

When I was ten, I broke my arm playing a game of chicken. The rules were pretty simple. You put half a block between you and your opponent, got on your bicycle, and rode at each other as fast as you could. First one to swerve loses.

Neither one of us swerved. The other kid spent six weeks on crutches. I broke my arm and told my parents the half-truth that I fell off my bike.

Every so often, I find myself thinking back to that game of chicken. I realize now that somewhere in my ten year old brain, I had made the decision that the cost of swerving and the loss of status (however temporary) that would have inevitably followed outweighed the risk of collision.

I’ve spent the past 26 years representing small to mid-sized companies, and sometimes it seems like I’ve never stopped playing chicken, especially when considering construction, real estate, and loss.

Everyone who has ever reviewed a “real” commercial lease knows that they’re long and chock full of impenetrable legalese. I’ve often wondered: if you pulled apart the document and laid each page down next to each other, would the pages cover more space than the tenant was leasing? The fact that it’s possible, highlights my point. Standard leases are impenetrable.

For this reason, a tenant typically looks to four things: (1) Term; (2) Options; (3) Rent; and (4) Whether or not the lease calls for a personal guarantee. The landlord, in turn, probably hasn’t even read the lease in years, preferring instead to recycle the same document, making only minor changes to account for rent and square footage.

Years ago, we started conducting “lease audits” for our clients to ensure that they knew how the legalese played out in the real world. What we found was that the parties typically had a polar opposite view of how property issues are to be confronted.

It didn’t matter if our client was the landlord or the tenant -- there was often a misunderstanding about what the lease actually said.

• The tenant thought the landlord would clear snow off the sidewalk in front of his store, while the landlord believe its responsibility started and ended with the parking lot.

• The landlord knew it had to fix a leak in the roof, but the tenant believed that the landlord’s insurance would cover its contents, as well. The lease said otherwise.

• The landlord believed the tenant had to fix damages caused by something the tenant installed, but the tenant’s coverage did not address critical elements of the building.

• The tenant believed rent stopped when it could no longer occupy the premises, while the landlord believed rent stopped only when repairs were not feasible.

The fact is that none of these points of view are inherently wrong. Reasonable people can and do disagree. And because neither the tenant nor the landlord bothered to wargame the things that really matters, no one knew where to turn when the water started rising.

Several years ago, a large general contractor brought me in to conduct a workshop for prospective subcontractors to teach them what their contract actually said. The GC’s intent was to better prepare the subcontractors to adhere to the terms, thereby increasing the chances of a smoother project.

I was interrupted in the middle of one of these classes by one of the GC’s executives, telling me that the contract did not actually say what I said it did. It turned out that he never read the contract, but instead had made assumptions for years about the contents. The same thing happens with leases, on both sides of the table, far more frequently than not.
In essence, in what could be one of the largest transactions in a tenant’s business life, and a good sized transaction repeated over and over by the landlord, both sides are playing chicken without even knowing it.

You can do what you want. But I already told you how that ended for me.

Eliot Wagonheim is the founder of Wagonheim Law (www.wagonheim.com), a Baltimore-based business, construction, and real estate firm.  Follow him on Twitter @Wagonheim.  Eliot represents small to medium-sized businesses in a wide array of industries in both litigation and corporate matters.  Eliot serves as general counsel to companies ranging from 10 person firms to some of the most successful and recognized companies in the region.  Click here to download a free copy of his Commercial Real Estate Pocket Guide.