Common pitfalls in a commercial lease agreement – Radio Guesting Jan 31, 2022

Transcript

00:07

Welcome to the show everyone! Can you believe that it is February? I cannot believe that it is February and that— actually, I shouldn’t say it’s February. It’s really not, it’s January 31st. But it feels like it’s February already and it’s going to be the minute we blink anyway. I’m going to go in with my first guest. I love my show and the reason why I love my show so much is because it’s such great information for the people out there. I made it so that people could come on and talk about what they do and be able to do something they never thought they could do before. My first guest that I have on is Richie Edwards and he’s an attorney with FR Law Group. Welcome back to the show! They’ve been coming on now for a while. Tell everybody a little bit about yourself, the firm, and then what we’re going to talk about today.

00:52

Great. Thanks, Carol. So my name is Richie Edwards at the FR Law Group. We are a business law firm that takes our partners national level experience and brings it to businesses in Arizona and nationwide that maybe, don’t have the budget or the experience with national level big law firms. We try to bring that experience to be more accessible to everybody. So I’ve been here for almost a year at the firm, really enjoying it and today, we have an ad that runs and it discusses avoiding the common pitfalls and that’s kind of what I want to discuss. I want to discuss some of the common pitfalls that a business might see in a commercial lease agreement, that I think can be applicable to other contracts that the small businesses and other businesses might enter into.

01:38

So, I want to talk about businesses that are in a contract like that. Okay? Because it doesn’t mean that you got to be in a mall, because you could actually have a business in an office. That’s it within a building that you’ve signed a contract with, right? Yes, so let’s talk a little bit about that and what it looks like for people who like, maybe they want to get out of it, right? Maybe they’re having issues.

02:02

Right? And that’s exactly right. So just like you said, it’s the office space, you might rent if your T Shirt Company, where your storage, any sort of space that you have, right, is that lease and getting out of it is something I think many businesses want to do for whatever reason they’ve grown, they’ve decided to go maybe more remote. So they’re not working in person as much. They’ve gone to more technology for whatever the reason is, we often want to get out but lease agreements, particularly from a commercial side, or for a long term, right, 5, 7, 10 years.

02:34

And they all think they can’t get out of it. Correct. They think they can’t, because they’ve signed that lease, and they think they’re locked into it. But you’re here to discuss two reasons why they might be able to.

02:45

Right and that’s exactly something that I want to talk about. So there are certainly ways to get out of a contract. Now, with any lease agreement or any contract, it’s going to be very fact specific and what I mean is, the actual contract should spell out “How do we get out of this? How do we end it early? How do we renew it?”, but what’s important to do is that there will be provisions that I think people overlook, that really can pave the way for them to get out of it, to make a claim to get out of it, with maybe having to pay a minimal amount of money or get out of it with a clean break, but only if they follow the sort of steps that are laid out in the, what I might say the legalese part of the contract that everyone skips over.

03:23

Well, the only way you’re going to know is having a conversation with you. Having that free consultation, because I think what people are worried about too when you say okay, I’m going to go see if I can break my lease. Well, if I break my lease, is that going to ruin my credit for life? Might you know, that part of it is huge?

03:40

Yes, it totally is. It can affect your business, being able to enter into another lease if you have, particularly for a small business personally guaranteed the lease on behalf of the business, for yourself that can ruin your credit and so what we will look to do is not just break the lease. We’d look at the actual lease, see what it requires? How can we get out of it? What are the requirements, and then we’d let you know, right? We need to have a conversation with the landlord and often we might be able to negotiate an exit from that lease, that gets you out in a clean way, without litigation, without having to impact your credit, or just walk away and take those risks.

04:15

Their phone number to call is 602-566-7425, it’s frlawgroup.com. They have offices right here in Phoenix, but they can help anyone from anywhere nationwide. The best thing to do is first of all, write this number down— You know, this is something I’ve said before, I think people should put the number in their phone, because to me whenever you need something you’re going to have to look back on what it is put it under law firm. Right? Right FR Law firm and then a key you can put the number in your phone which is 602-566-7425 and the reason why I say this is, something always comes up and it’s always later it’s always like oh, what was that? I remember that was on the networking Arizona show? Now you’ll have it in your – you can also check them in – – out on their website, which is frlawgroup.com. So a basic commercial lease agreement… Basically it’s got what, right?

05:13

So it has, they can be very short, three, four pages, right up to 50 pages, but the basics of any of those lease will have who the parties are, who the landlord is, the name of your business is the tenant, they’ll have the what I would call the deal, right? How much the rent is going to be, for how long it’s going to be, what the landlord has to do, does the landlord have to maintain the AC? Does it how —- I wish they’d tell them in this building. Go ahead. Do they do the utilities? Do you do those separately? What do you pay on top of it? Who do you contact for maintenance? And – – then it will certainly have who can act for the business? Right? Who’s signing it for the business? And then there’s some really important things, particularly if you’re talking about can I get out of this lease? How long am I stuck for it? Did I think often people overlook because it gets buried in sort of that legal and, I think four of those are really important that I’d like to talk about today and they’re a notice provision is what we would call it a notice and cure provision, an amendment provision, and a termination and or renewal provision and those all lay out how you can notify the landlord of something legally, how long you have to give the landlord to fix it. So I’ll give a really quick example, right, the notice provision might say you have to send a letter via certified mail to this address, and show us the return receipt. So if you call up the person who entered into the contract with, that doesn’t actually work as far as the contract is concerned, and it wouldn’t hold up in a prior letter or in an upcoming litigation or court case, and they might say you have to give them one week to fix it. So your AC breaks, middle of the summer, your clients don’t want to come to your office, it’s brutal, and you call the landlord up and say I need this fixed. The landlord, well, the parts are on the ship, and they’re not coming and we can do it. What the notice and cure provision would say is you have to notify the landlord, and then give them three days, five days a week to fix the situation, and if they don’t, you can then begin taking steps to break the lease withholding rent and doing other things that protect you that way, and then there’s the process right of amending the contract, and often we might say, I think especially for small businesses, I negotiated with this person, we did it over the phone, maybe via text message. Hey, I’d like to maybe pay a little more in rent. So you guys will fix the AC because that wasn’t in our original agreement, we send a text, but that doesn’t technically amend it. So if the landlord doesn’t live up to that end of the bargain, there’s nothing that you can hold them to unless you have followed that amendment provision in the contract, and then the termination provision, right, will often rely on the notice and cure provision. So if I want to get out of the lease, I have had to give proper notice the time to cure any breach or just get out, sometimes I can get out of the lease with just 90 days notice, but I have to do it the correct way, and then I can walk away.

07:57

Amendment. Okay, I want to talk about that. Because you mentioned before we go to break, we’re gonna go to break in a couple of minutes, but you mentioned people who are now doing things differently. Some of them, they’re staying home a little bit more, can you amend something like that one? Now, what we’re talking about is a little bit bigger than just you didn’t fix my, air. I want to change my payment. Can you change that? Yes, you

08:21

certainly can, but you have to do it according to the contract, right? And it will usually say, it has to be in a written agreement signed by the parties and negotiated in writing or whatever, and if it says that, our text messages and phone calls to take a room off the lease and lower the rent by $500 don’t actually work and they can hold you to the prior deal, right? But if you go through the proper process, then you can get that amended and you’re in a better situation now because your business has changed. So you’re not locked into the contract. If you follow the proper steps to work around it and work within the requirements of the contract. If we try to do it outside of that, you might put yourself in a situation where you’re in a lot of trouble and don’t have much recourse after the fact.

09:03

It might be something that you need an attorney for. I certainly think so. I also think people shouldn’t do things on their own ever. So that phone number to call them at 602-566-7425 their website is fr law group.com They are right here in Phoenix, but they can help anyone nationwide hang tight. We’re going to be right back in just a minute.

12:41

Welcome back everyone. We’re talking with Richie Edwards, he’s an attorney for FR Law Group, we’re talking commercial leases, your contracts with them. And again, you don’t have to just be in a big strip mall for that to be or a huge building, you can be on an office and just have your office wherever you’re paying rent in a commercial, in a business way. This is where you might need something like this, and I say put the number in your phone so that you have it. Because a lot of times things happen later, we never know when things are going to happen, and that number is 602-566-7425. You can check them out. It’s frlawgroup.com, and I’m going to repeat something that you mentioned earlier pretty fast. One thing that I like about you all the most is that you’ve made it affordable for people to get the kind of representation that normally would be exorbitant for people, you have made it affordable. Yes, for somebody have something like because a lot of people right away when they think lawyer they think

13:40

dollars. I think that’s exactly right, and we have and I think not only have we made it affordable, but I think and I guess it’s you could ask any of our clients, but I think we provide a really high level of legal advice and representation for a really reasonable and affordable rate, that you can’t get many other places for the same price. Right.

14:00

And it behooves you to have a free consultation with them. Talk about those leases and see where they’re at., and that’s the first thing that you need to do if you’re looking to change, if you’re looking to do some, if you’re dealing with an issue, please don’t do these things on your own. That’s for sure. So we a little bit about go back to impact real quickly when it comes to something like this. Because again, any provision that you make any change in something, a lot of people think, oh, that’s gonna ruin me for life. Right?

14:30

And I think that’s right. So it doesn’t have to be that way that something changes, and we start to feel stuck. Oh, no, I’m in this contract, and my landlord said, well read the contract. It’s in there and now I’m stuck and I can’t afford the rent, and so I either have to break the lease, or close the business or do something and it really doesn’t have to be that way. If you come to us, we can help you figure out what your options are. What is a better option than what the landlord is preventing or presenting and how do we go about actually achieving that option according to the terms of the lease, it’s a little bit of the black and white, what’s in the lease, and then a little bit of sort of an art form, how do we get there within the language without putting you in a bad spot is your business but get you to a result that you can feel much better about.

15:15

Well, that’s where the attorney comes in, because you’re great when it comes to language and looking at it and understanding it and then fixing it so that it makes it better for your client. So this one is I’m not sure exactly how to say so should I include terms related to a possible legal dispute? Down the line? Right.

15:31

So this is a little bit, you know, not so much “I’m in a lease, and I want to amend it or get out of it, change it.” It’s more “I’m about to get into a lease, I’m writing a lease, I’m negotiating a lease. What should I include? What’s important?” And I think something that most business owners wouldn’t think about is how in the lease to go about solving an issue that can come up, right, and when you enter into a lease or any contract, you have a lot of say with, if we get into a fight about this, do we have to go right to court? Do we go to an arbitrator? Do we have to go to a mediator? Do we have to send emails back and forth negotiating first, and it’s important, you know, if you say, we’re going to go to court, we’re going to litigate, that can often be cheaper, but it’s much less flexible, it’s not going to be quite as fast, because of the way the court process bogs down. Arbitration can maybe be more expensive, depending on the particulars, but it can be much faster and much more flexible. Whereas mediation might provide you a way to negotiate without really having to go to court and take the risk of a big, you know, quote, unquote, loss. So it’s something that I think a regular business owner isn’t going to think about, they’re really worried about how much is the rent gonna cost me? Where is my building at? You know, who’s gonna pay for the lights? And who’s gonna fix the AC those sorts of things? And some of this stuff that hopefully it never comes down to it, but if it does, you want to make sure that you know, where we’re going to court, how much is going to cost? And who’s going to be on the hook if I win, right? Do they have to pay for my attorneys fees if I win? That’s something that’s important to to include, – – and I think wouldn’t normally be thought of by business owners. Well,

17:01

somebody that’s going into maybe you’re just looking to rent right now, rent a space, this is important to have, maybe them talk to you about this now. And so you don’t have any issues later. So I guess what happens? I’m assuming they would call you have a consultation. You got to understand their business. Right, right, or whatever it is that they’re doing and need to understand what your needs are, what your wants are before you can. So the consultation is free, it makes sense to do it. 602-566-7425, they’re right here in Phoenix, but they can help anyone nationwide, check them out on their website. It’s frlawgroup.com. So let’s say someone signed a lease agreement. Okay. What steps did someone take to protect themselves now? Down the line, same thing?

17:49

Well, it’s some of the same thing., but what I think often happens, and I do this in my personal life, right? We sign a contract, we sign a lease is, and then we kind of forget about what the black and white language says, right? Because we’re in our new space, we’re paying our rent on time. It’s a beautiful new space, they see it works and we forget about it, and a year, two years come, and then we’ve we’ve missed out on certain deadlines. If we want to end the lease, or renew the lease or keep our same rent going forward. There’s certain deadlines, and I think that’s what people want. They want to see in this space, and they don’t want their rent increase. And there may be ways in the contract to achieve that., but if we, if we’ve signed it, put it in the folder and forgotten about it, we can’t do that. So I think contract management is really important, and it’s important to terminate, or to, you know, calendar, all of your deadlines. When do I have to let the landlord know that I don’t want an increase? When do I have to let them know that I’m leaving? When do I have to let her know that I want to renew? When is rent paid to who? Who do I talk to? who’s the actual representative for the company instead of, it might be different than the realtor who helped you into the lease, it might be somebody totally different., and if you don’t calendar these, if you don’t keep track of them, we can miss these important deadlines that would help you right, and if we miss these deadlines, it may be really hard to amend the lease or to get out of the lease or to make the changes we want to. So we can also do that for you, right? And I don’t think necessarily you need a lawyer to do your contract management and to make sure you’re meeting your deadlines, but it’s something that we can do to take it off your plate, you can focus on your business, we’ve got your contract, we know when all the deadlines are, and we can take care of everything for you to make sure that when the time comes, you’re in the position, a right to leave, to keep the rent low, to renew, do whatever you want to do under that contract. If you’ve hit all the markers leading up to it, let’s say

19:29

somebody has had that lease there for a couple years. Maybe they’re in a five-year lease, they’re now two years into it or whatever, and they could take it out. They’re listening to them. They go, Oh my God, you know, I forgotten all about that. Can they come to you and talk to you about their leases and have you kind of look at them and see where they’re out with them?

19:48

Certainly. And that’s something that you’ve mentioned a couple of times the free consultation that we would come in, we’d talk to you we want to get to know you what is your goal as a business because it might change how we look at this situation or answer your question, and then we’ll look at your contract, look at your lease and say, Well, this is what your lease says, Here are the things you need to do. If you want to change it, here’s what you need to do if you want to stay at the same amount of rent, or x y&z. We can look at it at any time, although we say, if we’re there from the very beginning, we can protect you the most, but it doesn’t mean if you didn’t go to a lawyer initially that it’s too late now. It’s never too late. It just means that hey, we might have to take a more creative approach, look at some more to get you where you want to be. So that’s certainly something we would love to do. If you have questions. If your goals have changed as a business to make sure that you’re on the right, the right path for it and not paying rent on somewhere you don’t want to use anymore for the next three years. Right.

20:39

Well, I think too, though, a lot of people are brand new, you know, obviously brand new (inaudible), right? But there are so many people out there that have already, but the best thing to do is obviously have that consultation, find out where they’re at, when somebody works nationwide, and they call, I mean, how do you work? You just really got to get to know them, basically by phone? You guys zoom a little bit. How does that do?

21:07

Yeah, we do. It would probably be an initial over the phone, and then we’d like to set up a zoom, a video call to really get to know you, talk of course, I’m going to do research on your business, right what I can find online just to see sort of how it’s viewed from the outside, and then get on a video call with you. Maybe it’s more than one time, maybe we need a couple conversations to really figure out where we want, but so that you and I can talk, so I can figure out what do you want out of your business? What do you want out of hiring us as attorneys, and if we can’t give that to you, we’ll be honest with you and say, you know, it’s really not going to work for X, Y, or Z, but if we can, or we think you have options, we’ll give you those options, and then ultimately, it’s up to you to tell us, go forward with option ABC and do what you need to do we sort of look at ourselves as we’re going to analyze and give you all the options and then you get to choose which option I’m gonna take and we’ll implement that. What you want, right with our advice.

22:00
Real quickly, have you seen a lot of this? Wanting to change, wanting to amend, especially with this COVID that has taken place the last couple years?

22:09

Certainly, it’s something that as you said it businesses change, their needs change, then they want to change their lease so that it’s right for them moving forward. They don’t want to be stuck in this antiquated thing. So certainly things are moving now, and especially as people learn, well, it was gonna just be a few months, and then maybe a year and now we’re however far we’re into it. People want to change, right?

22:30

Yeah, and real quickly, too. We have less than a minute. Why is all of this so important?

22:36

I think your contracts as a business are what really allow you to succeed or to fail. If you have a lease, you have to break it. You can’t pay the rent. It’s real rigid. I think it’s going to harm your business. It takes away your capital, it takes away your credibility, and you can’t really win without important management going

22:53

forward. I always say put that phone number in the phone right now. Right? This is what I’ve been saying lately for this. To me, put the number there you’ll know it’s under lawyer and you can call them their number is 602-566-7425, it’s frlawgroup.com