I have heard those words many times from major lenders, commercial property landlords, business and real estate brokers, and even from manufacturers of business jet aircraft. I have learned to ignore them and propose numerous changes, first to my client and then to the people on the other side of the transaction.
This approach is not for the faint of heart, as it takes more time and increases legal fees, and there is always the chance that the people on the other side will throw up their hands and walk away from the table. In more than 24 years of using this approach, only one deal that I worked on ended that way. To my great surprise, my client was very happy with the outcome, having concluded that he did not want to be in any long-term relationship with anyone who would not even consider his concerns. Typically, however, 80–90% of the changes we request are made.
Here is how I do it. One way or another, I convert the “standard” agreement to a Word file. I then turn on the program’s “Track Changes” feature. I read the term sheet, letter of intent or other business points summary material provided by my client. Then I go through the “standard” agreement, suggesting many additions, deletions and questions for my client.
At that point, I probably won’t know which of my areas of potential concern are of concern to my client. I email the redlined agreement to my client and then by phone or email discuss the draft, generally spending most of the time addressing my questions. That invariably reduces the number of changes that we then ask the other side to make.
It is not uncommon to ask for 50 to 100 changes, and sometimes more, depending on the length of the agreement. Often our response also contains questions for the other party, since its standard agreement may include language such as “this lease is controlled by the landlord’s ground lease, if any,” or “the tenant is responsible for payment of all impact fees and special assessments, if any,” or more frequently there are references to attachments that we have not yet seen.
After a few responses from the other side and exchanges of further redlined drafts, we narrow the issues to the difficult few. When I reach a dead-end trying to negotiate further improvements with the other side’s attorney, I often let my client try. I recommend that he contact the principal on the other side and explain why a particular requested change is critical to him. Most of the time, this results in further improvements.
Prior to his making that contact, I advise him that if his request triggers an angry response, he always has the option to back off and blame the request on me. This process almost always produces a much-improved agreement that is acceptable to both sides. Just as important, it educates my client on the risks he is taking and gives him a head-start on setting up the systems necessary for staying in compliance and dealing with those risks.
The changes can turn out to be critically important. I almost always propose that the other side make a number of “best of knowledge” warranties and representations. When they refuse, I tell them that makes us very nervous because it must mean they are hiding something. We are not asking for an absolute guarantee, we just want to be sure that the other side, which is generally in a better position to know, is not aware of something that later on we might wish we knew up front.
In one lease, we got the developer to give us a “best of knowledge” warranty that the soil upon which my client was to construct a restaurant had sufficient strength to support the restaurant building. It turned out that it did not because of the placement of unsuitable fill material by one of developer’s employees. The fix — excavating the unsuitable material and replacing it — was going to cost $80,000. While we could have asked the developer to pay the entire cost, my client decided to pay half because he was so pleased with the location and wanted to establish a good working relationship.
I often ask myself why we are so successful in getting these unchangeable agreements changed. Most of the time, I think it is because what the other side is really interested in is getting its hands on the money or the brand that my client brings to the table.
Next time you are told that an agreement you are asked to review cannot be changed, you might want to ignore that absolute. To do that, you may well have to educate your client. Mine often tell me that they are not concerned, because most of the agreement is just standard “boilerplate.” I agree with them, but point out that the boilerplate was carefully written by the other side for its benefit.
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Stuart A. Heller is a Seattle sole practitioner providing general counsel services to growing companies and is chair of the KCBA Business Advisory Panel working with the University of Washington Business School to assist local minority-owned businesses. He can be reached at 206-623-0579 and Hellerlaw@aol.com.
