Why Are Brokers Drafting Lease Documents? & What Happened to The LOI?

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I suppose the fact that I am now doing more new leases and lease extensions than I have done in the last 3 ½ years is anecdotal evidence that the economy has at least stabilized or is improving.  That is, shop of course, sick a good thing.  I am still handling, predominantly rent collection cases and commercial evictions and my caseload is ever increasing, but there seems to be a bit of a transition going on with my law practice at the moment. I am not terribly convinced that we are quite out of the woods yet or that we are about to experience a meteoric improvement in the economy.  To the contrary, my indicators lead me to believe that the recession is leveling off at this point and with some good luck and frugal economic policies, we will see some gradual improvement over the next year or two while attaining some sense of normalization some time in mid to late 2013 through the 1st half of 2014.

So much for trying to predict the future of our global and national economy. I wanted to address, however an interesting phenomenon, that I am experiencing with increased leasing activity; requests for new leases or lease extensions from brokers who:

  1. Prepare the leases or lease amendments themselves and submit these legal documents to my clients; or
  2. Do not obtain a signed LOI.

This may sound like a “Howard Rant,” and to some extent it is, but for the life of me, I cannot understand why a broker would risk the significant liability that comes with the drafting of legal documents. Over the short term it may seem like a good strategy to keep attorneys away from the deal, but over the long term, I have got to believe that it is a lose, lose strategy.

OK, I get it.  As a broker, I understand the reluctance that many brokers feel about getting an attorney involved.

  1. It causes delays, depending upon the attorneys workload and we all know that time kills all deals;
  2. Some attorneys feel compelled to give the client as much understanding of the legal ramifications of the lease and the terms so that the client can make the best informed decisions.  This also takes additional time and as we all know, time kills all deals;
  3. The attorney has to read all of the relevant documents to make sure that the attorney is giving the client the correct advice and is properly representing the client’s best interests.  This takes considerable focus and attention to detail, which takes time and as we all know……. Well, you get the idea;
  4. Some times the attorney will meddle in the business terms and totally mess up the deal, turning the brokers ability to get the parties to agree on terms, into a total disagreeable mess.  Yes, this does happen sometimes; and
  5. Sometimes, the broker is even thinking that they are doing the client a favor by saving the client legal fees by doing the legal work themselves. Yes brokers sometime do mean well.

And what ever happened to preparing and getting a comprehensive and thorough Letter of Intent, (“LOI”), signed by both parties?  It’s not just inexperienced brokers failing to obtain signed LOI’s, but experienced brokers who should know better.

Considering that this is a blog post and brevity is an important element of the blogosphere, I will try to keep my comments somewhat brief, but let me make myself abundantly clear:

  • A broker should never, and I mean never, prepare or draft a lease, lease amendment or lease extension or any other legal document, for anyone!  In my opinion, this includes filling in blanks on a standard form lease.  Commercial leases are far too complicated to leave the analysis of the lease language up to a standard form that is intended to address most commercial lease issues but not likely to address the legal issues relevant to the particular property at issue or the wishes and desires of the particular parties to the lease.  This is an absolute recipe for disaster for the broker and the parties to the lease.  It is very short-term thinking.  Whatever benefit you may gain from avoiding the attorney, you will pay for in the end, ten fold.
  • Always prepare an LOI or, at the very least, memorialize in writing the significant substantive deal points that the parties have agreed to.  This gives the attorney a guideline to follow when preparing the lease.  If the LOI says that base rent is $4.00 per square foot on a monthly basis, then the attorney has no business objecting to or even commenting on the base rent that was agreed to. A thorough LOI makes sure that the attorney cannot meddle in the business terms.
  • Do not include in the LOI, terms that you do not understand.  If you need help with the language of the LOI, get help from a more experienced broker, an attorney or the client;
  • A template or form LOI is a good place to start from, but not necessarily where you should end.  Pay attention to the language of the template and make sure that it addresses the particular transaction.  If you are dealing with a lease extension or amendment, make sure that the LOI says that it is a lease extension or amendment.  Let the client and the attorney figure out what type of document will best document the agreement of the parties.

Finally, let me add that I prefer to receive an LOI signed by both the landlord and tenant.  That way, I know that my client has received and knows the substantive terms of the lease and I can feel more comfortable relying on the LOI.