Shutting the door on lease problems: rule no. 1: get everything in writing - after you consult a real estate expert - and have a lawyer examine the document - business leases

Nation's Business, March, 1996 by Barbara Etchieson

Rule No. 1: Get everything in writing--after you consult a real-estate expert--and have a lawyer examine the document.

Like many business owners who have leased new quarters or expanded in their current locations, Dan Tucker thought the lease he signed covered every eventuality. But one night, after a pipe broke in his space and flooded the business below, he discovered things weren't as clear-cut as he had thought.

"The landlord said I was responsible for the damage the water caused below me, while my insurance company said it was the landlord's responsibility and refused to pay for any of the repairs," says Tucker. "Although initially the broken pipe and the attendant lease dispute and move to a new space were very time-consuming problems, they ultimately became the catalysts for the re-evaluation of the entire way my wife, Maureen [McKinnon], and I run our business."

Luckily for the couple and their Boston-based flower-retailing company, Back Bay Blossoms, the problems that resulted because issues were not clearly covered in their lease eventually were resolved in a positive way. But not every tenant is as fortunate. "We're in the middle of a dispute with our landlord because we didn't get everything in writing," explains Shawn Stockman, marketing director for Future HealthCare, Inc., a Chapel Hill, N.C., consulting firm.

Stockman recalls how he and his partners thought they could renew their lease and stay in their existing location, since they had never been in default during their primary lease term and were already occupying the space. "We learned the hard way never to assume anything when it comes to leasing space and to always get a renewal clause in your initial contract," says Stockman. "Don't count on any oral agreements with the landlord--get everything in writing immediately."

Without written documentation to back up the oral commitments he says he received from the landlord on their lease renewal, Stockman and his partners unexpectedly find themselves facing an unwanted and costly move to new quarters.

Someone On Your Side

One way to limit your exposure to such potentially expensive and time-consuming relocations or lease disputes is to engage the services of a qualified commercial-real-estate broker right from the start.

"Leasing has become a vow complicated process," says Dick Duryea, president of Richard D. Duryea, Inc., a Manhattan-based real-estate company. "What used to be a simple contract has turned into a 40- to 60-page document filled with very complex issues many tenants are not always equipped to deal with on their own. That's one reason it's becoming increasingly important for tenants of all sizes to get the advice of a real-estate consultant before they sign a lease."

If you do elect to work with a broker, do so before you look for space, not after you enter into lease negotiations with a potential landlord. Even owners of smaller companies who aren't going to lease large blocks of space can usually find a real-estate consultant to help them in today's market.

Says John Stacy, president and chief operating officer of Cohen-Esrey Real Estate Services, Inc., in Kansas City, Mo.: "If you have a company with limited space needs, you may not always capture the attention of a broker who's been in the business 25 years and only does the largest deals in town, but you can make up for that by hiring a good, young, aggressive broker who did 50 to 60 leases similar to yours last year and now has the experience to handle your transaction."

Stacy adds, "Young brokers always hope that today's small deals will turn into tomorrow's big leases, so you should be able to get a qualified broker, whatever your company's size."

One way to find a good broker is to contact the sales managers of several local firms in commercial real estate. After explaining your situation, ask the managers to recommend the agents in theft offices whose experience matches your requirements. Whether you are looking for office, retail, or industrial space, try to find a broker who specializes in your type of lease.

"Once you've narrowed the field to several brokers who interest you, ask them for the names and phone numbers of other clients with whom they have worked recently," says Stacy, and call those clients to see if they were satistifed with the brokers' work.

And Duryea recommends that you look for a broker "who can become a long-term adviser to your company, not just a salesman who's in the deal for a quick buck."

It's also a good idea to ask brokers about their fee structures. Traditionally, most brokers are compensated by building owners once leases are signed, but this isn't always the case, so be sure to confirm this in writing to avoid any surprises.

Many brokers ask their clients to sign a letter of exclusive representation, stating that they will work only with that broker in lease negotiations. "Look for a letter that dearly explains what the broker is going to do for you," says E.D. Hayden, owner of Hayden Property Management, a commercial-real-estate company in Austin, Texas. "It's also a good idea to include a 30-day cancellation clause for both sides in case things don't work out."