In the legal arena, the one piece of advice universally applicable to all clients or potential clients entering a transaction is you only get one opportunity to protect yourself.
Whether drafting a contract to purchase real estate for a new business building, entering into a lease, or discussing terms of an operating agreement with a new business partner, signing a legal covenant is a significant and meaningful action with long-term ramifications. Taking the time to get the right advice, guidance and legal input is critical to avoid a future fiscal or professional disaster.
All too often, businesspeople minimize the importance of the details within contractual agreements.
Generally, at the onset of every transaction or business deal entered into, the relationship between the two parties is amicable. Then, discussions continue and the major deal points are discussed and agreed to by both parties.
When big picture issues are settled so harmoniously, many jump to the conclusion that it’s not necessary to take the time or, more importantly, spend the money on an attorney to finalize a deal.
In fact, parties tend to think they could get by on a handshake or a bar napkin agreement. While that is true in the strictest legal sense, the devil most certainly is in the details.
If the contract doesn’t anticipate and address the more subtle issues of a deal, the signing party may be set up to face hard feelings, business losses and expensive, drawn out litigation.
Once problems in any business relationship occur and there is a dispute over how something should be handled, those same folks who were happy and agreeable at the outset are now mad, inflexible and looking out for their own best interest.
At this point, there is only one thing that can end a dispute and prevent litigation: the contract. Legally, only the words written within the four corners of the contract held between the two parties can lead to resolution of a dispute.
If the issues at hand are well thought out and addressed within the contract, misunderstandings, fights and litigation can be prevented.
However, if they are not, the dispute will have to be decided by a court, which will leave the parties feeling less than satisfied and much lighter in the pocketbook.
Every deal is unique.
As such, there is an inexhaustible list of “what-ifs” that can lead to disputes among parties engaged in a real estate or other business transaction. Therefore, it is impossible to predict or list what might be the critical issue in most deals.
However, one example of an often overlooked issue is the question of which party to a commercial lease will be responsible for the replacement of the property’s HVAC unit in the event it should fail. Not the unit’s routine maintenance – its replacement.
People typically understand the tenant is commonly responsible for ongoing maintenance of a property’s HVAC system; however, the need to replace the HVAC is not a routine occurrence, so this circumstance is often overlooked.
How the lease deals with this issue will determine whether the cost to replace that system (which will likely be in the tens of thousands) is the landlord’s or tenant’s obligation. If not thought through and addressed prior to execution of the lease, the parties will be left to rely upon how the form lease agreement they found on the Internet or how the generic lease they continue to use handles the situation.
The intent of this article is not to suggest that deals oftentimes fall apart before the contracts are signed. The issue is that deals proceed without having thought through the consequences of the deal as written in the contract.
Typically, the deal gets signed and moves ahead. The problem is when disputes happen later in the parties’ relationship and the contracts don’t adequately address the issues.
The safest way to combat the unknown uncertainties of a deal is to have a well-tailored, comprehensive contract to sign upon entrance into an agreement. For this reason, the best advice is to not make a contract a “do-it-yourself” project.
Take the time and make the investment at the front end of a deal to get the advice and guidance of legal counsel, which will hopefully prevent large amounts of time and money spent fighting down the road. As they say, an ounce of prevention is worth a pound of cure.
Mike Nichols is a real estate, development and construction partner with Husch Blackwell LLP, in Springfield focusing on business and corporate matters, real estate transactions and commercial financing. He can be reached at Mike.Nichols@huschblackwell.com.
