Sunday, February 21, 2010

Legal Aspects

A major pitfall for Commercial Real Estate Agents and Brokers when they first begin to list the property is that they inadvertently find themselves delving into aspects of law without the necessary deep experience.

Interpreting, creating, or even modifying leasing documents before a sale is the field of legal specialists and in particular the landlord's solicitor. You will be regularly involved in negotiating new leases and changes to documentation to prepare the property for sale; hence a good working relationship with that solicitor is important.

Some lease proposals and leases are easier to create and process than others. Be aware of all potential problems, and take the precaution of getting your office manager's approval on every lease proposal you negotiate. Take special care with retail tenancies as they are impacted by separate leasing legislation in most locations.

Never proceed to create a lease proposal or lease strategy unless you understand all the issues, and never alter any signed and final documentation. Follow these fundamental rules; you then are not likely to slip into any legal minefields.

1. Never rely on oral agreements. Put everything in writing.
2. Keep a log of all contacts with buyers, sellers, landlords and tenants. Record and date all information obtained from these sources.
3. Never permit your company's approved forms to pass from your control. If you give a blank proposal or lease to prospects, you run the risk that they may modify it or use it for some unauthorized activity. In such a case, your firm might be held legally liable for the consequences.
4. Choose your cooperating or conjunction agents carefully, and put all agreements with them in writing before you get involved with them.
5. Consult your manager whenever you find yourself in an ambiguous legal or ethical situation.
6. Remember that all written agreements must be signed by both parties to the agreement in order to be enforceable, and each signatory must receive a copy of the agreement.
7. Never alter a proposal without your manager's approval, and never change an original signed document without the full knowledge and consent of all the parties concerned. It is prudent practice to never change an original signed document, but to seek a fresh document as its replacement.
8. Never sign a document of any type on behalf of your client (the Landlord or property owner) without the absolute written and correct authority to so act. It is prudent practice to always get the client to sign any critical document such as a contract or lease. If the Landlord is a corporate structure (Company) it is likely that the ability to sign on behalf of your client is not an assignable matter anyway. Certain ability to sign in those circumstances is governed by common and corporations law.

Make sure you understand your Appointment to Act well and use it to its fullest advantage. Never step outside that authority to act and the duties it describes. Every property should be considered as unique. All of the items in the Leases and all the 'standard' conditions need to be tested against the particular circumstances of your client, your client's tenants, the property with its services, and the requirements of local and regulatory authorities. This is done before you move towards sale. This will ensure a tailor-made sale process and that the best marketing and negotiation processes are achieved.

Some Recommendations

* Sort out any tenancy situations or problems early in any sale listing appointment. This may require the assistance of the Landlord's legal advisor.
* Undertake your own 'Due Diligence' process of the seller's property. Start with the current title search. Also look at the lawfulness of existing uses and lease and search the Local Council and the Environmental control bodies.
* Workplace Health and Safety issues should also be looked at to ensure compliance to the current regulations, and if food handling is involved in any of the tenancies, inspections by the local health inspectors may be prudent.
* Do not rely on disclaimer clauses. If a document was entered into as a result of misleading conduct, the disclaimer clause will not help or protect you from any legal action.
* A disgruntled tenant will not only target the actual Landlord, but will most likely join the Selling Agent in any action as a third party.
* Poor tenant relations should be understood before the sale promotion starts as many a tenant has impacted a property sale and price. Buyers will usually talk to tenants about the property before they sign a contract.

John Highman is a prominent commercial real estate speaker and trainer. His other articles for commercial real estate agents and brokers can be accessed at

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