There is an old saying, if God had designed a horse by committee, he would have got a camel. Sometimes, too many people get involved in a project and something that should be simple becomes overly complicated. I have often raised this over the years when serving on non-profit boards and the board is asked to review and approve a contract. So many times, a room full of the community’s brightest business leaders and lawyers will scrutinize a simple document, line by line, and suggest changes after the board’s counsel, executive director and chairman, or all 3, have already carefully reviewed and negotiated the entire agreement. An agreement by committee, I always argued, was a camel.

I was reminded again of the agreement by committee recently as I negotiated the purchase of property from a religious organization. In this case, the organization’s board could not decide what it wanted to do. The organization was represented by 3 or 4 highly qualified brokers and a pro-bono attorney (who did not have a real estate background). So, it became obvious that we were dealing with 2 committees in negotiating the contract: 1) the organization’s board, and 2) the broker/attorney advisers.

We had no direct contact with the board. All communication initially went through one of the brokers. But, communication came back from any one of the brokers and the signals were different. It was difficult to know exactly what the seller wanted. Consequently, negotiations eventually broke off. I thought that there was a price gap. My client thought that the disconnect was something else.

A few months later, the original broker asked me to resubmit the last letter of intent we had provided and confirm the purchase price. I did so. The broker then asked me to confirm a few other terms which were specified in the LOI. I finally told him that the LOI was clear, but perhaps we should present a contract and spell out all the terms to clarify. Instead, we had a conference call with all the brokers. This was the first time I was able to speak to all of them. They explained how they were all “volunteering” to help this organization and how they would appreciate my help in getting the deal done. I said that the best way we could get this done would be to move on to a contract and stop talking about a theoretical deal. They agreed and I finally was able to prepare and send a contract.

However, they were silent for a few weeks. I think that they had a few calls, maybe even meetings with my client as the client told me that the board was concerned about having to vacate the property on short notice since closing was tied to approvals. We weren’t exactly sure, but it would be good to actually talk to someone about this as we could easily work it out. But, the brokers needed to talk to the board and come up with a solution. I wasn’t sure who was going to come up with this solution, but if they asked me, I could do it in a second. The brokers’ solution was for all of us to meet at the property. A meeting was scheduled and then re-scheduled 3 times until it was finally cancelled. No reason for the meeting or the cancellation was ever provided. Finally, the broker emailed me to tell me that they were solving a problem and it would involve my client signing some sort of note at closing.

Remember, each person on this broker committee is well respected and highly qualified. But for some reason, they got brain freeze here and missed the obvious solution. Perhaps they got so confused by their client, the board, in trying to address the issue, that they created a camel. Regardless, after all the delay, I offered a simple, short paragraph to the contract, and buyer agreed to enter into a post-closing occupancy agreement allowing the seller to occupy the property for up to 120 days after closing. Suddenly, we had a horse again.

Working with others to prepare a contract absolutely can be done. Two heads are better than one. But, if you try to do it as a committee where no one takes responsibility or the lead, it isn’t going to happen. Nothing against camels, but they have no place in your documents.

Negotiating a deal can be a tricky proposition for an attorney. Every attorney wants to do his/her best job and not only assure that the client is adequately protected, but also to try to get the best deal possible for the client.  As to the former, the attorney is and should be given great latitude.  But ultimately, the client will weigh the risks and make the decision.  If the attorney is doing his/her job properly, legal terms will be thoroughly debated, drafted and re-drafted so that the clients can see a nearly final product and the attorney can say “I did the best I could” and explain how the client is protected and where language could be stronger.  That way, the client can make an educated decision as to whether to proceed.

Business terms are another issue. These are the client’s domain.  The client gives parameters that the attorney should negotiate within.  During negotiations, there comes a point when both sides have to have discussions with their clients about which direction to proceed and whether to alter the parameters or terms.  Sometimes, an attorney forgets this role and speaks and acts as if he is the client.  When this happens, your deal can implode.

I recently worked on a future advance loan for a client. For some reason, the bank did not retain the same attorney to close the future advance loan who closed the original loan 2 years prior.  The original loan was an $8.9 million term loan which we amicably negotiated.  We hammered out all of the terms of the original note, mortgage, guaranties and other loan documents with the bank and the original attorney.  Negotiations were tough but fair, and the bank agreed to many of our requests to change standard bank provisions as well as numerous business terms.

The bank’s new attorney for the relatively small future advance ($425,000) did not have this history and it appeared as if he did not read the original loan documents. Clearly, he was not familiar with them because the first draft of the future advance loan documents did not include any of the terms that had been previously negotiated.  The drafts were very much the bank’s original form documents with the new terms of the future advance filled in.   All of the standard objectionable terms that we had negotiated out in the original loan had been re-imposed.  Special provisions that we had negotiated in, were omitted.  In addition, I was not satisfied with the way the attorney proposed to document the new provisions that the bank required for the future advance.  Frankly, he was not documenting the loan as a future advance and loan modification.  As I began to explain my requests, he summarily rejected them as out of hand without discussing them with his client, the bank.

The deal froze in its tracks. The attorney insisted that he was right because the credit approval made no mention of the revisions we had made to the original loan and therefore, he was supposed to amend and restate the loan documents and re-impose the original language.  I was astonished that he would not discuss this interpretation with his client.

By taking this position, he increased the interest rate of the original loan which was not the deal. The future advance interest rate was about 100 basis points higher than the original loan interest rate.  There was no intent on the bank or my client’s part to increase the rate of the original loan.  In addition, each loan was to have a 5 year prepayment penalty, with the penalty decreasing each year.  By amending and restating the loans, the original loan’s prepayment penalty period restarted.  Again, not intended.  Again, the attorney would not listen.  To me, these weren’t even items to negotiate.

To save the deal, I had to have my client intervene directly with the loan officer. Ultimately, the bank accepted every request that I made except one and that one was modified, I believe to appease the attorney.

I am fine when someone makes a mistake as this attorney obviously did. I’m not ok when they refuse to admit it or refuse to go back to the client to see if they did.  This guy, either through arrogance or ignorance decided it was his place to tell me no to every point that I raised.  What’s worse was that he asked me why I was so hostile about everything going on in the deal!  I flat out had to tell him that he was unprepared and that he refused to ask his client about anything I raised.  You can imagine how that went over.  Let’s just say that 4 weeks after closing he is still trying to find “mistakes” that our office made only to find that he remains unprepared and unfamiliar with the language in his own documents.

Attorneys who try to act as the client by making decisions for them and without being thorough and careful, do so at the risk of the deal for their client.

That’s what the broker said to me a few weeks ago as I was negotiating the final points with the other attorney on a purchase money note for a small business deal. The broker wasn’t involved in the conversation.  It was a simple e-mail exchange between the other attorney and me.  At some point, the broker was copied in.  My final comment was a small one.  The attorney didn’t object.  But it offended the broker as it might cost his client, the buyer, a whopping $150 at some point in the future.  It was a technical point that the buyer had to pay, but, because the contract was silent, the broker was adamant.  “Are you really going to blow the deal over this” he e-mailed me, with multiple question marks and exclamation points.

Why is it that the smallest deals cause the most grief? And, why is it that this type of thing always happens when clients don’t think to hire an attorney until after the contract is signed and closing is imminent?  In this asset sale, the client called just 10 days before closing.  Given the timing and the size of the deal, I probably should have referred her out to someone else.  But, that’s a conversation for another day – I took the case.  Reviewing the contract, it was clear that this seller should have called before ever signing.  The broker did her no favors.  It was too late to renegotiate the deal.  I just had to make sure that she wasn’t taken advantage of any further.  Thanks to Hurricane Irma, the closing was delayed about a week.  Until this moment during the process to get to closing, there were no glitches.

Negotiations should not ever be construed by one side or the other as a ploy to blow a deal. Parties to a transaction should be free to seek out the best deal possible and to look for language in every document that best suits them.  When a request is made by one side, the other side should be free to accept, reject or counter propose.  Negotiation is give and take.  There is compromise and ultimately there comes a point when both sides have to make a decision.

When the broker asked me if I was trying to blow the deal, it would have been easy to tell him off. I could have easily thrown his comment back in his face and made the point that he was the one who was killing the deal.  But that would have served no purpose.  Litigators like to quote the old adage, “when the facts support you, argue the facts, when the law supports you, argue the law and if neither supports you, distract.”  I think that’s what this broker was trying to do – distract from the point as he had no argument to make.  I had the better argument and taking the high road would get the desired result while making it clear to both the buyer and seller who was hurting the deal.  By explaining to the broker that negotiating and requesting that provisions and language be inserted in a closing document is part of the closing process, I did not accept the premise of his comments.  I then offered to allow the buyer to pay the potential liability up front at a small discount as a debit/credit on the closing statement rather than as part of the note on the maturity date when the liability would be determined.  Clearly, I was willing to compromise and not kill the deal.  The broker quickly backed off and accepted my original change and I never heard from him again.

Interestingly, the buyer’s attorney, who had not objected to my request initially, disappeared during this rapid exchange of e-mails. I wondered why he hadn’t simply told the broker that my position was correct, or not unreasonable and that there was no reason to worry and that I was not out to kill the deal.  Did the attorney think he missed something and now was thinking he needed to save face?

Bullying in negotiations, which this broker clearly attempted to do, will get you no where. If you are bullied, don’t back down.  It only means that the other side is grasping at straws and is in a weaker position.  Use it to your advantage.

You know that I like to quote Jimmy Buffett songs. In this case, I have been reflecting on how much my life as an attorney has changed since I started practicing back in the late 80’s.  I have been negotiating a lot of lengthy documents lately.  I don’t know if it’s been busier than normal but it got me to thinking back to those early days.  I was a young, somewhat aggressive associate at a large state-wide firm based in Ft. Lauderdale.  Like my fellow associates in the classes ahead of me, I guess I had a certain arrogance when it came to document negotiation.  We had the “biggest” clients, the best lawyers and the best documents.  But I found out quickly, when left to handle negotiations on my own, that more senior lawyers, particularly partners at other big firms, loved to take advantage of young cocky associates like me.  They basically bullied me because I didn’t know as much as I thought I did.  As a result, I had to show deference to the gray hairs until I could re-group and confer with my partners.  Fortunately, I had great mentors who taught me a lot and allowed me to develop my skills and style.

Negotiating and drafting back then was before the technology boom.  Computers had not yet found their way to attorneys’ desks.  We had to mark up documents by hand (and use Dictaphones) and send them to word processing and then wait a day or 2 to get work back.  We then mailed or hand delivered documents to the clients and to the other side (sometimes we even faxed!), with hand written red-lining.  We discussed changes on the phone and met in person to actually negotiate (and close).  We had to look our opponent in the eye to make tough demands.  It allowed us to build relationships and trust our adversaries and forced us to pick and choose our battles.  We did not argue, or even comment on, minor provisions and boilerplate.

Flash forward to 2017.  I am generally the old guy now in negotiations and deals.  I always try to keep this in mind and do not purposefully take advantage of a younger opponent.  But sometimes I have to make an exception.  Sometimes I come up against a young attorney from one of those big firms who thinks he/she knows everything and can’t be reasoned with.  Then, I remember how the senior guys in the old days handled it with me.  If the young attorney isn’t smart enough to retreat, make the right decision or ask for help, then their client will suffer or he/she will suffer the consequences when the client figures it out.  When I am told “we never do it that way” or “we can’t do it that way”, I’ll tell them to pull out their firm directory and find a partner among the 500 plus attorneys in the firm who has been around a while and ask what he thinks about the words “can’t” and “never”.

I have respect and patience with young attorneys from smaller firms or who are solo practitioners and are willing to learn.  I particularly appreciate those who tell me that they don’t know something or have never done something before and need time or need help.

The biggest changes, however, is that we don’t seem to talk any more.  We provide or receive documents.  The documents are reviewed, marked up and returned.  We use e-mail.  We don’t establish any personal connections or relationships and therefore, never gain a sense of trust or understanding.  We don’t take any time to get to know each other.  We simply finish the documents, finish the deal and move on.

Are we doing a quality job.  I think we continue to do our jobs technically well.  However, I think that there is an entire generation of real estate attorneys and other real estate professionals that are missing out because of the lack of human contact with their colleagues and opponents.  There is much to be learned from the other side.  I am thankful that I had that opportunity.

Sometimes, it’s just too good to be true. Sometimes, a client just wants something so much, that the message you deliver isn’t received.  A client comes to you with the sure fire money maker, or some other deal he just has to have.  The client lays out the terms and tells you the structure and says “make it happen”.  But how often does it happen that once we, the attorneys, start looking at what the client wants to do, we find that it can’t or shouldn’t be done.  The client hasn’t really done any due diligence yet, or there are so many obstacles to overcome that it just isn’t worth the effort or expense.  That’s when you hear Mick Jagger singing in your head, “You can’t always get you want…” and you hope you can tell the client, that at the end of the day, “you get what you need”.

One client of mine called me a few weeks ago proposing to make a small loan (under $500,000) to a friend so that his friend could buy out his partners’ interests in a warehouse they owned in a Midwestern state.  The loan would be secured by a 2nd mortgage on the warehouse.  The 1st mortgage balance was under $2,000,000 and the property was worth nearly $5,000,000.  The property was leased to a single tenant who’s rent more than covered the total debt service of the 2 loans.  And, the friend and his wife would personally guaranty the loan.

It sounded like a slam dunk to the client.  Of course, he had not reviewed, or even received any documents.  Over the next week I learned:

  • The 1st mortgage had a no subordinate lien paragraph. Therefore, consent of the 1st mortgagee would be required;

 

  • There were only 18 months left on the lease with one – 3 year renewal option (yet to be exercised). The proposed term of the loan was 5 years; and, most importantly;

 

  • The friend would not have total control of the property upon purchase of the partnership interests, and therefore, no authority to grant a mortgage. He was acquiring only a controlling (not even 100% interest) in the 53% owner of the property and could not, without full consent of the 47% owner, execute and deliver the second mortgage.

 

I spent 2 weeks with the friend going over this. He supplied numerous documents including tax returns, financial statements, property tax bills, internal entity resolutions and other irrelevant documents to convince me to let my client make this loan.  My client called and emailed me often with suggestions on how to get comfortable with the security.  He suggested taking a security interest in the entity rather than a mortgage so that we could force a sale of the property.  But ownership of the property is by tenants in common and not as one entity, so there is no governing agreement that would dictate that we could force a sale in the event of a default under the not.  He suggested that we accept a 2nd mortgage on the friend’s primary residence.  I explained that would amount to alternate security not additional security.  If he were comfortable with the equity in the house and the inability to realize on the security until the future sale and, if could accept the risk of a foreclosure by the first mortgagee, he could accept the alternate security.

 

Decisions have yet to be made nearly 6 weeks later.  Further proposals are being made.  But, in this case, the client has learned, though it may have taken sometime, that you can’t always get what you want.  As a result, he will end up in a better position.  He will get what he needs which will either be adequate security for the loan, or, it could be that he won’t do the deal at all.  Sometimes, that is the best result.

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