Haste Makes Litigation Waste: Poor Drafting Renders Option to Purchase Unenforceable
Posted: November 15th, 2008
Category: real estate law
Blackberries, text messaging and instant messaging have resulted in a culture that worships speed at the expense of precision. I see this effect every day when people explain transactions to me that they wish to pursue only to leave out important details that they either had not considered or were in their head and did not make it into the email.
I recently encountered a court case the demonstrates this principle and its disastrous consequences. A landlord and tenant quickly entered into a lease where the tenant was leasing “premises” defined as approximately half the available office space. The parties further agreed that the tenant would have the right to purchase the property. The parties, however, in their haste, failed to define what property meant. The tenant later exercised its right to purchase the property, however, the landlord refused to honor the option. The parties predictably ended up in litigation over the word property.
Definitions of Property and Premises are not Identical
After both parties expended significant sums in legal fees, the court of appeals determined that the lease defined premises but the option to purchase was for the property. The term property, however, was not defined anywhere in the lease. The court concluded that the option failed and was not enforceable because it did not define the property subject to the purchase option.
Haste makes litigation waste. A competent commercial real estate attorney can save you thousands of dollars in litigation fees by properly drafting this lease by defining premises and separately defining the property by attaching the legal description of the property to the lease. You may also not be aware that it’s a good idea to file a memorandum of the lease in the county real estate records so any third party who wishes to purchase the property will have notice of the purchase option. Many people, unfortunately, belatedly realize the value of a good commercial real estate attorney only after feeling the pain of five or six figure litigation costs. Avoid these costly mistakes by employing a seasoned commercial real estate attorney.
As always your trusted resource for practical legal advice.
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Looking to Sell Your Atlanta Business? Contact an Atlanta Real Estate Attorney
Posted: October 9th, 2008
Category: real estate law
After many hard years of work and building, you decide it is time to sell your business. Before you uncork that champagne bottle and buy your yacht, you will need to think about issues and plan in advance of selling your business. You should carefully consider the following three things when you think about selling your business.
I can address all the issues of the business during the sales process, and they won’t affect the price or terms (also called “putting head in the sand” syndrome).
Business owners wishing to sell their business often neglect or ignore issues that the business has in the accounting, financial controls and legal areas that can significantly impact the ability to smoothly sell the business. Business owners who do not have an outside accounting firm review the financial statements prior to marketing the business can find a rude awakening when a prospective buyer does its due diligence on those financial statements and finds irregular accounting practices. Similarly, Sellers who wish to sell the real estate along with the business should not leave remediation of environmental issues or resolution of liens until the negotiation of the sale of the business. Dave Chambless, at Abraxis Business Services, smartly sums up the likely result of this problem: “It is very important that all significant business, accounting and legal issues get addressed before the sale of a business – not during the sale of a business. Many of the risks with which the seller has lived and is comfortable often become significant issues during the deal (as a buyer may not want to live with such issues or, if they must, they want a lower purchase price).”
I can time the sale of my business to maximize its price.
Business owners can no better time the market for a sale than you or I can time when the stock market will hit bottom. I have watched time and again as business owners wait to sell the business at a time they think the revenue of the business is at its maximum. This is typically a mistake as there is much more involved in the process. Dave furthers this sentiment as follows: “A common mistake that owners make is to try to sell their business based on their personal timing, and they do not take into account market activity (e.g. their business segment is experiencing heavy M&A activity), industry shifts, their commitment level to the business, or many of the other factors that can affect a business value. A good rule of thumb is to sell the business as it is increasing its revenues and cash flow. This is when it is the most attractive to others! When it has reached its peak, it is too late.”
A Bird in the Hand is better than an Earnout.
An earnout means that all or a portion of the purchase price will be paid to the seller at a point in the future provided that the business being sold meets certain post closing financial performance criteria. Many seller’s agree to an earnout in the hope of receiving additional money after closing assuming the business will perform well financially after the closing. What they fail to consider is that the buyer may wish to run the business differently post closing or may account for sales differently and that either may cause the business to miss the financial targets. Either situation results in an unhappy seller who did not receive the additional earnout revenue. A seller may be better off most times accepting the bird in hand in the form of a lump sum cash payment at closing as opposed to the earnout in the bush that may never come to pass.
Those who prepare for the sale of their businesses will be rewarded with higher prices for their businesses and smoother pathways to the closing tables, while those who do not address these three issues will find the process difficult, frustrating and expensive.
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Are You Aware of What Your General Liability Insurance Does Not Cover
Posted: September 20th, 2008
Category: real estate law
Many business owners do not realize their general liabililty insurance policies do not cover liability exposure created by employee benefit programs that their company offers. Bill Snellings, owner of the Snellings Walters Insurance Agency in Sandy Springs, explains the issue this way:
“Most business owners do not realize the liability exposures that are created by the existence of employee benefit programs such as group medical, dental, disability, 401k, workers compensation insurance, etc. Employers can be held liable for negligence in the maintenance of these plans. For example, failure to add a new employee to the group medical insurance and a subsequent medical claim could end up the responsibility of the employer. Failure to maintain workers compensation coverage is another area of concern along with failure to provide COBRA letters to terminated employees.”
One way to manage this liability risk even in situations where there is a human resources department is to obtain additional coverage for employee benefit liabilities. According to Bill, “Coverage can be endorsed to an existing general liability policy to cover most of the exposures discussed above and the premium is nominal many times around $100 annually”.
As always, your trusted
Atlanta real estate attorney.
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Mediation vs Arbitration: Whats the Difference?
Posted: September 10th, 2008
Category: real estate law
Another message from your Atlanta Real Estate Attorney…
Mediation and arbitration are generally contractually agreed upon substitutes for resolving disputes as opposed to resorting to a court to resolve it. The purpose and goals of mediation and arbitration, however, are quite different and often misunderstood.
The purpose of mediation is to have the parties sit down with a neutral third party who tries to facilitate a monetary or other settlement to the dispute. Neither party has a legal obligation to settle the dispute, and any statements made during a mediation are not admissible evidence in the event no settlement is reached. Mediation can be a highly efficient, cost effective tool. It can conclude quickly or it can take several hours as the mediator conducts multiple rounds of shuttle diplomacy between the parties. My personal experience is that after many hours the parties feel personally invested in the process and neither wishes to leave without settling the dispute. It is important to remember, however, that because the mediator’s job is to get a settlement, regardless of its terms, it is up to you to determine if you can live with the settlement terms. In the event the mediation fails and an arbitration provision is not contained in the contract, you can enforce your rights in a court of law.
Binding arbitration provisions, on the other hand, are a substitute for the formal process of a court. Binding arbitration is typically conducted in front of one or three arbitrators and the arbitration is much like a mini trial with rules of evidence. Arbitration typically proceeds somewhat faster than a case in court, and typically at a somewhat lower cost in attorney time and expense. The result of the arbitration is final and the parties can rarely successfully appeal an arbitrators’ decision even if it appears to be completely unreasonable or unfair.
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