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17 Jul
Beware the detail - clients alerted to million dollar money trap

With Justin Boelen, Director, ACORPP

I could hear the proverbial pin drop.

I’d just told an audience during a presentation that we’d recently reviewed a client’s lease agreement and had made some findings. Essentially the client had been flying blind when signing up for their lease. Their faces fell, and their jaws dropped when I told them it contained clauses that could ramp their costs up by $400,000 per annum over the life of their tenancy." That would have pushed their expenses up some 50% beyond their face market rent on a 2,000 square metre office space. Needless to say, there were questions and plenty of them. Of course, with their lease and many like them, the devil is in the detail and the interpretation of a modern lease agreement with all its byzantine twists and turns is a specialist assignment.

Many of the booby traps with their sharpened punji sticks awaiting unwary victims are innocently hiding behind seemingly innocuous terms and phrases. There are cost ratcheting clauses that can be triggered by the simple use of terms like “less or may”, “7-days’ notice”, “permitted uses”, “incentives” and “redevelopment”. And a switch between “net”, “semi-gross” and “gross” can have huge cost implications. Some leases even insist that you must keep the electricity and air-conditioning on – imagine what 24/7 power bills would do to your budget?

You may even find you have to pay more for building parking, and you might find that fees accruable to the property manager are totally uncapped – he/she could feasibly charge whatever they liked!

Now, these clients are represented by intelligent, seasoned business professionals, and they often rely on the advice of their legal teams or in-house legal counsel when reviewing lease agreements. Lawyers usually vet the document with other mindsets rather than the impact of potentially hidden costs and that’s a contributing reason as to why these implications are often not highlighted. I told my shell-shocked clients that what they really needed from an interpretation of their lease agreement – beyond the legal – was “clause visibility” and that was one of our core services.

In a nutshell, we look beyond the obvious to find out what is really driving the framing of proposed lease agreements. And these findings are used to clarify or remove ambiguities, to reframe potentially contentious clauses and to negotiate and deliver a consistent and highly transparent contract. One that could save $400,000, or more.

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