Document Collaboration in Commercial Real Estate Lease Transactions
I recently met with a colleague. She recently moved into a new office space near mine, so we met for lunch. She commented that it was such a long process getting her office lease signed. I asked if she had lots of up-fit construction for the office space. She said, “no.” I asked if she had to wait for the prior tenant to vacate the space. She again said, “no.” I then ask, “what made it such a long process?” “The back-and-forth edits for the lease agreement,” she complained. She asked, “why does it take so long?” I commented, “it
The National Association of Realtors reported historically strong growth in commercial real estate (CRE) leasing. Between 2011 and 2018, annual growth in CRE lease transactions ranged between 3% and 17% with the peak growth occurring in 2014 and 2015. Vacancy rates in the CRE leasing sector has steadily declined from a high of 27% (hotels in 2011) to a low of 5% (multi-family in 2018). CRE agents and real estate attorneys face challenges in managing the rising demand in their workflows. The current workflow process of redlining CRE leases among lessors, lessees, CRE agents, and real estate attorneys does not effectively work in today’s environment.
TYPICAL CRE LEASE PROCESS
Once the landlord and potential lessee have agreed to the terms and condition of a lease, the parties draft and execute a letter of intent. The letter of intent sets the terms and conditions of the lease arrangement. The attorneys and CRE agents insure that these letter of intent arrangements get reflected in the lease agreement. One side (usually the landlord’s attorney) creates a draft lease agreement and emails Word versions to all parties (landlord, landlord’s CRE agent, lessee, lessee’s attorney, lessee’s CRE agent). Each party separately redlines (i.e., edits using track changes and adds comments) to the Word version they received. All parties promptly
(hopefully) return their redlined Word versions to the landlord’s attorney who reconciles these versions into a single consolidated version. The consolidated version is then sent to all parties and a conference call is scheduled. The parties discuss the redlines and
comments that arose in the documents. On the conference call, someone (usually an assistant to the landlord’s attorney) takes
notes of the discussion. The landlord’s attorney then incorporates the edits he believes the parties agreed to but keeps open any
unresolved items. The updated version is shared with the group and each group member reviews the new version, makes edits, add comments, and returns the altered updated Word version to the landlord’s attorney. Again, the landlord’s attorney reconciles the updated versions and returns the update of the updated version to all group members. This iterative process continues until the parties reach resolution. The final agreed-to version is memorialized in PDF format and circulated for execution.
In today’s fast-paced market, the current process takes too long. Landlords and lessees have construction deadlines to complete fit-up requirements. Architects and subcontractors need to get engaged. Inspections need to get scheduled. The landlord probably has a tenant that is schedule to vacate the space. The landlord want to ensure that the lease starts on time (especially since the landlord probably told his banker that the space would be promptly filled). The prospective lessee is probably leaving a space and needs to get in the space quickly to satisfy customers’ needs and business demand.
HOW DOCUMENT COLLABORATION CAN SPEED UP THE CRE LEASE PROCESS
One of the great features of document collaboration is the ability to securely share files and edit them in real-time. Instead of sending Word documents to recipients to edit and comment on, with document collaboration, the recipients are, well, sent to the Word document to edit and comment on. Controls within the collaboration platform identifies each recipient editor and the document originator determines what edits get accepted or rejected. All parties can update the document in real-time or access the document at a later time to submit edits, comments, or both. All parties see the same document regardless of who is editing the document. In the case of a CRE lease transaction, the process could start with the landlord’s attorney drafting and posting the lease onto the collaboration platform. He would then send password-protected invitations to the landlord, landlord’s CRE agent, the lessee, the lessee’s CRE agent, and the lessee’s attorney. At an agreed-upon time, all parties would access the draft
lease within the collaboration platform. Many document collaboration platforms also provide video chat or video conference so the parties can discuss in real-time the edits they are making in real-time. If the parties cannot reach agreement in this initial collaboration
meeting, they can save the current document version for a later meeting. Once the parties agree on a final version of the lease
agreement, each can download the final version or the landlord’s attorney can create a PDF of the final lease agreement and send it
for execution. The benefits of document collaboration in CRE lease transactions is that is substantially reduces the back-and-forth
redlining that currently occurs. It can eliminate days or even weeks of document reconciliation delays.
So, as I advised my colleague, a CRE leasing transaction does not have to take so long. We just need to use better methods of getting it done more efficiently.
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About the Author.
Nat James is a practicing North Carolina attorney in the Research Triangle Park area. Mr. James has drafted, negotiated, and closed business contracts for clients since 1992. This material represent his observations from past experiences. It is not intended to
provide you legal advice nor does it create an attorney-client relationship between you and Mr. James. If you need legal assistance, seek independent legal counsel by contacting your State Bar or State Bar Association.