Bear with my editorial, and then read the story in the next paragraphs. Just because I post about the law, and teach classes about legal issues, does NOT mean I am in favor of DIY legal work to save money. It is because you and your lawyer should be partners in avoiding or resolving problems. You need to be well educated in your field so you can contribute to the process and make informed decisions. No lawyer knows your business as well as you do. You will never know the law as well as an attorney who specializes in that field. You need to work together.
The April 22, 2016 decision of Medical Park Station LLC v 72 Madison LLC (Ala. Civ. App.) illustrates this point.
Dunkin’ Donuts was working with two different franchisees in North Alabama. One wanted to open a shop in Trussville. The other wanted to open a shop in Madison. A “Development Manager” at Dunkin’ Donuts was assisting both franchisees in various maters, including lease negotiations. Both locations were negotiating with the same landlord, who owned properties in both cities. We’ll just call all these people “Madison,” and “Trussville” and “Landlord” and “Dunkin”
Trussville was further along in lease negotiations than Madison. Trussville had draft leases being circulated. They intentionally did not contain a Tenant Improvement Allowance (TIA), because that was not part of their deal. Madison had only a Letter of Intent, which contained a $40,000 TIA commitment by the Landlord.
Dunkin suggested to Madison that it might save legal fees by working off the draft Trussville lease, and modifying it to suit the Madison deal. Madison thought that was a great idea. Dunkin sent copies of the Trussville drafts to Madison.
Madison had a lawyer, who set up the legal entities, but that lawyer was never hired for lease negotiations. Madison did get its lawyer involved over negotiating one particular clause of the lease, but that was resolved to Madison’s satisfaction. Madison’s lawyer was not involved in making sure the lease conformed to the Letter of Intent.
Well, you can see the problem coming a mile away, can’t you? Madison could not. It was too caught up in the excitement of getting the deal done, opening the store, and saving legal fees.
Madison’s signed lease did not contain the TIA provision. To make matter worse, the signed lease contained one of those “boilerplate” clauses that nobody ever reads. It said: All the parties’ negotiations were contained in the lease document itself. If it wasn’t in the lease, it wasn’t agreed to.
Pretty quickly after lease signing, the parties started arguing about the $40,000. Madison sued the Landlord, claiming fraud and mistake. It asked the court to re-do the lease and make it comply with the Letter of Intent. It also asked for damages.
The trial court agreed with the Madison, and awarded $40,000 compensatory damages plus interest, and another $20,000 in punitive damages.
The Alabama Court of Civil Appeals disagreed. There was no fraud. Everybody had the ability to read the lease before they signed it, so there was no “reasonable reliance” on statements made by the other party. People are supposed to read documents before they sign. Also, the lease could not be reformed, because of the clause I mentioned above. It’s usually called an Integration Clause or a Merger Clause. In other words, all negotiations are integrated (merged) into the written contract, and nothing outside the written contract remains open for later discussion.
Too bad for the Madison tenant, who wanted to save some money on legal fees. He was out the $40,000 TIA, plus the legal fees arguing about the problem. I bet the lawyer would have charged a whole lot less than that to review leases during negotiations. Remember, most lawyers actually ENJOY reading long documents and finding mistakes. It justifies our existence. Do you enjoy that, or would you rather play softball with your kids?
On a final note, always ask your lawyer if he or she has malpractice insurance, and annually get proof of continued coverage. Everybody makes mistakes. If you are okay with your lawyer not having malpractice coverage, at least make that decision knowingly, instead of being surprised later.
To read the full decision, click HERE.