Commercial Real Estate Forms Introduction

If I ilive to be a hundred (and I will) I will never forget my first commercial real estate transaction. It was a lease deal with a small, but sophisticated landlord. He produced his "standard" lease for the client to sign, and I remember clearly my thoughts. Since it was his "standard" lease, it must be the common lease form in use today, and it must be non-negotiable. After all, it is his "standard" lease. I learned fairly quickly that neither is true, and I see today that nothing has changed. The larger and more sophisticated the client, the more likely they will have their "standard" form.

Do I Have To Use The Other Party's Form?

The short answer is no, the long answer is "it depends" (ever heard that from your lawyer?). First, no you do not have to use the other party's forms. Everything is negotiable and you may certainly ask to use another form or have changes made to his form. Unfortunately in life, reality isn't always so cut and dry. Commercial real estate is a jungle and there is no shortage of people who will use any advantage they have to it's fullest extent. Let's say you are selling a building because you really need the money to get into another investment opportunity that is really attractive. A buyer comes along with a large amount of cash but she is a shrewd investor and is prepared to walk away if need be. She makes a slightly low but reasonable offer with few conditions because she is sophisticated and has enough cash to complete the transaction. Well, you don't want to lose a great, qualified buyer like this so you are really motivated - but she wants to use her form and is quite insistent. Of course, in a situation like this you would be more motivated to accept using her form.

Or maybe you are a small tenant wanting to rent in a medium sized mall owned by a national landlord. The landlord will practically demand you use his form. You can walk away, but there is no way a national landlord will use your form. Now if Walmart decides they want to rent in there, the landlord will be in the same situation you were just in. He can walk away, or he can use their form, but they sure won't use his.

So, no you don't have to use the other party's form but in reality, it depends. But one thing is for sure, if the other party wants to use their own form, you absolutely need to have your lawyer go through it with a fine toothed comb. I read every form in every transaction I am involved in (not the funnest part of my job) and invariably, someone else's "standard" form favours one party, you guess which party.

Is There Such Thing As A Standard Form In Commercial Real Estate?

No not really, but the forms in use by REALTORS® are the closest you will come. Not all real estate agents are REALTORS®, especially in commercial real estate. Only REALTORS® are members of the Alberta Real Estate Association (and the Canadian Real Estate Association) commonly known as AREA. AREA's forms are prepared by commercial real estate lawyers and were created with one overriding principle in mind - to be fair to all parties.

Is AREA's Form The Best Form To Use?

Well, that depends! If you want to protect yourself and let the other guy take care of himself, then the AREA form is not the best. But if you want a form that is fair to all parties, this is the one. And in my opiniion, being fair to all parties is the only way to do business. If someone tries to pull a fast one over on you, you are going to be on your guard and negotiations will no longer go as smoothly as they would have if everyone focussed on a good deal for all. Time after time, the best deals I do are the ones where both parties are fair and reasonable. Not only does the transaction go smoother, but their ongoing relationship afterwards is much more pleasant.

So, is it the best form to use? I'd say so.