Unlike other states where fortunately one is not only allowed to prepare a legal document without an attorney’s assistance but also to negotiate it as well, for better and for worse we have sometimes referred to New York lawmakers as being the creators – due to the necessity of a tenant, landlord, buyer or seller in these parts often needing a lawyer by their side – of “an attorney relief act” for its legal brethren. With that as the backdrop, to those New York State real estate agents out there who are still preparing and thereafter negotiating leases for the landlords they represent, you need to ask yourself the question, “Are my negotiating efforts in the best interest of the client, and am I the most qualified person for the job?,” or as William Shakespeare might have said if asked his opinion on the subject, “To play attorney, or to not play attorney, that is the question.”
With that in mind, the following is a list of items that if pop star Ariana Grande were at our side, she very well would be whispering to us that the following pointers are “Better Left Unsaid,” but with that said, sadly New York State brokers who do prepare and negotiate leases are potentially opening themselves up to professional, financial, reputational, legal and loss of referral liability! Sorry for the broker buzzkill, but at the bare minimum, hopefully after reading this, if nothing else local brokers will be in a position to make an informed and educated decision as to the question hypothetically posed to William Shakespeare previously. Alternatively, you may come away from this chapter singing to us a line from the Talking Heads song “Psycho Killer,” namely that of “You’re talking a lot, but you’re not saying anything.” Time will tell my friends.
1. Unlawful Practice of Law
The practice of law involves giving legal advice, drafting legal documents, and representing clients in legal negotiations. A lease, by definition, is a legal document, intended to govern the relationship between the parties involved, as well as setting forth the legal rights and obligations of said parties. Predictably, based on the foregoing definitions, Section 484 of the New York State Judiciary Law provides that NO person can prepare a lease affecting real estate UNLESS they have been admitted to practice AS AN ATTORNEY.
Despite the prevalence in the brokerage profession of preparing and negotiating leases and their associated riders on behalf of clients, the state’s law explicitly defines those who insert any provision requiring “LEGAL EXPERTISE” into any document to be engaging in the UNAUTHORIZED PRACTICE OF LAW.
2. The Rules of the Game and Engagement
Rule are Rules
The impact of entering into a lease goes far beyond the basic business terms (i.e., the insertion of rental and security deposit amounts and the length of the lease), and as such, mistakes made while preparing a lease have the potential to seriously damage a landlord or tenant’s long-term financial well-being. The foregoing concept is the foundation of New York’s “unlawful practice of law” legislation. Simply put, there is real legal liability associated with inappropriately overstepping the boundaries of the profession. Not to state the following as a scare tactic, but in the summer of 2013, New York State Legislature amended the New York Judiciary Law to make the “unauthorized practice of law” a FELONY OFFENSE in the event such unlawful practice substantially damages a client.
The RULE says: It is the “unauthorized practice of law” to “(1) either impersonate an attorney or offer legal services to the public under a title other than attorney; and (2) cause another person to suffer monetary loss or damages exceeding $1,000 or other material damage from impairment of a legal right to which he or she is entitled according to law.”
As per the state’s definition, brokers who advertise to the general public that lease negotiation on legal points is part of the service they provide, despite their title as a “broker,” are putting themselves in harm’s way.
Brokers need to be extremely careful not to breach THE DELINEATION BETWEEN BROKER AND ATTORNEY by compromising its client’s legal (as opposed to business or otherwise) position in a lease negotiation – simply put this is for an attorney to evaluate!
AGMB once came across a situation where a landlord’s broker failed to state the expiration year on a lease it prepared and negotiated. When the owner went to sell the building, due to the complete absence of an expiration date or language allowing for the owner to sell despite the existing lease, the owner could not get its tenant to leave the premises. As a consequence of what we will gently refer to as incompetent representation of the owner, (1) numerous sale opportunities were lost, (2) the owner incurred prolonged carrying costs and ultimately lower net sale proceeds, and lastly, (3) the broker who prepared and negotiated the lease incurred financial, reputational, professional and loss of referral liability.
Another example involved a broker-negotiated lease which stated that the base rent would be paid every three (3) months, but unfortunately the broker draftsperson did not specify whether payment would be due at the beginning or end of the three (3) month period. This led to landlord’s claim that its tenant was in default under the lease, while the unsuspecting tenant was under the impression that no rent payment was required for a number of months. It also put the landlord in a position where it didn’t have the proper cash flow to pay its mortgage, common charges and real estate taxes. The bottom line is, if a broker drafts a provision in a lease and ten (10) attorneys potentially interpret such provision in a myriad of ways, the consequences can be severe.
Taking the broker buzzkill a bit further, the Department of State has consistently held that licensees who commit the unauthorized practice of law demonstrate “incompetency” in violation of New York Real Property Law, and are subject to having their license suspended and/or revoked. Playing off of the song titles of hip-hop heartthrob Drake and Sean “Puff Daddy” (or is it “P-Diddy”?) Combs, if any agents are still preparing leases for their clients, you may need to “Shut It Down,” because if you don’t, among other things, your fellow agents who are abiding by the rules very well may soon be serenading you with the words “I’ll Be Missing You” when you are no longer working as a broker for a living!
With props out to Aretha Franklin and Joan Jett, we want to begin to slowly bring it back to a positive “glass is ¾ full mindset,” although it might not sound that way initially as we touch upon a little something referred to as “R-E-S-P-E-C-T” and an agent becoming an unwanted beneficiary of a “Bad Reputation.” It ultimately focuses on “conflicts of interest” and “protecting your professional reputation,” as well as the acquisition of knowledge. First though, we have to continue just a bit more with the continuation of the broker buzzkill. Please know though that soon enough, there will be “light” for brokers who remain desirous of preparing leases.
Brokers only get paid for the deals they “broker” to execution, so to some there is a belief that an inherent incentive to “make it happen” exists for a broker to compromise the business and/or legal position of their client in negotiations.
There can also be additional pressure when the broker’s landlord client wants to avoid paying an attorney by having the broker negotiate the lease on their behalf, especially since there’s always going to be another broker out there who is willing to take on the assignment.
The foregoing “conflicts of interest” examples require a broker to walk a tight rope by taking into consideration the short sighted need to get a deal done versus the long sighted risk to your professional reputation.
So here is where the “controversy” comes into play on the subject if it hasn’t already. The reality is that for better and often for worse, it is generally perceived that attorneys are better situated, from an educational, experience and lack of conflict standpoint, to put the party it represents in a lease negotiation in the best possible position at the negotiation table. Debating the point would be counterproductive, as among other arguments, all sides would have a number of valid points to refute the aforementioned perception. But with that said, we are believers that a leasing salvation does exist, namely that of knowledge and the recently revised 2019 REBNY free market residential lease forms.
The updated REBNY free market residential lease forms are now, in most instances, comprehensive enough to allow a broker, who when asked by their landlord client to prepare a lease, to fill out the lease form without the necessity of drafting additional legal language in a lease rider (while generally but not always avoiding when it comes to the actual preparation of the lease, the risk of engaging in the unauthorized practice of law). Theoretically speaking, quite often these residential lease forms render attorneys obsolete; however, short of the rent being that of a $1,500 to $3,500 per month rental, where a landlord’s position is that they will not negotiate or accept any tenant comments to the lease form, unfortunately on larger monthly rentals (i.e., $10,000 per month) tenants will often hire an attorney armed with a metaphorically speaking finely sharpened surgical machete to use in its negotiation of the lease. In this situation, the broker will once again need to ask themselves the question “Are my negotiating efforts in the best interest of the client, and am I the most qualified person for the job?”
The goal of any broker is to be that of, using a football analogy, goal line-to-goal line for their client. Consequently, playing off of the titles of songs by the Red Hot Chili Peppers, Dr. Dre and Eric Clapton, as well as a quote by Oprah Winfrey, respectively, please know that:
- knowledge brings to the one possessing it “The Power of Equality”;
- one can always learn more, so even if you already have a plethora of residential leasing knowledge, heed the words of rapper, record producer and Beats Electronics mogul Dr. Dre and his song “Knowledge Me Again”;
- when it comes to the knowledge that you have acquired, “It’s in the Way That You Use It” that truly matters; and
- “Education is the key to unlocking the world, a passport to freedom.”
So we ask you once again our leasing brethren to ponder another question, that of “How do you go about acquiring all that you know, and how do you disperse it to those that work with you and your customer base?” Deep or not so deep thoughts behind us, if you as a broker are going to nonetheless handle the preparation and negotiation of a lease, it becomes even more imperative that you have the aforementioned goal line-to-goal line mindset, knowing “cover to cover” exactly what is contained in a lease from a business and legal perspective and, in the words of rapper, entrepreneur and game show host Snoop Dogg, that if you haven’t already, you need to “master your craft.”
In conclusion, playing off of the words from a few other quotes attributed to the long departed rapper Tupac, “Accepting the truth is difficult. Not accepting the truth is tragic.” Taking it a step further, when channeling William Shakespeare and his line “What’s done cannot be undone,” please remember the words of John Lennon, who said “A mistake is only an error, it becomes a mistake when you fail to correct it.”
Deep thoughts before you to ponder, until our next Leasing Intervention™ leasing brethren, please be well, and may all of your leasing and other dreams, become your reality.
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