August 27, 2020

Q&A: SCOTT HARGADON ON THE IMPORTANCE OF REPRESENTING TENANTS

Scott Hargadon is one of the leading tenant lawyers in the country, representing major corporations, mid-market companies, and entrepreneurial ventures in office and industrial/warehouse leases throughout the United States and Canada. Scott sat down recently to talk about the importance of specialization, negotiating in tough markets, and how COVID-19 has affected tenants.

Why did you choose to focus on commercial tenant leasing?
I’m a high-energy person by nature. I love sports and playing games, and I think that lends itself to negotiating leases. Early in my career, I was put on a leasing contract team for a major firm, which meant I was doing lots of leases of all shapes and sizes, both nationally and internationally. I loved it, loved the energy of it. After the 2008 recession, I decided to give up the development part of my practice to focus on real estate matters for corporate clients. I joined MPS Law in 2012, and I have been blessed with great clients. I love dealing with them on a daily basis. I also count a lot of my clients among my good friends.

You only represent commercial tenants. Why is that a necessary specialty?
Landlords have a huge number of built-in advantages, because the negotiation almost always starts with their lease form. Attorneys representing tenants must have the will and determination to fight uphill to get to a point where the lease is a good deal for the tenant. Many lawyers don’t have the capacity or staying power to stay in it. Personally, I don’t see how I could effectively represent both tenants and landlords. You can’t believe both sides. In the end, you’ve got to really believe in the party you’re representing and the argument you’re making, and for me, that’s the tenant.

What sort of tenants do you represent? Only big companies?
No, we represent tenants of all sizes. Our client base is very diverse and includes everything from Fortune 500 companies to small service firms. We have nine attorneys on the team, so we can best match attorney experience and price point to the client. We have extensive experience in our firm, not only for corporate leases but also for industrial and a variety of special use leases. The industrial side has certainly grown in importance over the last five years and we expect it to expand even further over the next five.

How does MPS Law approach negotiations for their tenant clients?
When we go to work for a commercial tenant, our goal is not just to get a fair deal but a good deal. We are absolutely prepared to take clients from start to finish on issues like broker contracts, LOI’s, interior construction, and audit expenses. Once we get the lease, we thoroughly review the document and send back a revised document with our comments. When we receive a revised draft from the landlord, we then create an open issues memo to send to the landlord. Why? Because in our view it is too expensive for the client to have us continue to edit a long and complicated lease document – so we start by listing the open issues in a memo and negotiating them. Once those are resolved, either the landlord or the tenant attorney finalizes the lease documents. This process saves a great deal of time and money.

The open issues memo sounds great, but does that work in tough markets?
We are often told by brokers in tough landlord markets, we have obtained a better deal for our client than other lawyers representing tenants in those markets. We have what we believe are fair baseline standards for a tenant, and that’s what we stick to. For our larger clients, we develop lease negotiation guidelines that gives direction how the clients wants us to approach each type of lease. We’re also very familiar with the real estate landscapes in different cities, so we know how to negotiate with landlords in hot markets.

How has COVID-19 affected tenant leasing?
The office market has been roiled by the pandemic. My advice is for tenants to be aggressive and take advantage of this moment. If you need to downsize, now is a good time to revisit your lease with your landlord and think space reduction and rent reduction in exchange for an extension. I don’t tell my clients to stop paying rent – that is bad advice. The better approach is to ask for rent deferment. If you can demonstrate COVID-19 has impacted your revenues but you can continue to perform, you might be surprised; there are a lot of landlords who will work with you to keep a good tenant in their building.

What other options do tenants have if their business has been affected by COVID-19?
Subleasing is another option for tenants. I have a number of clients that have subleased space lately both for their own use and to get a return on unused space. I read a brokerage company report that stated there is more sublease space available to rent in Chicago now than any other time in the past. Subleases can be more complicated than regular leases, but when negotiated correctly, the savings on rent and build-out costs can be significant. Our team is well-versed in this area and has done over a dozen sublease deals in the past few months alone.