Monday
August 21, 2017

Don't Fill in the Blanks

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Don't Fill in the Blanks

Crafting contracts may look simple, but clients going it alone may be clueless about the risks involved.

Last year a company I've worked with on a number of legal matters signed an agreement to renew its lease in a small shopping center. The company is run by a sharp group of young entrepreneurs and their agent was a top professional who negotiated a solid deal on their behalf. But in this instance they decided to sign the agreement without having a lawyer look at it first.

That was ill-advised, because the agreement had been cobbled together from forms available online, creating risks that lawyers are seeing more of today and that practitioners need to be aware of to avoid finding themselves in legal hot water.

The agreement was full of unwanted surprises. Based on the way the indemnification provisions were written, neither the property owner's nor the tenant’s insurance company was on the hook to pay claims should someone get injured on the premises or if a storm damaged the space. There were other problems, including three different—and inconsistent—provisions touching on repairs.

We were able to fix many of the problems, but it ended up costing my clients far more than if they had gotten a lawyer to look over the language of the cobbled-together agreement before they signed it.

The same thing happened on a residential matter that crossed my desk. The buyer and seller had signed a fill-in-the-blank contract, but instead of working with a lawyer to set forth the conveyance of certain home features, including some wall-mounted TV brackets, lighting fixtures, and pictures, as the parties had verbally agreed to, they simply left that part unaddressed. The contract had no place for these things. Inevitably, when the buyers took possession of the house, differences emerged over what was supposed to convey and what wasn't. (See The Pain Of Fixture Feuds)

Again, we were able to get things sorted out, but it was at a much higher cost than would have been the case had the parties worked with a lawyer to set forth the conveyances properly rather than rely on a generic contract. You'll be serving your clients' best interests by advising them not to go it alone.

I've seen cases in which inexperienced real estate investors used forms they got online to prepare their own deeds, with predictable consequences. Although these deeds can seem simple on their face, there are several different ways to prepare them based on how the buyers want the property titled. Not all married home purchasers, for example, want to take title of their house as tenants by the entirety. Some might want to take it by joint tenancy or tenancy in common. If you don't do the analysis that’s required, the repercussions for buyers can be far-reaching.

Equally important, and with consequences for the investor and nonlawyer adviser, you risk violating restrictions against the unauthorized practice of law when you pull down legal forms from the Internet. States differ on this, but in my state of Tennessee, preparing a deed using an online form opens one up to the possibility of violating that restriction. We're even seeing attorneys general in several states, including Tennessee and Texas, examining whether the companies that offer these online forms are engaging in the unauthorized practice of law, with resulting civil and criminal penalties.

The DIY appeal for buyers and sellers is understandable. No one wants to pay legal fees if they don't need to, especially with so many resources and so much information available on the Internet. But there really is no such thing as a standard deal, and relying on downloaded fill-in-the-blank forms from the Internet is hardly a gamble worth taking when your clients' interests are at stake.

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