Nancy Crotti, The Daily Record Newswire
Whether starting a solo practice, leaving a law firm to go solo or joining others in a new small firm, lawyers need a place to work.
The first consideration, as in all real estate, is location. Lawyers must choose whether to have an office near a courthouse or a skyway, in a city, suburb or a small town, said Russ Nelson, president of Minneapolis-based Nelson, Tietz & Hoye, a real estate consulting business that represents law firms as tenants.
Then there’s the space itself. A solo attorney or small firm should make sure there is a reception/waiting area and a conference room for private conversations, said Kimberly Hanlon, a solo practitioner who also runs MoreLaw Minneapolis, a shared-office space for lawyers. Unless the lawyer’s desk is paperless and the office otherwise empty, having this space will protect client confidentiality
As for the lease, Hanlon warned other lawyers against skimming the language as if it’s boilerplate.
“They should know that terms of commercial leases are very different than the terms of residential leases,” she said. “What they may think they may normally have as lease protections are not there necessarily in a commercial lease.”
Residential leases contain certain warranties that property owners must uphold. Not so in commercial leases, Hanlon said.
She advised reading the lease carefully, thinking through all of the issues the firm would want a property owner to cover, and incorporating them into the lease. For example, the firm may want parking spaces allotted to it in the building’s ramp. If the firm is in a downtown or a strip center next to a high-traffic business, its principals may want to pay extra to have certain parking spaces designated for the firm and its clients.
Commercial leases also may require tenants to assume the financial risk of damage to the property. For example, Hanlon said her company had to add insurance coverage to replace the 60 windows in her offices in case they break.
Renters must also be certain of whether the rent is gross or net. In a net lease, the base rent does not include required payments such as property taxes, utilities, insurance and other operating expenses such as extraordinary maintenance. Gross leases include these costs in the rent, but tenants may pay them monthly or at other intervals, according to Hanlon.
“Sometimes you may have a commercial lease where your proportional share gets paid at the end of the year,” she said. “If you enter in March, then three-quarters of a year later you end up with this huge bill that you haven’t budgeted for. You’re locked into these lease terms.”
Failing to plan for such a large payment may mean closing the firm’s doors or facing bankruptcy, Hanlon warned.
She recommended having a commercial insurance agent review the lease and estimate the firm’s costs of covering additional liabilities. The firm should hire a business lawyer to review the lease and help with negotiations, added Nelson.
The firm’s budget will partially dictate the length of the lease because of the need to amortize the costs of improvements, Nelson said. For instance, unlike the furniture they bought, tenants cannot take the wiring they paid to have installed when they leave, even if they are still paying for it.
“There’s a lot to consider and technology can be a bit daunting,” Nelson said. “You can’t plan enough and you can’t know enough about what you’re doing, because technology’s a big expense.”
Hanlon suggested negotiating a three- to five-year lease in order to make back the money the firm invested in telephone technology systems and build-out costs before they need to upgrade those systems or update the space.
She also advised that a lawyer who agrees to rent a small amount of space in another firm’s office should insist on knowing how much time he or she will have to find a new office should the firm decide to expand into that space.
Nelson ticked off a list of other considerations that will affect whether the firm will want a particular space and can afford it:
• The size and layout of the space, and whether the technology will suit the needs of the lawyers and support staff.
• Build-out costs, and how much of those will be the firm’s responsibility.
• The cost of adding a telephone and technology network;
• Operating costs.
• Soft costs, such as hiring other professionals to plan and outfit the space.
• Other considerations include proximity of parking; availability of space for the firm to expand and what sort of work the neighbors do. For example, loud noise emanating from next door may deter clients and distract the attorneys and staff.
Finally, Nelson recommended that attorneys be realistic in their expectations for when to plan the big move.
“The main thing in all this is so corny, it sounds Boy Scoutish — be prepared,” Nelson said. “Every part of it you better understand or at least understand it enough that, ‘Oh, that’s going to cost me money.’”
