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Thursday, December 31, 2009

Build-Outs and Tenant Allowances

A common aspect of commercial leasing is the building out of the premises for the tenant. The costs of the build-out (and the hiring of the contractor(s) to perform the build-out) may be the responsibility of the landlord alone, of the tenant alone, or may be a joint enterprise between landlord and tenant. Whatever the arrangement, build-outs are a very common area of dispute between landlords and tenants. It is extremely important that the landlord clearly state the terms of the build-out in the written commercial lease. The following are the some items relating to the build-out that must always be addressed in detail in the lease when applicable:

What improvements will be made to the premises?

When must the landlord work and tenant work be completed?

Does the completion trigger the lease and/or rent commencement date?

Who is responsible for the costs of the build-out?

Who is responsible for hiring architects and contractors to perform the build-out?

What is the landlord’s mechanism for approving the contractors and the work specifications?

Is the landlord going to pay some or all of the build-out costs?

If so, will the landlord pay the general contractor directly or pay the tenant?

Is the tenant required to pay back the costs to the landlord or will the costs be amortized within the rent?

If the tenant is responsible for the costs of the build-out, will the landlord pay the tenant an improvement allowance?

If so, when/how will the allowance be disbursed? Will it be disbursed to the tenant or to the contractor(s)? What must the contractor/tenant provide to the landlord in order to receive disbursements of the allowance?

Is the tenant required to pay back the allowance? If so, when and how?


In addition to clearly setting forth the terms of the build-out in the lease, landlords need to take additional steps to protect their property and their investment in the build-out. The following are some tips that can help landlords avoid unfavorable results:

The lease default provisions should require the tenant to repay the improvement allowance and the landlord’s expenditures toward the build-out if there is a default of the lease.

If the landlord is paying for the costs of the build-out, without upfront payment from the tenant, the landlord should make sure that the improved premises will be suitable for other tenants. In the event the current tenant fails to pay rent and the landlord is forced to evict the tenant, the landlord needs to be able to market the space to other prospective tenants without tear-down expenses and another build-out.

The landlord should require the tenant and its owners to personally guarantee the repayment of the build-out expenses.
The landlord should only disburse funds for work that is actually completed. The landlord needs to monitor the project, only pay the contractor(s) directly, and require lien waivers from all contractors before disbursing funds.

Tuesday, December 29, 2009

Collecting the Professional Debt: Discretion with Aggression

Harry has been a client of your firm for several years. Eventually, you have come to regard him as a trusted client who promptly pays for services rendered. This morning he called you with an urgent message. It seems that he is involved in a large matter and your fees will go well beyond any amount previously billed to him by your firm. If you are successful, you know there will be funds available to cover your fees and costs, but you are not certain it will succeed.

While all businesses have credit extension concerns, professionals have factors to consider that require special considerations. The services of a lawyer, doctor, CPA, architect and other professional are unique and, once engaged, cannot generally be suddenly terminated. The savvy professional improves the chances of avoiding collection problems by conducting prudent credit checks like other businesses, even for existing clients who request more extensive credit.

Prevention

Additionally, the professional should candidly discuss the prospects of success in the enterprise, e.g. the risks of the medical procedure or the likelihood of reversal of the IRS ruling. Explain in detail the estimated fees and what factors can effect these charges. Do not forget to reveal expenses such as photocopies, travel, filing fees, investigations, subcontractors, etc. Tell the client how to keep the total bill down. Very importantly, tell the client when bills are expected to be paid. Not only will these types of explanations allow the client to budget, but it will avoid surprising the client with an unexpectedly large bill.

Do not assume that your client can afford your services. Ask for an upfront retainer even with a good credit history. Bills can be monthly, at project stages or other predetermined dates. For example, architects normally obtain a 5% retainer, 15% upon production of the schematic design, 20% upon detailed sketches drawn to scale, and so on with varying percentages due at specific phases of construction. Put the payment agreement in writing to avoid differing recollections.

Unless the matter is handled on a total contingency fee, the final bill should not be the majority of the account due. The final bill is the most difficult to collect, especially if the work is unsuccessful or the bill is unexpected.

Dunning the Client

When, despite your efforts, your receivables become delinquent, the part of the business that most professionals find disagreeable has to be undertaken. Most lawyers would rather argue before a jury than with a slow paying client. Furthermore, if you too vigorously emphasize prompt payment of bills, your client may feel you are more concerned about your fees than his case. Still a balance must be struck between a too-strident policy, at the cost of a lost client, and one that is too permissive, at the cost of profitability.

When it becomes necessary to go after a delinquent client, the question arises as to how the contact should be made and who in the firm should make it. A carefully edited letter, which is sent soon after payment is due, can be a good reminder. Relationships will not be damaged if regular, reasonable reminders are provided. In some cases a letter will not be sufficient and a telephone call must be made. A call from the professional handling the matter is not advisable because it can tarnish the working relationship and can be very awkward for the professional and the client. The bookkeeper or a secretary, whose duties are removed from the client, should place the call. As a final effort, an associate or partner should speak to the client about the implications of a failure to pay.

Firing the Client and the Fear of Counterclaim

Firing the nonpaying client creates a set of particular concerns to the professional.

1. Do you have the right to discontinue services? For example, can an orthodontist leave complex and potentially dangerous devices in a patient's mouth?
2. Must the client's records, books and your work product be given over?
3. Are you going to be sued for malpractice despite competent efforts to that stage of the work? Should you worry about the next psychologist ruining all the progress and you getting the blame?

Answers to many of these questions can be obtained from professional associations and by reference to ethical codes; get a written opinion for your files.

If you perform your work to the best of your abilities and meet the standards of your profession, sue your former client if they owe you a significant fee. Threats of a counterclaim based upon negligence are usually just a ploy to avoid payment. Of course, you will need some nerve and confidence in your performance, as well as good documentation. Finally, hire a good collection lawyer who can be your professional.

A Final Thought

Remember a line from the classic 1967 movie Cool Hand Luke: "What we've got here is a failure to communicate." If you keep the lines of communication open with your clients, you will establish mutual trust and will probably be rewarded by prompt- paying clients.

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The above is not meant to replace legal counsel. If you'd like to speak to an attorney please contact Gross and Romanick directly by calling 703-273-1400 or by filling out their online Information Request form.

Monday, December 28, 2009

Employees: Duty of Loyalty

Your top salesperson has just given you a two-week notice of resignation. When you discuss this problem with another employee, you learn for the first time that your top salesperson has already set up a competing company based upon copies of your files and solicitation of business from your clients. To compound the problem, several of your key personnel quit within days of your top salesperson; you learn that they are joining this new competitor. What can you do? Well, a recent case in the United States District Court for the Western District of Virginia may provide some help.

In National Legal Research Group v. Latham, the court, in an unusual ruling, enjoined a former employee from soliciting or communicating with clients of the firm for two years after resignation. Furthermore, the former employee was charged with actual damages caused to the former employer, as well as punitive damages, even though the offending employee had no written contract. This case could be a significant aid to employers seeking to enforce the so-called "Duty of Loyalty" that binds all employees.

Non-Competition Clauses

Of course, sales people should sign employment agreements containing restrictive covenants, which prevent them from copying confidential materials or competing upon termination of employment. However, such covenants are rarely executed because of the fear that excellent employee candidates may refuse employment on this basis.

To be enforceable, Virginia law generally requires that non-competition clauses be reasonably necessary for the protection of the employer, and not impose undue hardship on the employee. If the clause prevents the employee from competing in a limited geographical area or for a limited period of time, a court will generally uphold the agreement. If the clause has no such limits, courts will often find the restriction to be impermissibly overbroad and unenforceable. Since non-competition clauses are, in general, a restraint on free trade, a court will carefully examine the agreement and construe the clause, where possible, in favor of the employee.

Duty of Loyalty

Despite the failure to include a restrictive covenant in an employment agreement, the law implies an agreement on the part of the employee to faithfully serve an employer. In addition, an employee is a fiduciary with respect to information learned during the course of employment.

Virginia Trade Secrets Act

The Virginia Trade Secrets Act, Virginia Code §59.1-336 may prevent former employees from using information for which the company took reasonable steps to keep secret. This Virginia Code Section was the basis for the court's ruling in the National Legal Research Group v. Latham case.

Protect Yourself

Restrictive covenants in employment agreements are the best method for protecting your trade secrets and preventing competition from former employees. Nevertheless, you may have a case under the Virginia Trade Secrets Act if you take reasonable steps to protect your important trade secret information. Establish written procedures: inform your employees of what materials are considered protected and under what limited circumstances these materials may be utilized.

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The above article is not meant to replace legal counsel. If you'd like to speak to an attorney, please contact Gross & Romanick directly by calling 703-273-1400 or by filling out our online Information Request form.

Wednesday, December 23, 2009

Traffic Offenses in Fairfax, VA

Recently, Gross & Romanick helped a client’s elderly father with a criminal traffic matter. Afterward, our client wrote to say: “You came through when my family badly needed help, and I very much appreciate your efforts. There is a good reason the folks at the Fairfax Courthouse recommend you so highly!”

If you’d like to speak to one of the attorneys at Gross & Romanick about a criminal traffic matter in the Virginia, DC or Mayland areas, contact us by calling 703-273-1400 or filling out our online Information Request form. We’d be more than happy to discuss your case with you.

Wednesday, December 16, 2009

Can I have a personal injury claim if I don't have automobile insurance?

Yes. A personal injury claim is filed against the person who caused the accident and that person's insurance company must pay. The fact that you were not covered by your own insurance policy at the time of the accident does not prevent you from making a claim.

If you'd like to speak to an attorney about your personal injury claim, contact the lawyers at Gross & Romanick at 703-273-1400 or by filling out their online Information Request form.

Thursday, December 10, 2009

What Creditors Cannot Seize

A fellow being chased by creditors would be smart to give his fiancee' an expensive engagement ring. She'll be thrilled, and he'll be making a safe investment, since Virginia law specifically exempts wedding and engagement rings from attachment by creditors. Lawmakers have decided that, for public policy reasons, people should keep such property in the family. Better not divorce!

A religious couple might consider investing in a Guttenberg Bible, since the law also exempts the family Bible.

Animal lovers can rest easy, too. Creditors can't take the family pet, whether it's a dog, cat, squirrel or snake. As long as the debtor does not raise the animal for sale purposes, the creditor cannot take it.

Someone facing bankruptcy might not be in the frame of mind to dwell on mortality, but it's an opportune time to purchase a burial plot. The law also exempts this property as a matter of policy. Who said you can't take it with you!!

Investigate Credit Worthiness
  • Call other creditors of applicant
  • Call industry contacts
  • Check with landlords and credit references
  • Obtain a Credit Bureau Report
  • Review Dun & Bradstreet Reports
  • Study court records for information about: Judgments, pending litigation, title to real estate, liens on realty, and UCC financing statements
  • Hire an investigator or attorney Have your CPA review financial records
The above is not meant to replace legal counsel. If you'd like to speak to one of the lawyers at Gross & Romanick, please contact the firm directly by calling 703-273-1400 or filling out their online Information Request form.

Thursday, December 3, 2009

Our Website Has A New Look

Check out our new website. We hope the new interface will make finding what you need that much easier. And remember, if you want to speak to an attorney directly, simply call us at 703-273-1400.