My Theory of Negotiating and Drafting Contracts: Pragmatism Over Perfection

Over my career I’ve experienced lawyers who negotiate deals and draft contracts with primarily one of two general guiding principles: perfectionists and pragmatists.  Perfectionists draft provisions that are completely favorable to their client, taking into account yesterday’s research on the most recent case law.  Obviously these generate objections and proposed revisions.  But then perfectionists defend them to the hilt in negotiations, often relying on the market power of their client to “win” the point.  Can you just imagine what happens when both parties are represented by perfectionist lawyers?

My worst experience with a perfectionist lawyer came when I was representing a buyer of an ongoing business, purchasing one of their competitors.  The selling company had improved real estate, business personal property, vehicles and other heavy equipment.  The owner was retiring, and this sale was his family’s retirement nest egg.  Pop operated the company and mom did the bookkeeping.  Unfortunately, for this deal they hired a lawyer who had just left a downtown Dallas big law firm, whose almost-only client for his career, as best I could determine, was Bank of America.  I had represented the buyer for years.

And so we embarked on what eventually seemed like an interminable negotiation that eventually wound up with parties and counsel in my conference room to hash out the final agreement.  As we began to work our way through the contract, the response to the first change I addressed was “well, that’s a deal breaker” and I could see the sadness in the sellers’ eyes and mannerisms.  Trying to make this deal seemed to be torturing them emotionally, and their lawyer wasn’t helping to ease any of their fears.  In fact he was making them worse.

Fortunately my client knew how to make a deal, so he grabbed control of the conversation for a moment and made sure the sellers understood we were here to make a deal, and we would work to find mutually acceptable ground, but this “everything’s a deal killer” mentality had to go.  And so we labored through the proposed changes, the reasons for the change, the reasons not to change (other than ‘because there’s no deal unless my client agrees’), and several hours later we had a final agreement subject to typing the edits.

The sellers and their lawyer then walked to their cars, which happened to be on the top floor of the building’s parking garage.  My office at the time looked over this parking garage, and so when I retreated to my office to begin the final edits, I saw this lawyer standing with the sellers, engaged in conversation, and the sellers were signing a series of documents.  Later I learned that this lawyer had prepared documents that basically said “I advised you to reject this change, you chose to accept this change over my advice, therefore I have no liability to you if this causes you damage in the future.”  One document for every change they accepted.  Imagine how much this had to destroy the sellers’ faith and confidence in the deal, and ultimately in their decisions about their retirement nest egg.  And how much it cost them in legal fees.

Another time I was representing a seller of real estate improved with mini-warehouses.  So the deal included the real property, the buildings, storage unit leases, and some of the receivables.  My client wanted an “as is” sale.  The buyer had a national portfolio of mini-warehouses and was expanding.  There was no mini-warehouse franchise involved; it was just private parties all around.

In this case the prospective buyer was represented by a lawyer in California with experience in securities law. This lawyer kept demanding terms in the contract practically guaranteeing a minimum value of the ongoing business, including for some period of time after the closing (when the seller would have no control or even influence over how the business was run).  These unusual terms were based on securities laws concepts.  Talk about a perfect deal for the buyer.  My client had built a profitable business, but after closing, all bets would be off.  My client wisely wouldn’t agree to that, and the deal died.

There are a library’s worth of books written about how to pragmatically make a deal.  Let me save you the time.  Understand the risks, and what it takes to succeed, in your business.  Figure out how much risk you are willing to take.  Communicate that to your lawyer.  Hold your lawyer accountable for “overlawyering” the deal.  How do you know what that is?  When the lawyer spends too much time negotiating for less risk than you are willing to take.  It may not hurt to ask, but continuing to push it wastes both time and money.  And when real estate is involved, time IS money.

Have clear, genuine, reasons for proposed changes, and be able to explain them as needed.  Let the explanation serve the larger part of persuasion.  Work to understand the other side’s genuine concerns, and see where both parties say “I can accept that” overlaps.  Move on to the next issue.  And at the end, determine if it’s a deal within your tolerance for risk.  In my opinion, pragmatism closes more deals than perfectionism, and does so less expensively for the client (albeit less profitably for the lawyer).

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