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The Practice of Law

Leverage

Early in my career, I represented a franchisor of retail bakeries. As is commonly done, my client leased premises from commercial landlords and subleased them to its franchisees.

Since my client was not particularly good at what they did, they frequently made mistakes. On one occasion they missed the deadline to give notice to renew a lease.

I suppose that if my client was good at running bakeries, the landlord may have overlooked this technicality and allowed my client to renew the lease anyway, perhaps on more onerous terms, since landlords are like that. However, my client was not particularly good at running bakeries, and the landlord decided to seize upon this error and refuse to renew the lease.

From my client’s perspective, this was a very bad thing, both because the location in question was valuable and because they were likely to be sued by their franchisee if the location was lost.

From a legal perspective, we did not have much of a case. However, the client had uncovered one piece of valuable information, being that the landlord was in the final stages of finalizing a deal with our client’s competitor to take over the space.

While were trying to figure out what to do about this mess, the landlord’s lawyer, who I will call Anna, called me. Anna was very bright and just a few years senior to me. She asked me to confirm that my client would vacate the premises at the end of the lease.

I told Anna that our client had validly renewed the lease, or alternatively, was entitled to relief from forfeiture, and that if the landlord took any steps to terminate our client’s possession without a prior court order, we would hold them responsible for damages. I also told her to be sure to serve us with notice of any application for possession.

Anna informed me that our client had clearly lost the right to renew the lease, and that there was an Ontario court decision that was directly on point. She was kind enough to tell me the name of the case. I replied, “I have read that case. It does not apply. If your client wants to know if our client will be moving out on the last day of the lease, I suggest that you tell them to look out their window and see if there are any moving trucks. I can tell you that they won’t see any.”

When I got off the phone, the first thing that I did was look up the case, which I had never heard of before. She was right. It was directly on point and we could not have possibly won in court. Did I call her and tell her that? Of course not.

You see, we were hoping that the landlord would not sign an agreement with our competitor as long as they were afraid that they would be unable to easily provide the competitor with possession of the premises. We read the situation as being that Anna was calling me to try to get some comfort that it was safe to sign with the competitor. We were hoping that when she could not get that confirmation from me, the landlord would not sign with the competitor and would allow us to renew the lease.

This was a gamble, because it was also possible that our client could end up getting sued for damages for not vacating the premises on time and for causing the landlord to lose its deal with the competitor.

Our gamble paid off. The competitor went away. The landlord signed a renewal with our client.

The lesson:  Practicing law is a strategic endeavour. Knowing the law is important. Knowing what leverage your client has in a given situation and how to take advantage of it is more important. And no, they do not teach you that in law school.

Post-Script

These events happened a long time ago, but they could just as easily happen today. I suppose that lawyers today would have to give some thought as to whether the developing jurisprudence on the duty to act in good faith in contractual negotiations would change the approach which I took. Now I don’t know this for certain, but my best bet is that after some serious thought, a few internal discussions and perhaps a research memo, today’s lawyers would do the exact same thing.

2 replies on “Leverage”

To Anna’s credit, she would hopefully have advised her client of the big picture. A “gotcha” moment is not a triumph if her client ends up out of pocket and without a rental income stream.

I imagine that Anna and her client had concocted this plan together to try to get confirmation that my client was leaving before finalizing the deal with the competitor. They really wanted my client gone.

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