Page 20 - November 2-15, 2022 Law & Accounting Our Real Estate Group Serving the Commercial Real Estate Community Leasing Real Estate Development Real Estate Acquisition Environmental Private Equity Commercial Lending, Workouts and Foreclosure Real Estate and Commercial Litigation Construction Contracts and Litigation Corporate 1700 Lincoln Street, Suite 4300 | Denver, Colorado 80203 Phone 303-298-1122 | Fax 303-296-9101 Our clients rely on our experienced team of lawyers to guide them through all of their legal needs, from significant business decisions to the most complex global deals and litigation. Our breadth and depth of practice enable us to handle the most complex matters and solve our clients' problems seamlessly. W hen debriefing a lawsuit, real estate clients almost always ask the same question: How can we revise our contracts to avoid litigation? In my experience, there is no perfect lease, no perfect real estate contract. There are, however, a few easy steps that you can take to avoid litigation. Use contracts drafted by law- yers, especially if they have tech- nical provisions like options, rights of first refusal, and rights of first offer. Do not use leases or contracts that you download from the internet. Avoid recycling contracts between deals without making deal-specific changes. While these tips seem obvious, it is amazing how frequently they are not followed, even by sophis- ticated real estate professionals, and how frequently they lead to litigation. If you want to add a little more protection, here are some sugges- tions: 1) knowwho you are doing businesswith; 2) if possible, avoid options, rights of first refusal, and rights of first offer; and 3) if a deal does not feel right, trust your gut and bail. n Know the other side. If you do a deal with a serial liti- gant or someone that does not pay their bills, your chances of litigation increase exponentially. Most often, it is people and not bad contracts that cause lawsuits. To find out who these people are, you can search court records for lawsuit fil- ings and clerk and recorder records. In these records, you can find out who files lots of suits, who is sued frequently and who is subject to mechanic’s lien filings. A one-off lawsuit or a mechanic’s lien filing is not an unusual part of real estate busi- ness, but when you find someone who is involved in lots of litiga- tion or mechanic’s lien disputes, you know you have a problem. and county clerk recorder websites are both great resources for finding out how liti- gious someone is and figuring out who to avoid in a real estate deal. n Just say no to a ROFO. Outside of the failure to pay rent, options, rights of first refusal and rights of first offer spawn a disproportionate amount of real estate litigation. When someone asks me how to avoid real estate litigation, my first response usu- ally is this: Don’t agree to a last- minute option, right of first refus- al, or right of first offer pitched as deal sweetener. These rights often do no more than keep litigators in business and become uninten- tional weapons in volatile real estate markets. When negotiating a deal, if you are discussing an option, ROFR, or ROFO and simultaneously say or hear something like, “just to get us a across finish line,” put on the brakes. It is time to say no for two reasons. First, options, ROFR and ROFO agreements are hard to draft well, and these agreements – even those that are thoughtful and well crafted – trigger a lot of liti- gation. Countless court decisions from across the country confirm how these agreements can unin- tentionally blow up future deals and turn a great transaction into a litigation nightmare. To avoid post-deal litigation, take a con- servative approach to granting options, ROFRs, and ROFOs, and grant them only when absolutely necessary. It is not practical to avoid these agreements altogether. If an option or preemptive right is not an afterthought and is essential to a deal, make sure that you have an attorney draft the agreement andmake sure your attorney spe- cializes in real estate transactions and only practices real estate. This will increase the chance that the agreement serves its purpose. It alsowill minimize the chance that it turns into a weapon or a law- suit. Second, nonattorneys and attorneys who don’t special- ize in real estate draft and insert options, ROFRs, and ROFOs into contracts and leases all the time and put their clients at risk. These provisions are typically inserted into agreements in the final stages of a deal, they are one or two sen- tences, and they are drafted by owners or brokers because parties don’t want attorneys coming into a deal at the last minute. A sig- nificant percentage of the option, ROFR, and ROFO litigation that I have seen filed over the last sev- eral years is the result of drafting by a non-lawyer or a lawyer who is not a real estate specialist. Many parties are reluctant to involve lawyers in a deals, espe- cially after an experience where a lawyer unnecessarily delayed a transaction, increased expense without adding commensurate value, or focused comments on low-probability issues that aren’t relevant to a client’s business. Abad experience with a lawyer is not a reason to have a non- lawyer draft an option, ROFR or ROFO. It is a good reason to find a new lawyer who makes deals happen. Insteadof finding a new lawyer, real estate professionals address the “lawyer problem” by draft- ing lease and contract provisions that seem minor and help close transactions. If you see a nonlaw- yer adding terms, like options, ROFRs or ROFOs in the final sec- tions of a lease, in the additional provisions section of a state form contract, or as a two-sentence addition to a lease or contract, be ready to say no. Be ready to say no because even lawyers with significant training have trouble drafting these provisions. Draft- ing them without legal expertise is a surefire way both to end up in litigation and to lose a lawsuit. n If it doesn’t feel right, trust your gut. In almost every real estate suit that I have litigated, there are hallmarks of litigation in predeal negotiations. They are easy to see after the fact and often ignored because of the stress and pressure of a pending deal. Trust your experience and instinct, because when something feels off, it probably is. And when there are markers of a problem early on, make sure that you heed those signals. As they say, some- times the best deal is the one you didn’t do. s Avoiding real estate litigation: Follow these suggestions Merc Pittinos Partner, Moye White LLP