Chicago from above (Shutterstock)
Law firms that have been driven out of their expensive commercial office buildings for months and struggled with the sudden COVID-19 recession have negotiated – or even litigated – their leases to lower real estate costs.
According to several legal advisers, companies are trying to work with their landlords with varying degrees of success. Real estate is the second largest law firm cost after personnel, and at a time when many law firms are reducing both salaries and employee positions, it would be "misconduct by management" not to look for a break, said Tom Clay, principal at Legal advice Altman Weil.
"You owe it to your partners to go to the landlords," said Clay. "You really have to search every street and crevasse to find relief."
Between March 6 and May 12, law firms accounted for 8% of tenants applying for rent relief from Jones Lang LaSalle, the commercial real estate giant, between March 6 and May 12, according to a company report.
But not every company was successful in this effort. On May 20, Hart 353 North Clark LLC sued Jenner & Block before the Cook County Circuit Court, accusing the company of not paying the rent for its 416,200-square-foot Chicago office in April and May. The plaintiff, an affiliate of Heitman, a real estate investment management company, is demanding $ 3,726,415.74 plus late fees and interest.
Heitman is committed to working with its tenants and understanding their challenges during the pandemic, said John Riccione, partner at Taft Stettinius & Hollister and one of the real estate firm's lawyers. He said the lawsuit against Jenner "did not come from nowhere".
"If the parties cannot resolve their differences, they will seek help from the courts," said Riccione. "And that's exactly what we're doing."
Jenner has not officially responded to Heitman's lawsuit. A Jenner spokeswoman said an answer could come this week, although Riccione said the company's deadline was June 23. In a statement, co-managing partner Randy Mehrberg said the company had used a rent reduction scheme to be used under its lease. “In the event of a situation like the global pandemic that makes it impossible for the company to use and occupy the space for the intended purpose. "
"We have credited the landlord with the limited space that we were able to use for the intended purpose," said Mehrberg. “Jenner & Block has a very strong financial position. This dispute is all about enforcing this provision in the lease. "
A Jenner spokeswoman said the company is paying rent at its other office locations in London, Los Angeles, New York and Washington, D.C.
The level of flexibility companies can have with their landlords depends on a variety of factors, said Ryan Hoopes, director of the legal advisory group at Cushman & Wakefield, another global commercial real estate services company. These factors include the financial health of the company and its landlord, the terms of the lease, the distance of the company from the lease, and the future prospects of the space and the market.
"It is interesting that you are only referring to a Chicago lawsuit," said Hoopes, referring to the Jenner case. "I think that's pretty meaningful. If it were a big problem, you would see a lot more of it."
It may be unusual for Jenner to be sued for his unpaid rent, but it's not the only company to refuse a complaint. Clothing retailer Gap Inc. was sued last week for allegedly stiffening the Simon Property Group at $ 66 million after not paying rent in April, May, and June.
According to Clay, Heitman's lawsuit against Jenner is likely a sign that the negotiations have failed, and is supposed to bring Jenner back to the negotiating table. Hoopes expressed doubts that Jenner and Heitman would continue their dispute until the trial, and said that the cost of a rent dispute would be far more expensive than the rent itself. He said these disputes are usually resolved.
The real estate company is not trying to drive the law firm out of their office, Riccione said.
Clay stated that law firms often have an advantage over their landlords.
"What did they end up winning when they played so hard that you went under? A bunch of empty rooms they can't fill, ”said Clay.
Both Clay and Kent Zimmermann, an adviser to the Zeughauser Group, said the pandemic had shown that law firms could easily work remotely. When companies try to increase their margins, they will try to reduce their real estate footprints and put pressure on landlords, Zimmermann said.
"Landlords in this type of market often cannot simply replace law firms and other business tenants," said ZImmermann. "As a result, landlords can be more flexible about changing the lease in many cases and more vigorously pursue other lease rights."
Hoopes agreed to this separately, but said that this pressure on landlords will not be felt until 2021 and beyond. "Most of what we've seen is about the here and now," he said.
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