I know, I know: contracts are mind-numbing to read. But what might look like indecipherable boilerplate nonsense could end up costing you a lot of money and deprive you of important rights. Plus, once you sign, it is difficult if not impossible to later argue that the contract is unfair or unenforceable. Saying that you didn’t read it before signing, or that you read it but didn’t understand it and signed anyway, is never a defense.
One recent event involved a client who a few years back signed a lease to rent a penthouse apartment. He later renewed the lease for two years. After the first of those two years he needed to relocate and so asked the management company what his options were. Long story short, the back and forth emails between my client and his management company were vague and led to a misunderstanding where my client thought his lease was effectively terminated after the first year and the management company believed that the lease was still in effect and had not been properly terminated. It was at that point that I was hired to try and resolve the matter.
The lease, in my opinion, contained numerous unfair and unreasonable provisions, including the provisions for how to end a lease early and what the consequences of doing so were. But there was nothing illegal about the lease and my client had signed it without reading it (just as I’ve done and most everyone has done at some point). The emails between my client and the management company clearly showed that the management company had utterly failed to give my client the guidance he had asked for and to clear up what was to me an obvious miscommunication between the two parties—a miscommunication that the management company was in a much better position to notice and correct. But when you got right down to it, the lease was a contract and it had not been effectively terminated because my client had not followed the procedures for doing so, which were clearly stated in the lease. Yes, the management company handled the situation terribly, but the provisions in the lease didn’t allow for the kind of informal lease termination my client had sought when he emailed the management company, and even though the management company gave him confusing and vague answers to his questions, and failed to point out that the lease clearly described what my client needed to do in order to break his lease, the lease still governed the situation and my client had to follow its terms.
Technically, my client was on the hook for the entire second year’s rent, and at a minimum was likely to lose his $18,000+ security deposit to cover the costs of re-renting the apartment, plus penalties the management company levied for terminating the lease early. I told my client before he even signed on with me that the law was against us, even if we had the better moral argument. I explained that I could try to negotiate some sort of deal, and that while I could probably get his lease terminated, he would likely lose most if not all of his security deposit. He told me to do what I could.
In the end, I was able to negotiate some very favorable terms that ultimately resulted in my client getting about $16,000 of his security deposit back and got him off the hook for the rest of the lease term. But we were lucky. I was met with stiff resistance by the management company, and although the terms I was able to negotiate played out in such a way that my client got the maximum benefit of those terms, it could just as easily played out differently and he might have lost up to $9,000 of his security deposit—much better than losing all of it, but still a lot of money to lose.
Another recent event involved someone (we’ll call him PC) who might have become a client, but in the end decided not to fight the issue and to just accept what had happened to him. There are two lessons to be learned from PC’s story.
The situation involved an agreement PC signed with a broker he used to find a rental apartment. He told the broker that he needed an apartment for September 1. The broker was supposed to write that information into the agreement and said she would do it later. PC took her at her word and signed the agreement. But the broker never did write in September 1 or any other date.
Shortly thereafter PC found an apartment through the broker and applied for it. The stated availability date was September 1. A few days later the broker called PC to tell him that he was approved for the apartment but that it would be available on October 1, not September 1. PC told the broker that he needed to be out of his current apartment by September 1, and so he would have to look elsewhere for a different apartment. The broker’s commission, however, had already been charged to PC’s credit card, so PC asked that it be refunded.
It was then that the broker pointed to a provision in the agreement PC had signed that stated that as soon as the broker got approval for an apartment, even verbal approval, the broker had earned her commission and it was non-refundable. Shady? Perhaps. Illegal? Not at all. Still, though, I thought I could probably get the commission refunded since even a verbal approval needs to be approval for an apartment that is available when the apartment hunter indicates that he needs to move in, not an apartment that is available a full month later.
Then PC told me about the blank spot on the agreement where the desired move-in date was supposed to have been entered by the broker but hadn’t been. Without that date, my argument that a verbal approval for an apartment available on October 1 could not possibly trigger the earning of a commission when the desired move-in date was September 1 was severely weakened. Without the September 1 date on that agreement, it boiled down to a he said-she said situation where the broker could simply claim that the two had discussed either a September or October move-in date and that she had found PC the latter. What PC had essentially done was signed a binding contract with key information missing. It’s not that different from signing a check payable to a virtual stranger and trusting that stranger to fill in the amount later.
PC should have read the agreement carefully before signing, and if verbal approval was unacceptable to him, he should have tried to have it removed from the agreement. The broker might very well have acquiesced if refusing to do so meant losing a client—after all, it’s not that difficult to send a quick email announcing the approval rather than making a phone call.
At a minimum, PC should have made sure that all pertinent information had been entered onto the agreement before he signed. Now, because he was not likely to get his commission refunded and can’t afford to pay a new, second commission to a different broker, he is stuck renting the apartment for October 1, and in the meantime is staying with a friend and keeping his belongings in storage. Sound fun?
It certainly isn’t necessary to hire a lawyer to review every contract you sign. But it is imperative to read a contract (or lease or any kind of binding agreement) before you sign, and if there are terms you don’t understand--or which raise red flags in your mind--it is important to put the pen down and insist on a day or two before signing. During that time you should either hire a lawyer to review it, or at least consult someone you trust to help you make heads or tails of what the contract will require of you. Remember: any contract is always going to be written so that the person or entity drafting it will retain as many rights and powers as are legally permissible while leaving the other party with as few rights and powers as is legally permissible. That’s just the way it is. However, that doesn’t mean you have to accept the terms of such contracts wholesale. It is possible to win concessions that will create or preserve important rights and powers. Simply ask for, and insist on if necessary, a little time to review the document and think things over. There is nothing unreasonable about doing so. Anyone who insists that you sign “now or never” is not someone you want to do business with, and you proceed at your own peril.
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