SMART OR DUMB GOAL’S DON’T GET YOU SUCCESS!

I TOOK DOWN MY INSPIRATION BOARD BECAUSE IT GOT TOO DEPRESSING.

And, as it turns out, I’m not alone.

Setting goals seems like a good idea and we’re all told we should be doing this. For those of us who obsess with achievement, motivation or personal development, I’m sure I won’t be shocking you with the concept of inspiration boards and goal setting. Among the many motivation hacks, inspiration boards are one of the most popular and highly visual. The board is littered with images of the lavish things you want – luxury homes, cars and vacations all filled with white walls, upholstery and clothes – and the goals you much achieve in order to be happy.

While this advice is well intentioned, the problem with goal setting and being goal orientated is that you truly fail to learn and, ironically, achieve the goal. And what’s worse, is that the majority of your life is spent feeling like you’re less than, as if you’re living in the dreary shadow of your big goal where witnessing sunshine will not happen until the goal is reached.

Scott Adams (the Dilbert comic writer who has a net worth of $75 million) put it best, setting goals and focusing on them makes you feel like you’re living in “a state of continuous pre-success failure at best, and permanent failure at worst if things never work out.” Our shared disdain for goal setting is rooted in the following psychological and statistical issues set out in my highly mathematical equation:

Humans can’t predict the future. Even the psychic promising to reveal your fate at $99.99 an hour can’t…Trust me.

+

92% of goals fail

+

We wrongly believe that happiness will be achieved only once the goal is reached

+

The duration of the happiness experienced upon achievement of said goal is 2 seconds=

A life spent mostly in a state of unhappiness and anxiety, burnout and, therefore, a low probability of success.

“You’re so wrong”, you say, “so long as you have SMART goals[1], you’ll succeed and stay motivated”. I disagree. SMART goals spell out a useful way of tracking progress towards a goal, while completely ignoring the overwhelming feelings of anxiousness that cripple you along the unenviable path you believe (pray!) will lead to success. It also fails to teach resiliency, while glossing over the architecture (i.e habits and systems) that is essential to reaching your goal.

The same applies to DUMB goals[2] – the nouveau “millennial spin” on SMART goals recently popularized by a non-millennial public speaker and author of The Motivation Manifesto, Brendon Burchard. DUMB goals, he claims, should replace SMART goals because the latter fail to inspire, motivate and encourage meaningful innovation.

Brendon justifies his position by pointing to massive accomplishments, such as getting us to the moon, the concept of equal rights and our ability to spur revolutions with a click of a button…or Tweet. These “moonshot” achievements would never have occurred had it not been for some people deciding to set DUMB goals and then harnessing the inspiration from these DUMB goals to forge ahead.

Sounds nice, but reading about and speaking to those who’ve made it through to the end, DUMB goals do very little to actually help you “win”. And, just like SMART goals, they do even less to shelter you from “pre-goal attainment misery”.

Although I do enjoy the occasional molecular-gastronomy meal, I prefer all of my business and life advice to be less new-agey and more of the tried and true steak and potato variety.

So, what’s the solution?

Goals no matter how SMART or DUMB, smugly ignore the fact that success is borne out of systems and habits. The problem is that these precursors to success display no immediate progress. Instead, systems and habits are accretive in nature and display value only after years of learning, gathering wisdom and sharpening skills. In other words, on a daily basis, you don’t feel like you’re any closer to the goal, but looking back at the process (which takes years), you will.

So, what’s the solution? Put plainly, the solution is to forget winning, forget losing and to even forget the goal. Instead, focus on learning and perfecting your rituals, systems and habits.

What are systems and habits and why are they better than goals?

A system is the architecture of how you’re going to achieve “the big goal”. Your habits are individual components, such as the frame, wiring and footings that make up the architecture. For example, if you’re launching your own business and have a goal (which you should ignore once you know what it is) of earning $1 million in revenue, your systems range from your sales, marketing and client retention processes, as well as your own systems for ensuring that you avoid burnout. Your habits are what you do on a daily basis, such as picking up the phone and calling 10 prospects or waking up at 5:00 am to exercise.

The reason why systems are better than goals is because it helps us avoid living in the shadow of our goals. We want to experience happiness now, while still staying motivated to attain our goals. Systems do this by satiating our need for immediate gains because systems deliver daily wins (i.e. working out for 30 minutes every day), rather than the big goal that’ll take a year to achieve (i.e. losing 30 pounds). Knowing that you followed through with the habit is rewarding and won’t be overshadowed by the seemingly impossible goal.

While each of our systems are different, they should all be evaluated and viewed as a learning tool. For example, maybe waking up at 5:00 am and working out hasn’t moved the needle on the scale. Do you need to eat better? Sleep more? Exercise more? You need to know if the system is actually working in order for the big win to be achieved.

The Twist

You’ll never achieve happiness or success if you fail to know about the MOST critical factor that can deliver this to you. And it has nothing to do with goal setting, systems or habits. It has to do with relationships. As Prof. Glibert’s widely acclaimed book, Stumbling on Happiness and his ongoing research shows:

Grandma was right about some things … friendships and a good marriage are keys to happiness, she was right. Probably the single best predictor of a person’s happiness is the quality and extent of their social relationships. People with solid friendships, and people with healthy romantic relationships, are usually quite happy, regardless of almost anything else that happens in their lives. Social relationships are a better predictor of happiness than your physical health.

So, if the above sounds like too much work, then grab a couple of drinks on the patio with good friends and socialize your way to happiness and success. After all, we finally have the weather to do it.

[1] For goals to work, many Silicon-Valley types claim they must be: Specific, Measurable, Attainable, Relevant, Time-Bound.

 

[2] Brandon claims that DUMB Goals must be:

  • Dream-Driven
  • Uplifitng
  • Method-Friendly
  • Behavior-Driven

Buying a property that has a tenant?

Ontario’s Fair Housing Plan has negatively affected more than just the renting market; it’s also negatively affected the process of buying and selling a property.

Longer Notice Periods and Longer Closings

If you have a client interested in buying a property, but it has a tenant, then make sure to extend the closing date because the required notice days have no doubled in length. In the past, only 30 days written notice was required to terminate a tenancy. Now it’s 60.

Another glitch: the date the tenancy ends must coincide with the end of term or rent period. This could result in a full year passing before your client can move in! For example if the tenant’s lease ends December 1, 2018, then your buyer can’t move until December 1, 2018 even if the closing date is November 1, 2017. And if you’re thinking of “fudging the dates” by giving less notice than is required, don’t! If the termination date is so much as a day off, the notice is invalid and you’ll have to start all over again.

 It Costs More

 Never has a landlord been required to compensate the tenant if the landlord gave proper notice and acted in good faith. No longer so. Section 48.1 of the RTA requires that the landlord compensate the tenant equal to one month’s rent. This amount has to be paid prior to the termination date specified on the N12 notice. This means a tenant can take the money and still refuse to leave!

Change Your Mind? Suffer a Big Fine!

Some realtors have encouraged investor buyers to buy a place and evict a tenant under the pretense that the buyer, or her family member, is moving in. Under the new rules, if the buyer gets caught, she can be fined up to $25,000.00. This fine can also be levied if the buyer decides to move out before twelve months are up following the date of eviction, rent it to her cousin and charge rent or demolish the place.

What to Do?

 Given these rules, it’s important that you get a copy of the tenant’s lease. This way, you can gauge when your buyer can move in and how much she’ll have to pay the tenant to move out.  It’s also important that you always use the updated forms found on the Landlord and Tenant Board’s website as previous forms are no longer valid.

 To avoid extortion by the tenant – a practice whereby tenants demand money in order to move – make sure that your buyer, once she becomes the landlord, files an L2 application and obtains an order terminating the tenancy pursuant to the notice prior to the termination date. Ensure that the order references the payment so that it is documented that you will be providing the tenant with proper compensation. Getting an order in place speeds up the process if the tenant refuses to move following the notice date and prevents the tenant from extorting the landlord by demanding more and more money in order to move out.

While affordability is an issue and the housing reforms attempted to solve this matter, the reforms have disproportionately hurt landlords and those who are scrimping and saving to buy a home. As such, buyer agents, as well as seller agents, must be aware of these financial and practical changes, as these changes can destroy a deal.

An Easy Hack to Avoiding a Lawsuit

As a lawyer, manager of a brokerage and a member of the Real Estate Institute of Canada (REIC) I’m
surrounded by rules of professional conduct and codes of ethics. All of my actions – whether they’re related
to my work or not – are filtered through not only the Law Society’s Rules of Professional Conduct, but also
Real Estate and Business Broker’s Act and REIC’s Code of Ethics. While this seems like quite the process, I
discovered that being ethical just as good as having a lawyer on demand.

How to Develop Your Own Legal Intuition

If you practice ethical behavior consistently – from how you act with your family members to how you treat
your clients and other real estate professionals – you’ll become “lawsuit-proof”. This is because you develop
a very strong intuition around what is ethical and, defacto, what is legal.

How Intuition Works

Intuition, as it turns out, isn’t magic. Rather, it’s our brain quickly spitting out a mass amount of information
we’ve gathered and analyzed through years of repeated actions. An example of this is when you “just knew”
that the deal was going to fall apart or that the buyer wasn’t serious. Your gut instinct is not magic. Rather,
it’s your unconscious brain picking up on numerous cues and these cues trigger a “gut reaction” you’ve had
in the past to those very same cues.

Given how intuition works, it follows that developing a “legal mind” and lawsuit radar can be done through
memorizing the Code and practicing ethical behavior. The problem in doing this, however, is that ethical
behavior isn’t clear cut and memorizing the Code is not an easy or immediate solution. Given these obstacles,
I use Institute of Real Estate Management’s “Five Question Method”. By consistent application of the these 5
questions, I am not only able to clarify and examine ethical issues, but I’m also able to access a “built in
mini-lawyer”. These questions are:

1. Is it illegal?
2. Who is affected by your decision? And how?
3. What are the consequences of the decision?
4. How do you feel about the situation?
5. Have you examined all the alternatives?

If this is even too difficult, then an even simpler question to guide you is: “Would you like to see your action
talked about on the first page of your local newspaper?” If the answer is “no”, it is likely unethical and
possibly a breach of the law.

Actions speak louder than words. Even if those words are in writing.

Whether or not it’s in the commercial or residential world, negotiating is always a messy process that leaves copious amounts of room for mistakes. Like forgetting to waive a condition or forgetting to add or delete a term in an agreement. The real issue is not just the fact that mistakes happen, but whether or not someone can take advantage of this oversight to get out of bad deal.

 

Can you use a mistake to get out of a bad deal?

 

It’s rare, but the law can actually be applied fairly and sneaky litigation tactics won’t always work. A recent Ontario decision confirmed that the actions of the parties negotiating a deal may overrule what’s written in a contract. Here’s what, where and why:

 

A tenant and landlord entered into an Offer to Lease. There is a condition in favour of the tenant to waive for inspection and a condition in favour of the landlord to waive for financial approval. The deadlines for these conditions have come and gone without anyone fulfilling or waiving these conditions. Yet, the tenant and landlord continue to negotiate the lease terms. In other words, while the legal document – the Offer to Lease – states that the contract is over, no one acts like the contract is over.

 

During negotiations, the tenant and landlord agree verbally and in vague email correspondence that they’ll not strictly apply their legal rights and agree to carry on the negotiation process. No formal amendments are signed, the tenant starts incurring expenses to renovate the unit and the landlord offers no indication that the tenant doesn’t meet the financial standards outlined as the above-referenced condition of the Offer to Lease. That’s until the landlord has a change of heart and, without warning, claims that the Offer to Lease is void because neither party waived their conditions within the prescribed deadlines.

 

The evidence in this case is clear: the landlord is attempting to manipulate the law unfairly and use the contract as a litigation tactic. As such, the tenant sues, claiming that the landlord’s actions speak louder than the conditions of the contract and the landlord cannot benefit from such sneaky behavior. Thankfully, the courts agreed.

 

The Lesson Learned

 

Forgetting to waive a condition doesn’t necessarily mean that a deal is dead or that an agreement is void. Rather, if the parties verbally agree and act like the deal is going forward then the deal is still alive. A cautionary note: while this case means that your client won’t be penalized for your oversights that can happen during a negotiation, this doesn’t excuse sloppy work and it certainly doesn’t mean that you won’t end up with a RECO claim.

 

 

 

If it SAYS it’s binding, is it binding?

A version of this (true) story has happened to every real estate veteran. You’ve spent years chasing a client, a landlord, and another year negotiating the offer to lease.  The lease is now in the hands of the lawyers and your hard work is finally about to pay off … if the deal doesn’t die.

Since lawyers do have a reputation for being “deal killers”, you make sure that the parties have agreed to all material terms in the offer. For greater certainty, you further added a clause stating that:

  1. the offer is binding;
  2. the landlord and tenant have 20 days to use their best efforts to execute the lease.; and
  3. the final standard form lease is subject only to “minor non-financial amendments as may reasonably be requested by the Tenant which are acceptable to both parties…”.

You hand over the standard form lease to the lawyers assuming that the deal is bullet proof. But then…

The tenant (okay, the tenant’s lawyer) is unhappy with the standard form lease and makes 106 edits to the lease. You’re not overly concerned because most of the edits are minor and don’t affect the material terms of the binding offer you negotiated. Over a few months of back and forth, you’re relieved to find out at the landlord finally accepts 74 – that’s two thirds – of the edits. You’re sure the deal will close. After all, you have a binding offer and the parties have already agreed to the “important stuff” during the offer stage.  However, despite all of this, the tenant refuses to sign the edited lease and walks away from the deal. Can your client – the landlord – save this deal by suing the tenant for breach of the binding offer to lease?

When “NOT BINDING” Isn’t Good Enough

The court would agree that the tenant is in breach of the offer if the remaining 32 edits were minor and immaterial issues and if all of the material matters had been decided. If the 32 edits, or some portion thereof, however, touched upon substantive issues (i.e. material terms) then the landlord (and your commission) is in trouble.  In other words, despite the fact that the offer is binding and that material terms were discussed, if new material issues pop up then the landlord cannot insist that the tenant sign the lease and the landlord cannot sue for breach of contract.

How Can I Protect my Deal?

 To get a deal over the “goal post”, ensure you’ve negotiated all materials terms in the offer stage. To understand what is material, investigate the nature of the tenant’s business, as well as the landlord’s intentions with the property.  Even if you’re acting for the landlord, insist that all parties review the standard lease during the offer negotiations. Taking these steps ensures and protects you from any surprise material issues from popping up and ruining your supposed binding offer.  While this sounds like a lot of work, it’ll certainly be worth it when you hand over the offer to the lawyers knowing that it’s “lawyer proof”.

 

Happy Canada Day! – The Renaissance of Renting

 

Home owners – prepare to feel duped. Renters – prepare to feel like Warren Buffet.  Alex Avery, author of The Wealthy Renter and Vertica, an award winning property management group, are using cold hard math to prove that your money is much better off spent in the Canadian stock market than on a mortgage. In other words, you made a bad financial decision if you bought a house rather than rented and invested your money in market. And yes, this is true even though we’ve had a housing boom.

 

Some may argue that Avery’s “hard math” isn’t accurate or that Vertica’s faith in the rental market doesn’t acknowledge the full value of home ownership; they both fail to take into account the intangibles of home ownership. After all, the duped homeowners pay the big sticker price because there’s immeasurable value associated with the pleasure of home security, home ownership, upgraded amenities and living in a neighbourhood that fosters a sense of community. In fact, it’s this very lack of intangibles that demoralizes renters and that perpetuates the stigma associated with renting. That’s until Vertica decided to change the renter’s experience by creating these intangibles via technology and by upgrading its value system by committing all resources to customer service, convenience, cleanliness and community.

 

Sounds nice, but renters don’t have home security!

 

Theoretically, having your name on title as the registered owner gives you, the homeowner, a stronger legal interest in your property than that of a renter. Practically, however, this isn’t the case … just ask any landlord who’s dealt with a delinquent tenant.

 

The new Wynn policies along with our old leasing laws prescribe numerous protections for tenants – from being able to register your interest on title to prolonged notification periods and rigorous hoops to jump through before eviction is possible. In fact, a homeowner who stops paying mortgage payments is likely to experience swifter eviction and longer damaging financial repercussions than a renter who stops paying rent.

 

With the advent of a rental renaissance in Toronto, as demonstrated by Honest Ed’s pledge to develop spacious rental units, the rights of tenants are likely to intensify. This is because the new demographic choosing to rent – high income earning Millennials and cash heavy Baby Boomers – have the financial and positional wherewithal to influence housing policies.

 

While the current state of renters’ rights defies the notion of security through ownership, how does Vertica deal with renter’s woes within Vertica’s control? For example, does Vertica overcome “slumlordism” and cultivate a sense of homeownership pride not typically felt by renters?

 

How to become a good landlord?

 

Vertica is taking a page (or two) straight out of Apple’s innovation and customer service text book: use technology to make the user experience a pleasure and obsess over delivering a positive experience. Unlike the experience of those who rent condos from absentee landlords, Vertica’s tenants don’t have to incur any out of pocket costs or manage the process of finding, screening and waiting around for the maintenance person to arrive anytime between 7 am and 7 pm. Rather, Vertica’s tenants have the convenience of handing off the entire process to a team of professionals. In a few more years, Vertica be launching technology that simply allows its tenants to open up a smartphone or online application to report a maintenance issue. Within minutes, the tenant will know when the issue will be solved by a designated, screened and trusted property manager.

 

Todd Nishimura, Director, Marketing at Vertica Resident Services/GWL Realty Advisors, asserts that the use of technology is not intended to reduce human interaction. Rather, it does quite the opposite. Vertica pays close attention to measuring its team’s effectiveness and the customer satisfaction of their tenants (that Vertica refers to as residents). Doing so revealed that the Vertica property managers and administrative staff too much of their time on non-value add administrative tasks. Such tasks ranged from collecting rent to dealing with tradespeople and following up on maintenance requests.  The solution: use technology where possible to reduce paperwork and eliminate redundancies. And then use the freed up time to interact with tenants, foster tenant relationships, reduce disputes and create a positive home environment.

 

We Don’t Have a Sense of Community!

 

Landlords renting out their condos and neighbours to rowdy renters rightly complain that renters destroy facilities, as well as the sense of community. After all, renters aren’t invested – literally – in the maintenance of the building and they don’t intend to stick around. How is Vertica dealing with this obvious issue? By investing in creating communal events (i.e. summer barbeques, free tickets to local events!), committing to maintaining a clean space and by building communal spaces at each property. Creating a sense of community, combined with offering high end amenities and conveniences such as en-suite washers and dryers, attract those who are choosing a lifestyle that allows for financial flexibility while setting in deep roots; something that’s not offered by home ownership or by Toronto’s flimsy condo rentals.

 

Despite the risk of running a fool’s errand, I predict that the rental market will change as we start to seriously consider the “hard numbers” and as  rental buildings such as Vertica’s become more available. This trend will continue if housing unaffordability – whether it be a detached home or condo –  continues as it has and as developers begin to move away from the “build and dump” condo developments scarring Toronto to build, rent and create communities we so desperately need.

 

How to avoid a Lawsuit

Lawyers are great assets for any real estate agent or realty team. They’ll help you craft a legally acceptable arrangement, but they have their limits. They won’t help you create a good business deal because that’s your job. And if you don’t do your job your client will be stuck with a bad deal and the courts will not strike down an agreement just because the deal, well, “sucks”. But, the courts will uphold a lawsuit against you if you failed to meet your professional duty to provide competent advice!

 

How can you avoid a lawsuit? You’ll have to flip through the 100-page lease and have a strong understanding of every clause. The problem, however, is that you don’t have the time and getting a lawyer involved is very expensive. Yet, you also can’t afford to not know the legal dangers lurking to destroy your deal, client and reputation. The solution? Educate yourself and read on and to learn about one of the most common mistakes arising out of lease deals.

 

Why You Have to Care (and Know!) About More than Per Square Foot Rate

 

The Scenario

 

Your client is an experienced restaurateur and needs a space that’s at least 3,000 sq feet in a trendy Vancouver neighbourhood. The square footage is critical because anything smaller won’t fit the number of seats required for the restaurant to turn a profit. Losing even one table would destroy his business.

 

After months of searching and several deals falling through, you finally find the perfect location at a below market rate. The suite is in a busy strip mall with a gorgeous green space attached and large parking area. As you review the Offer to Lease you know that your client will be pleased because the Offer clearly states that the Rentable Area is approximately 3,020 sq feet.

 

A month later, your client calls. He tells you that his contractor measured the suite and the space is actually 2,500 square feet – he won’t be able to make his business work.  He says you and the landlord intentionally misrepresented the size of the unit and he wants out of the deal! If not, he’ll sue.

 

Is the square footage discrepancy between what your client measured versus what is written in the lease and what he’s paying rent on legal? You bet. May your client try and sue you? You bet.

 

What Happened?

 

Your client assumed that the Rentable Area was the actual size of the unit and you didn’t explain the difference between Rentable and Useable Area.

 

What is the Difference and Why Does the Landlord Do This?

 

Before signing an Offer it is imperative to always warn clients that there can be a big difference between the Useable Area and the Rentable Area. Understanding and telling your client about these differences is imperative because rental rates are almost always based on the basis of Rentable Area. I’ve seen many disgruntled tenants start lawsuits over failing to appreciate this difference and businesses fail because of the unexpected cost of rent.

 

Generally, Usable Area is the space that a tenant can actually occupies and can use, while Rentable Area includes a tenant’s share of space in the building deemed beneficial to the tenant. The tenant doesn’t necessarily have exclusive possession of such space:

 

Rentable Area of the Premises means the area expressed in square feet […] as certified by the Architect or Lad Surveyor of all floors of the Premises (including, without limitation, any Mezzanine Area, Basement Areas and Storage Areas), measured from: (a) the exterior face of all exterior wall, doors and windows […]. The Rentable Area of the Premises includes all interior space, whether or not occupied by any projections, structures, stairs elevators, escalators, shafts or other floor openings or columns, structural or non-structural and […] the area of such recess or entrance for all purpose lies within and forms part of the Rentable Area of the Premises.

 

This clause essentially means that the Rentable Area, unlike the Useable Area, includes the tenant’s share of the building’s common spaces such as lobbies and other non-rentable space such as elevators, mechanical rooms and shared or public bathrooms. The measurements include spaces that no one can physically occupy, such as columns and rooms filled with laundry machines, boilers and HVAC systems.

 

Why does the Landlord make this distinction between Rentable and Useable Area? Because it costs money to run the entire facility, which is open for the tenant’s use and benefit. As such, the Landlord will want to recoup these costs and, sometimes, even make a profit for running the building.

 

What Should You Do?

 

The first method to protect your client and yourself from professional negligence claims is to advise your client to hire an architect to measure the space. The hired professional should not only measure the space, but also help your client determine if his space needs are met. Be sure that the architect or professional has the proper accreditation to provide a Letter of Area Certification and uses a generally accepted measurement standard such as the standard adopted by Building Owners and Managers Association (BOMA). Although the BOMA standard isn’t a standard required by law, it is very well recognized and will enhance the legitimacy of your position during negotiations or if your client has a dispute with the landlord.

 

The second protective measure you should take is to figure out if the Landlord has added a “loss factor” to the Rentable Area calculation. Although not contained in our clause example, above, Landlords may also add an arbitrary “loss factor” which is used to “gross up” the Rentable Area’s size. A “loss factor” is perfectly legal as there is no measurement standard required by law.

 

The final protective measure is to walk through the entire premises. As outlined above, the Rentable Area also includes columns. By doing a walk-through, you may find that there are numerous columns within the premises that are not available for use by your client’s use. If that’s the case ask the Landlord to reduce the Rentable Area calculation by excluding a few of the columns.

 

The best defence against lawsuits, damaged reputations and failed deals is planning and information. With your own facts you’ll have a more informed basis for negotiation and you’ll protect your client from any business-destroying surprises.

 

For more information about the author or leases visit www.groundworksfirm.com.

 

 

DISCLAIMER: This article offers general comments on legal issues and developments of concern to business organizations and individuals and is not intended to provide legal opinions. Readers should seek professional legal advice on the particular issues that concern.

 

The Relocation Clause

You’re a professional. You’ve been trained to understand what your client needs. And you know how to find the best real estate. You and your client are excited, you sign the offers and then close the deal.

What you may not know is that you’ve made a big mistake. The lease your client just signed will ruin their business. And they’ll blame you.

This happens frequently when negotiating and signing offers because, although legal advice is advisable, it isn’t practical. Lawyers give complex, lengthy and expensive analysis and slow the deal process. As a lawyer who built and led a leasing department for a private equity real estate investment firm, I saw how lawyers would frustrate everyone; yet, without legal advice major consequences would follow.

Since a lawyer may not be readily available, it’s best to arm yourself with knowledge and think like a lawyer. To think like a lawyer is easy – be paranoid and always think in “worst case scenario”!

The knowledge part, however, can be more cumbersome. So, we’ll start with one clause at a time, beginning with the most frequently overlooked but potentially dangerous clause.

The Relocation Clause

The Scenario

Your client is a hairdresser and her business depends upon walk-ins. She needs foot traffic generated by pedestrian roads and “name brand” tenants.

You find her the perfect unit. It’s right beside a popular café and that faces a busy sidewalk. You sign the offer, but pay no attention to the lease attached to the offer. After all, the terms are fairly standards and you got your tenant a great rental rate.

Three months later the landlord tells her she is being relocated to the back of building where there is no foot traffic and where there are no “feeder tenants”. After 4 months, she loses her business and you lose a client.

What Happened?

You didn’t see the “Landlord’s Right to Relocate” Clause, which stands on its own or can be buried in the “Control of Building by Landlord” Clause.

What is this Clause and Why Does the Landlord Want it?

The landlord will typically want to retain a lot of rights in its maintenance, management and operation of the building. Moving a tenant is central to a landlord’s management of the tenant mix and its ability to make changes to the building. For example, the landlord may want to attract another tenant or demolish the unit to create a larger space for an existing tenant. Given these objectives, watch out for wording that says:

Landlord has the right, on no less than sixty days’ notice, to relocate Tenant (including its subtenants and all other permitted occupants) to other space in the Centre designed by Landlord of comparable size in which the Tenant must complete the relocation within thirty days after the Landlord’s notice. The new Premises replaces the old for all purposes of the Lease.

[…]

In the event of relocation, the Landlord will pay to the Tenant on an equitable basis, for capital costs incurred by tenant for new Trade Fixtures as a direct result of such relocation.

Let’s consider our earlier hairdresser scenario. This clause gives the landlord the right to move your client with only 60 days notice. Your client has only 30 days to move, which will completely disrupt her business. The landlord, however, has no obligation to reimburse your tenant for this inconvenience.  The landlord only has to pay your client her costs to change the fixtures in the new unit and nothing else. She doesn’t get reimbursed for her loss of business income, her moving costs or her marketing costs letting her clients know about the move.

What Should You Do?

If you’re representing the tenant make sure that you strike out this clause completely. If the landlord has more bargaining power then you, insist that your client be provided a “turn-key” premises in a comparable location, size, configuration and of comparable accessibility. In other words, if your hairdresser client had this wording, she would have to have been moved to another unit that provided the same foot traffic and feeder tenants that her old unit provided.

You should also make sure that your client is reimbursed for any loss of business income, goodwill or other profits because of the relocation. If the Landlord disagrees with subsidizing these costs, then request that any relocation will only occur if your client agrees to the relocation in writing. The client should also request that all costs, including but not limited to, leasehold improvements and moving costs, be reimbursed as a result of the relocation.

For more information about the author or leases visit www.groundworksfirm.com.

DISCLAIMER: This article offers general comments on legal issues and developments of concern to business organizations and individuals and is not intended to provide legal opinions. Readers should seek professional legal advice on the particular issues that concern.

Author Biography

Natalka is a lawyer & licensed real estate sales agent who has a passion to make the law accessible & affordable. She founded, hosts & co-produces a popular legal call in show on Rogers TV, Toronto Speaks Legal Advice, & co-founded Groundworks, a firm dedicated to offering practical legal advice that helps agents, landlords and tenants make more, better & faster lease deals. All work is done by legal professionals for a fraction of the price and time of a traditional law firm.

Why Your Commission isn’t Protected

Imagine this scenario: you and your client diligently review your listing agreement. You add in an expiration date of 6 months and no over-hold. A few days later your realize that the 6 month expiration date was a mistake; you both agreed via email that the expiration date would be 7 months after the date of execution. You ignore this discrepancy, as you believe your client will act in good faith and honour the 7 month expiration date. Now here’s where it gets problematic: the property doesn’t sell after 6 months. Upset with the result, your client decides to sell the property on his own. The property sells in the 7th month. Are you entitled to your commission?

The Answer…..

It’ll be very difficult for you to argue that the listing agreement is valid and enforceable and, therefore, that you’re owed the commission. This is because the principle of certainty underpins the laws requiring agents to accurately draft and record all agreements related to a transaction – from buyer representation agreements to agreements of purchase of sale. If something is unclear, left blank or conflicts with what you agreed to and what you recorded, the contract may not be valid and your commission is at risk. This is particularly true of expiry dates. As Mr. Justice Morden put it in Rhodes and Rhodes Realty Ltd. et al. v. R. Pagani Investments Ltd. et al. (1981), 35 O.R. (2d) 77 (Ont. C.A.):

“if an agreement does not contain a provision which, in one way or another, at the time of the agreement, identifies the expiry date with certainty, then the requirements of the provision have not been met.”

Courts have interpreted the statutory provision requiring a listing agreement to contain an expiry date as seeking “to introduce a high degree of certainty into listing agreements, and to place the onus of ensuring such certainty exists on the broker”. As such, it is imperative to be accurate in your dates, names and pricing. But, that’s not all…

In ReMax Realton Realty Inc. v Seider [1993], the agent provided a listing agreement that included an expiry date. The agent then also provided a Professional Marketing Plan and Warranty that contained a provision allowing the seller to terminate the contract by providing 7 days notice. The seller ended up selling the property privately, despite the listing agreement still being in force.

The seller argued that he was able to sell the property and didn’t owe the agent any commission because the listing agreement is not valid. He argued that the termination provision in the Professional Marketing Plan and Warranty conflicted with the expiry date in the listing agreement. Such conflict raised uncertainty and, therefore, rendered the listing agreement unenforceable.

Thankfully, the judge found that the listing agreement complied with the legislation and was not rendered uncertain by the termination provision in the warranty. This is because the warranty did not alter that expiry date. Rather, the warranty was an entirely separate document:

The fact that the parties to the contract could agree to cancel it if the vendor became dissatisfied with the services of the plaintiff does not detract from the certainty of the expiry date of October 31st, 1989 in both listing agreements.

Despite this positive outcome, this case contains important judicial comments that may be used to invalidate your listing agreement. Ensure that you’ve not only accurately filled in the expiry date of the agreement, but that you also don’t create any accidental side agreements – such as agreements to amend listing agreements via email exchanges and marketing materials. If you confuse the terms of the listing agreement, you may be risking your rights to collect.

Thinking like a Lawyer but Acting like a Leasing Guru

Should You Waive Goodbye to this Right or Sign a Release?

Most leases require a tenant to obtain insurance that is consistent with the lease terms before it can enter a premises.  Despite this fundamental prerequisite to enter, most tenants fail to meet the lease’s insurance provision. This failure can cause delays in construction, occupancy and the “grand opening”, not to mention tack on “surprise” premium increases. In order to avoid this disaster, a prudent agent will advise her client to have the insurer review the lease and the insurance clause; she will also have a general understanding of some critical insurance terms.

The Right of Subrogation and Releases 

What is the Right of Subrogation?

The right of subrogation is one of the most misunderstood and overlooked rights related to the insurance clause. This right is not the landlord or tenant’s to exercise. Rather, it’s the right of subrogation is the insurer’s right to sue the party responsible for causing a loss or damage. This right arises where the insurer pays insurance proceeds to the injured party to reimburse the insured for its losses due to damage or injury caused by another party. Once the insurer compensates the insured, the insurer then gets a right to “step into the shoes” of the insured and sue the party that caused the loss.  This right makes the insurer “whole” as it recoups its payment to the insured by suing the party that caused the damage.  For example, let’s say that the tenant burns down the building. The landlord’s insurer will reimburse the landlord for its loss of the building. The insurer then gets the right to “step into the landlord’s shoes” and sue the tenant for the money it had to pay out to the landlord due to the loss.

Is this Fair and What Can You Do? 

I believe that right of subrogation is unfair because it allows the insurer to be paid twice; once by the insured and then a second time by exercising its right to subrogation. This outcome, as well as the fact that no one likes getting sued, is why you want to ensure that the parties to a lease both obtain a waiver of subrogation. A waiver of subrogation provision will require the tenant and landlord to get, in writing, their insurers to agree to not sue the party that caused the damage.

Tenants should be particularly vocal about getting a waiver of subrogation if the tenant pays for the landlord’s insurance, as operating costs usually include landlord’s insurance. This is because without a waiver, the landlord’s insurer can sue the tenant despite the fact that the tenant just was the one paying for the insurance!

Do waivers affect insurance costs? 

Most insurers will agree to execute a waiver of subrogation without any penalty or increase in the insurance premium. While tenants are typically required to obtain a waiver, landlords will only agree to “use their best efforts” to obtain a waiver of subrogation from its insurer. This loose language gives the landlord leeway in case it cannot obtain the waiver.

Can a release be signed instead of a waiver? 

A release can be signed instead of a waiver, which simplifies the process of requesting waivers of subrogation from third parties. In fact, most balanced leases have a mutual release clause. This clause releases the landlord and tenant from claims they have against one another, but only to the point that they are insured or are required to be insured under the terms of the lease. In other words, both parties agree to not sue each other if they have insurance that covers the loss they suffered due to the other party’s action.

Releases have the same effect as waivers of subrogation because the insurer’s rights exist only if the insured has the right. If the tenant gives up a right by way of mutual release, then the insurer automatically loses this right as well. Consider a scenario where a tenant signs a mutual release and a few months later the landlord accidentally destroys the tenant’s premises. The tenant may want to sue the landlord, but, if the tenant’s insurance covers the loss, the tenant and insurer cannot sue the landlord. Rather, the tenant’s insurer will have to pay the tenant for the losses, but it can’t exercise its subrogation rights and step into the tenant’s shoes because the tenant has no shoes!

Cautionary Note

Failure to obtain waivers or insurance may be a breach of the lease, which puts an unadvised tenant in a tough position. What is more, many insurers are now refusing to insure tenants who are required to sign a release. Accordingly, it’s not only prudent to ensure that your tenant and has a full understanding of the insurance provisions, but it’s also prudent to ensure that insurer reviews the entire lease and approves all terms before the tenant is bound.