Tel: 804.864.1100

Tel: 804.864.1100

Jared Burden

Ready For A Change In The Way Lawyers Bill You?

(This was first published on the Harrisonburg-Rockingham Chamber of Commerce website.)

For as long as there have been lawyers, there have been clients to whom lawyers seemed expensive.

In a world where you need certainty – knowing your costs, knowing your numbers – you never know how much you are in for when you pick up the phone to talk to your lawyer. You don’t know where it’s going to lead. Asking your lawyer a simple question might lead to unforeseen follow-up questions and “I guess I hadn’t thought of that” moments, and soon you feel like you’ve released the kraken.

Never has it been more true than now. In the grip of the COVID-19 pandemic, a company with reduced revenues and dependence on a PPP Loan to keep its employees for the next few weeks might come to a simple conclusion about the discretionary, non-emergency use of legal counsel – the conclusion being that it can’t afford it. The temporary drastic belt-tightening that everyone is doing now may lead some business owners to the conclusion that open-ended hourly legal bills need to be a thing of the past – at least their past.

Around the country, corporate general counsels – who, like any corporate managers, have to justify their expenses to senior management and boards – have been hinting, asking or outright requiring their lawyers to propose different ways of billing them. For smaller companies without inside GCs, the people responsible for hiring attorneys have come to their own similar conclusion. Many clients have heard about retainer arrangements, subscription models, flat fees, and similar alternatives to hourly billing before, but as COVID-19 squeezes budgets and clouds futures, companies are more and more asking their attorneys to actually propose these arrangements to them, and provide discounts in the interim. Lawyers are being asked, in essence, to invest in their clients. Some have called it a way for lawyers to “pay it forward” in a time of crisis. Others, like myself, view it as a permanent shift in the economic relationship between clients and their attorneys.

As Ben Gross, general counsel of retailer Rue 21, said recently, “When you have a good relationship with your outside counsel, they’re going to work with you in thick and thin.”

As an aside, I should note that even though hourly billing has fed lawyers for decades, the irony is that many (actually most) lawyers will tell you they hate billing by the hour. The mechanics of it, they will say, are tedious. So both sides have something they dislike about the hourly rate. Hourly billing is like the moon in that scene in Sleepless in Seattle, when Tom Hanks and Meg Ryan are both looking at it 3000 miles apart at the same time and thinking the same thing, except here instead of being in love its…well, it’s something else entirely.

There are real reasons why hourly billing has been the norm. Lawyers are ethically bound to not charge a client for work until it is already earned, in the absence of some other mutually understood arrangement. You do identified and authorized work, and then at the end of the month you send a bill.

But there’s never been a worse time (in least our lifetime) for major costs to be unpredictable in a business. It’s time for lawyers and clients to have conversation about other (and probably smarter) ways to work together.

Apart from lawyers getting paid by taking equity in a client that’s in a fast growth stage – a practice largely limited to Silicon Valley technology companies — there are two basic types alternative of legal fee arrangements. One structure is where a client pays a monthly fee in return for essentially unlimited access to lawyers in the firm, and the other is where a flat fee is charged a specific definable task. We began offering the first service – we call it OPENgc – four years ago, and we can attest that when lawyer and client spend the time to design an arrangement that works for the business, it’s an ideal way for the law firm to bring both certainty and immediate value to a lawyer-client relationship.

Flat fees for specific tasks, by definition, allow the client to budget legal services to the dollar. It’s a workable business model for lawyers who have the experience to predict what it will take to achieve a particular client’s goal — such as negotiating a loan or lease, purchasing or selling a company, drafting contracts, and other matters with a definite start and finish.

Both of these alternative fee arrangements push lawyers to work smarter and to really understand their clients’ businesses. This is a great thing, for both client and the attorney.
The uncertainty that surrounds business now, in the midst of this pandemic, amplifies the uncertainty that has challenged owners and executives forever, in good times and bad. Lawyers have been presented an opportunity to shut down the timeclock and take some of that particular fear off the table.

If you have questions about legal issues, the relative costs of legal work or just want to talk about your experience as a consumer of legal services, please contact me or any of our business lawyers.

Rent Concessions in Retail: Taking the Long View and the High Road (UPDATE)

retail strip centerAnother rent due date is upon us — the second full month is beginning since COVID-19 hit the US hard.

How has rent relief played out in the retail and restaurant world since my April 1 post below? Perhaps the best way to summarize is that sweetness and light have not flooded the land. This is business we’re talking about, after all. Tenants have had to work hard, and are still working hard, to work out arrangements with landlords in a crisis of unknown duration. Landlords speak in terms of having “rational discussions” with their national tenants and wanting to “take care of as much as possible” their mom-and-pop tenants. Over the next few weeks it may become clear whether the gradual “opening up of America” that has already started in Virginia’s neighbors to the south — Georgia, South Carolina — will allow tenants to back off a bit from their claims of distress.

As can be expected, landlords — which have their own bills to pay — generally have not agreed to preemptive demands that past-due rent be abated (forgiven) or future rent be 100% waived for the duration of the crisis. Instead, where a landlord is willing to work with a client seeking rent relief, the conversation focuses on gradations of rent reduction, or, more frequently, the deferral of rent due. These deals vary both in terms of how long the deferred period is (whether it be 30 days, or 60 days, or the time period until stay-at-home orders or social distancing restrictions are lifted) and the amount of time the tenant has to pay back the amount deferred. It’s a case of unintended landlord financing, and each landlord’s lender needs to be OK with it.

Other areas of play in these discussions have included applying the security deposit to amounts due or to-be-due, the exacting of other lease concessions in exchange for rent relief (such as eliminating a tenant’s exclusivity provision in the lease), or…well, the possible mix of responses are endless. Landlords have in many cases been requiring that tenants seek as much Paycheck Protection Act help as they can get or exhaust claims for business interruption insurance coverage. And almost always a landlord will not work with a tenant who is in default, at least for reasons other than being a month or so behind in rent.

To be clear, there are many cases in which tenants have been straight-up saying since late March that they are not going to pay rent — any rent — while the crisis is going on, knowing that near-term eviction is unlikely. Then there are other tenants, like Starbucks, that generally have paid 100% of their rent. The general truth lies in the middle: as of mid-April, about 51% percent of retail tenants had paid their April rent, while 85% paid their March rent by that same date, according to the Wall Street Journal (April 20, 2020).

GreeneHurlocker will continue to monitor this as the crisis continues. If you have any questions or issue related to commercial real estate, leases or otherwise, please reach out to one of our commercial real estate lawyers.

— On April 1, we wrote:

April 1 is famous for being a day of jests and frivolity.  However, we’re in the middle of the COVID-19 epidemic and few of us feel frivolous.  In this troubled year of 2020, for landlords and tenants in the retail real estate industry, April 1st has another meaning altogether: It’s the first monthly rent deadline since COVID-19 in the United States really hit the you-know-what.

As a result, landlords have been receiving emails and letters from their tenants — and sometimes, tenants’ attorneys — asking for rent relief.  The requests started coming in earnest three weeks ago and ratcheted up like the virus itself as April 1 approached and sales plummeted.

In a less fraught time, when a particular retailer faces an acute issue like supply disruption, weather anomalies, or other unforeseen difficulties that do not fit into the narrow squeeze of force majeure clauses, a tenant may make a rent relief request.  It could come in the form of  rent abatement (free rent), a rent concession (discounted rent), or rent deferral, which for all practical purposes is a loan.

In such a normal time, if a landlord is willing to entertain a rent relief request, it probably will insist on concessions in return, and will require a written lease modification or forbearance agreement with the tenant.  The landlord will usually insist on deferral, with rent being paid in one lump sum later or amortized over a certain period.  But the landlord may also take the opportunity to go back and renegotiate provisions that were “tenant-friendly” in the lease, such as those giving the tenant the drivers seat in who else can and can’t be a co-tenant in the shopping center and what uses are prohibited.

These are not normal times, though, and this is not a normal April Fools Day.

Retail is where the housebound buyer would have spent her money if she had a job and could move about freely.  Retailers truly need help, because no one – not the landlord, not the tenant — wants rows of desirable stores to be empty in six or eight months.  Proceeding according to “normal” landlord behavior is unnecessary—and unwise.

This is certainly what Gary Rappaport, the founder and CEO of Rappaport, thinks, judging from his comments to over 1500 industry viewers today in a Bisnow webinar entitled “Leadership in Uncertainty.”  Rappaport, the company, is a Washington DC-area retail brokerage and shopping center owner/manager with approximately 1750 tenants in numerous higher-end shopping centers across the Greater Washington area.

450 of those 1750 tenants have already contacted Rappaport with requests for some sort of rent relief.  By the end of this COVID-19 period, Gary expects at least 600 tenants to not be paying rent.  On this first post-COVID-19 rent due date, everyone knows the pain is going to be real, and the pain is going to last throughout the year.   “Plan for this to be a long-term problem,” Gary told his audience today.

Gary is famous in the industry for his unusual availability to offer retail real estate advice to anyone who asks him.  Those, like myself, who have spent even a little time with him can tell that he thinks that doing good is good business.   This is why it came as no surprise to today’s webinar attendees that Rappaport, the company, has told every one of the 450 tenants who have requested rent relief – and will tell all those other tenants that will come to him as they face this April 1 rent due date – that there will be no short-term consequences – no late fees, no defaults, no threats — arising from inability to pay their rent Instead, what Rappaport will say is, “Let’s kick the can down the road 60 days and see where things are then.” Taking dire action now, Gary said, “is not a good business decision.”

Sixty days is a meaningful period of time in a business where landlords, like Rappaport, themselves have mortgages and institutional investors that may not have a huge amount of patience.  Taking rent pressure off the table for 60 days is not a pleasant development.

Ending up with empty stores when the virus abates is not attractive either, though.

We’ve heard this a lot, but it’s what you have to believe, whether you own a shopping center, rent space within it, or work in a store or restaurant:  “We’re in this together,” Gary said today.   “And we’re going to get through it.”

Richmond’s Commercial Real Estate Market Still Robust

GreeneHurlocker’s commercial real estate attorneys, Andy Brownstein and Jared Burden, along with more than 200 real estate industry colleagues, attended the Greater Richmond Association for Commercial Real Estate (GRACRE)’s 2020 Real Estate Market Review on February 18, 2020. What’s the verdict on the health of the local commercial real estate market in the Richmond MSA? Good, with few reservations.

Among the six speakers we heard plenty of optimism about the area’s ability to absorb more commercial real estate space, including apartments, office, industrial and hospitality. However, a consistent them was that is both finite demand, given the middle-market nature of Richmond’s business environment, and finite supply, given the lead time (up to 36 months) in developing commercial property. As a result, given shifting interests rates and other financing considerations, projects will have to be carefully planned and developed.

News coverage in the Richmond Times-Dispatch of the event is here.

Richmond’s rise in the Metropolitan Statistical Area ranking (now 45th) due to its population growth (1.3 million), of which 54% are of prime working age, along with relatively constant rates of space absorption, suggests commercial development has not reached saturation. Even older office developments, such as Innsbrook, are getting seeing good demand rents due to redevelopment and improvement of old commercial stock.

If there was one property class that is especially hot, it would be multifamily. Eric Phipps of SNP Properties cited properties in Scott’s Addition and Manchester as continuing to be in very high demand. He also suggested that the West Broad Street corridor and Jackson Ward to be ripe for future commercial development, and that Richmond could consistently absorb 1,500-2,000 a year for the next few years.

Nick Patel of Kalyan Hospitality discounted the potential for multiple casinos to be developed in Virginia in the short term, even if the proposed development in Richmond goes forward, but said he felt up to 1,000 additional rooms could be built in the greater Richmond market. He did not believe the downtown hospitality market would not see any luxury hotel development until average room rates approached $200, up from approximately $150 today.

While retail is still a challenging asset class, there are a number of exciting projects underway in the Richmond area, including the redevelopment of Regency Square and Virginia Center Commons, Carytown Exchange and the Sauer Center, showing that there is still an appetite for retail development under the right circumstances. Nikki Jassey provided a window into the shifts created by the rise of Amazon and different approaches taken by retail tenants and developers.

Finally, there remains a strong demand for industrial properties, especially along the interchanges of Interstates 295 and 64 and Interstates 295 and 95. We have benefited from strong local transportation infrastructure as well as the growth of data center demand without the downsides of locating in Northern Virginia.

It sure was good to run into a number of our friends and colleagues in the real estate business and hear some promising news about the future at GRACRE. If you would like to know more about what we learned, or discuss commercial real estate opportunities in Richmond or other parts of Virginia, contact Andy (804.864.1100)  or Jared (703.258.2678) or any of GreeneHurlocker’s Virginia real estate attorneys.

Ideas Are Just That: Part 3

We’ve been sharing a series of blog posts and videos here and here about how an idea is just that: an idea, and how there are some basic, critical things a high-potential start-up technology company founder must do in order to make any idea worth having and building upon. As I said in my first post, the fact is, most ideas suck. So a founder needs to be sure this idea is worth making it the most important thing in her life for the next months or years.

My third suggestion for the immediate post-idea step is: Focus obsessively on creating a minimally viable product.

Don’t get caught up in the romance of the wonderfulness or inevitability of your idea, the greatness of your team, or the exuberant free feeling of having decided to jump in with both feet. The fact is, you haven’t yet accomplished the whole reason for doing this in the first place, which is selling something to people who want to buy what you have to sell. The excitement is going to wear off and then it’ll be time to get to work. If you don’t get to work immediately, you probably will have lost your opportunity.

It is all about speed.

Too many startups begin with an idea for a product that they think people want. When it isn’t resonating with customers, it is often because the founders never spoke to prospective customers and determined whether or not the product was interesting. When customers ultimately communicate, through their indifference, that they don’t care about the product, the startup fails.
The truly most important question you need to start asking yourself is the following. It’s the first thing you should ask yourself even before you swing your legs off the edge if the bed to get up on the first morning after to you come up with your great idea.

“Should this product be built?”

And then, soon thereafter, maybe before you brush your teeth, you need to ask “Can we build a sustainable business around your product?’
At this point it’s really only about two things: a first product that you know the world needs, and a plan for how first product can actually get customers. The team needs to be focused brutally on these things. Let the customers be your source of accountability.

The new company should be focused on quickly developing a minimally viable product and then learning as much as possible about its weaknesses and opportunities for improvement. Iteration upon iterations, pulling your hair out from anxiety that you’ll never get it right, near-all-nighters and lost weekends — all of that fun stuff. The point is to do all of this on the front end, quickly, and always being in dialogue with the customer, not stuck in an echo chamber of a founder team that may be overly enamored with the original concept.

When a founder focuses on figuring out the right thing to build—the thing customers want and will pay for—she need not spend months developing a prototype or waiting for a beta launch to change the company’s direction. Instead, she can adapt her plan incrementally, inch by inch, minute by minute, moving fast, boxing out the competition.

A couple of years ago I spent three days in the James Madison University’s Icehouse facility with about 24 entrepreneurs who had agreed to lock themselves in and spend that whole weekend developing companies based on pitches that they made on the first night. These people , for the most part, had never met each other. Groups coalesced around about eight ideas big and small. Through the weekend there was a compressed process of honing the original idea and creating a business plan and readying the product or service for the launch. I remember several of the teams were stumped by this question: Will customers want this? Only one of the groups spent the first night doing customer demand research – one group had thought to do this out of eight. That may be somewhat reflective about what real companies do when they go out into the real world. I hope not.

The founding team members need to relish being sponges for crucial information gleaned from the only people that matter: potential customers. This is never more true than at inception and in the earliest weeks and months.

Watch for our next post on “Ideas are just that.” Meanwhile, if you have any questions about startup steps or business law, just reach out to me or any of our Virginia business lawyers.

Client Conversations

Just prior to the holidays, we stopped by to see Randy Seitz, CEO of our long-term Harrisonburg client Blueline, to check in and get his opinion on what is important to his company in working with their law firm. This short video includes the things we talked about. Call or email me if you want more details.

Ideas are Just That: Part 1

That moment you realize you have an idea worth a business is a great moment. Sometimes it’s an epiphany on the road to Damascus. Sometimes it’s a slow dawning after a grind lasting several years. But however it happens, it’s time to sit back and go “huh.” It’s an achievement.

Most large corporations interested in continuing to exist generate ideas all of the time, as a matter of course. These ideas, generated by scientists or creatives, are noted, catalogued and vetted. With the promising ones, perhaps the inventor/employee fills out a patent disclosure form and a provisions patent application is filed.

But the rest of the ideas? They are just embodiments of the old adage that you have to kiss a lot of frogs before you find your prince or princess. You never get to the good ones unless you generate a lot of bad ones.

The fact is, most ideas suck.

I’m not writing to talk about bad ideas, though. I want to write about what high-potential start-up technology companies should first do with their good ideas.

Joseph Lassiter of Harvard Business School says a high-potential technology startup is one that plans to hit the $50 million per year mark in new product/service sales within 5 years.”
A new one-off auto battery retail store down the road, no matter how impressive the owners are, is not a high potential technology startup. But, the company that holes up in a garage in an industrial park developing an electricity storage product that is based on an idea that came out of a major university technology transfer office and could disrupt the solar energy marketplace probably is one. It almost certainly wants to sell its products to every big or small solar energy producer anywhere in the world and will do whatever it takes to get there.

Ideas are just that: Ideas. Even the ones that are good are worthless – at least on the day they’re are created. You can’t patent an idea, you can’t trademark an idea, you can’t copyright an idea, and your idea by itself doesn’t make a very valuable trade secret.

We tend to focus on ideas, on genius and creativity, the light bulb, the “Eureka” moment. But let’s be honest. There’s very little more poignant than the unfulfilled “Idea Person,” the person who thinks she could have been a contender in business if she’d just had the time/just had the money/just had the team to fulfill all of the dreams in her head. You have to do something with an idea, and chances are our “Idea Person” just didn’t stick with it – if only to get to the liberating point of understanding that the idea was not, really, in fact a contender.

I’ll be posting a series of blogs laying out five top things a high potential technology founder needs to do immediately if she wants to deliver on all of the high potential her idea might possess. I’ll be addressing the founder as “you.”

Number 1: Decide if you want a co-founder.

The direction here may have something to do with just how big is your idea. If this is the big idea, and if your high potential idea means someone has to develop the app and someone has to sell the product and someone has to be able to do the magic that quants can do with Excel, and this is all starting from scratch, then maybe you don’t want to start off alone.
This very first decision – whether to go it alone or bring one or more trusted folks into the founder’s tent – ties in completely to what resources you have available to you.

When founding a company, there are three basic assets you can make use of: human capital, social capital, and financial capital.

  • Human capital means knowledge derived from formal education and the skills derived from prior experience. A founder with a great amount of human capital can reduce the chances he will get blindsided by something he really should have known could happen. Some call it “wisdom.” I believe you can have a lot of wisdom even when you’re 24 if you’ve studied a lot and worked a lot and kept your eyes open. And there are loads of people my age (which is older than that) who are don’t have wisdom. Point is, if you don’t have it, your human capital is less than optimal, and you may want access to it from someone else.
  • Social capital means the benefits that come from your place in information and communication networks. A startup must project itself outward, whether it’s to hire people, raise money, sell, or any number of other things. If you are an industry insider, or if you just know a lot of people, or you just love networking events, then you might have a lot of social capital. If you’re someone who just doesn’t get out much, then maybe your own social capital is, shall we say, lacking.
  • Financial capital means, well, I think we know what that means. For a founder, if you have “screw-you money,” if you can quit your job and pay for all of the costs of the new company until its projected time to become successful or not, then that’s a blessing. It’s a fairly rare blessing.

A major reason you co-found is to make up for the kind, or kinds, of capital you lack.

One researcher’s long-term study found that solo founders accounted for less than 20% percent of technology startups.
If you are a person with an idea, a sober-minded business plan might lead you to the conclusion that you need one or more cofounders if you are going to create a real business, and you might already know who they are. Or you might need to go looking. Either way, there’s someone close to coming up with the same idea in Portland, so best to get moving.

I’ll follow up soon with the 2nd action a founder needs to take after deciding to make a go of their great idea. Meanwhile, if you have any questions about the content of this article or on any business startup issue, please contact me or any of our business lawyers.

Five Essentials To Bring an Idea to Life

Jared Burden leads a session in the business track at Valley TechCon 2019.

Jared Burden, Harrisonburg partner, led the kickoff session in the Growing Your Technology Business track at Valley TechCon September 25, held at the Hotel Madison and Shenandoah Conference Center in Harrisonburg, attended by about 160 company executives and entrepreneurs. His presentation laid out the five essential things a founding team needs to do immediately in order to turn an idea into a company. His slide deck is here.

If you’d like to have Jared reprise his presentation for your company or organization, please contact him. If you have questions about this topic, Valley TechCon or any issue of business law and growth, contact Jared or any of our business lawyers.

Knowing Where to Start

Clients wonder sometimes what they are getting into when they ask a lawyer to draft a contract. Maybe their fear is that their attorney will sharpen up his metaphorical pencil, lean his chair back to think deeply on life and law for an hour or two (on the clock), and then pull out the laptop and sit down to drafts things up from scratch, like a composer writing out each note to a (very boring) symphony. The client may fear that the lawyer views every deal is different, that everything about every deal is new every time, that everything needs to be tailored like a bespoke suit.

Every deal is different, it’s often said – I’ve heard myself say it a hundred times. That’s because the facts are different, and that’s because no two people and no two companies are alike or have the exact same priorities. But that doesn’t mean that two deals – say, two leases of refrigerated warehouse space, or two agreements for the purchase of the assets of small businesses — happening 500 miles apart (or 5000 or 5) — can’t be done with forms of contract that are 90% the same.

In fact, they probably should be done that way.

And your attorney shouldn’t be spending a whole lot of time going for the Pulitzer Prize for creative nonfiction and drafting that 90% (just a percentage used for illustration purposes) from scratch.

Unless we are speaking of some sort of business deal where the industry is utterly new, the parties are utterly idiosyncratic, and the risk tolerances are off the charts (one direction or the other), or all of the above, the same basic forms work across the board. I remember Internet 1.0 – the days of AOL and Pets.com — and the ways that lawyers were trying to draft “application service provider” contracts that expressed the concept of software programs being accessed over the Internet (what we now call Software as a Service (SaaS)). But even in that time, when the Internet was beginning to utterly change the way the world operated, the contracts were pretty much built right on top of software, consulting, joint venture and financing contracts that had been around for decades before that.

The majority of the text in a contract from 1975 (the year of the room-sized computer) – for example, events of default, remedies on default, representations and warranties, indemnification, assignment, the boilerplate at the end, and the general flow and sequence of the document — was essentially the same as the text in a contract drafted in 2000 (the year of the Pets.com sock puppet). The same is even more true for commercial real estate contracts, and even holds true for many types of intellectual property agreements.

And it goes without saying that 90% of the text in an accounting SaaS services agreement from 2017 is going to be the same as a payroll SaaS services agreement from 2019.

Anyone who tells it differently is trying to create mystery where there really should be none.

That’s my candid and honest observation How does this insight relate to you?

As outside corporate general counsel, under our OPENgc service offering, GreeneHurlocker is keenly focused on saving a client time and money while still delivering the legal assistance a client needs, when they need it. We avoid reinventing wheels. We’ve been practicing enough years, in widely varying industries and for companies of all sizes, to have an experienced, intuitive sense of what works and what doesn’t, and how the work we’ve done before may apply to the work we are doing for a client now. When a client picks up the phone and asks for an individual contract to be done or an entire deal to be quarterbacked, the client can rest assured we are not starting from scratch. Instead, we’re applying all the knowledge and work we have already done.

We’re here to guide you to the end of your deal. But we also know where to start.