HOUSTON—Obviously, law firms provide legal services to the commercial real estate industry and use the services of the CRE industry to lease or buy space. GlobeSt.com takes a look at both aspects of the business in this legal update.

While the US office market has been red hot for the last few years, this is beginning to change as vacancy slowly moves upward, currently standing at 12.5%, says JLL. Tenants will begin to see a meaningful increase in space options in the next year as the overall US office market begins to shift.

Secondary markets are the exception to this trend, with labor shortages for highly educated office positions stunting occupancy growth. More second-generation space will come back to the market as law firms have been some of the most active tenants in preleasing new developments, a trend mirrored in Houston.

Houston is the only US office market in a bottoming stage of the real estate cycle, according to JLL. Houston law firms are taking one of two strategies–staking a claim in the newest trophy buildings or capitalizing on prime sublease space. CBD trophy buildings have captured the majority of law firm leasing activity although law firms are continuing to consolidate. The target footprint is now 700 to 800 square foot per attorney.

Despite the decrease in space occupied by legal professionals, this hasn't diminished the role as a service provider to the commercial real estate industry. Grant Gaines, senior litigation partner at Patel Gaines, has seen his share of real estate transaction documents, from commercial leases to entity documents, asset purchase agreements, contracts, loan documents, etc.

Some examples of his work are reviewing commercial space lease contracts for discrepancies or providing legal intervention on verbal agreements.

“The landlord might say verbally that they will provide something–a sprinkler system, for example,” Gaines tells GlobeSt.com. “But this requirement might not be spelled out in the lease. The lease contract requires the landlord only to provide water, not the actual sprinkler heads and all the plumbing. This could leave the tenant eating a very costly expense they didn't expect.”

In the case of gross negligence, a lease might include language releasing the landlord from liability, which is not uncommon. However, commercial landlords should be liable for certain things, such as intentional or grossly negligent actions.

“For example, if the landlord commits to installing a security system but the installation winds up causing a fire or failing to respond to a break-in, the contract should stipulate that the landlord is responsible for damages resulting from their gross negligence,” Gaines tells GlobeSt.com. “Otherwise, the landlord has no incentive to make sure that the systems they agree to install and manage are running correctly, which could be costly for the tenant in the long run.”

Other examples that necessitate an attorney's guidance are in template documents. A lease contract given to a tenant might be in its 10th generation, having been edited and re-edited several times for the landlord's previous deals.

“This can lead to sections of the lease that simply do not make sense–legal gibberish that creates confusion and misunderstanding, which ultimately could lead to more expense for the tenant,” Gaines tells GlobeSt.com. “Commencement dates, waivers, indemnity and many other issues in any lease need to be carefully reviewed by trained eyes.”

The same is true for landlords, he adds. Tenants often make demands on landlords that seem reasonable, but if not drafted correctly, could leave the landlord shouldering an unwanted responsibility or cost.

“We just want to make sure everyone involved in a commercial lease understands each other and that there are no surprises for the tenant or the landlord,” Gaines tells GlobeSt.com. “When we accomplish that, we greatly reduce the chances of either side ending up frustrated with the other or having to cover costs they never saw coming–which ultimately saves both sides money in the end.”

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Law Space Decreases but Role in CRE Does Not

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