SAN DIEGO—Life-sciences companies are more heavily regulated than other types of users for items including parking counts, hazardous-materials storage and use and zoning compliance. This permeates many different areas of the lease, Crosbie Gliner Schiffman Southard & Swanson LLP’s newest partner Dawn Saunders tells GlobeSt.com. Specializing in the life-sciences and biotech industries, Saunders has launched a life science/biotech leasing practice for the San Diego-based firm. We sat down with her for an exclusive chat about the unique challenges and opportunities these industries present—from regulatory compliance to the importance of owner/tenant collaboration.
GlobeSt.com: What are some legal issues specifically related to life sciences and biotech leasing?
Saunders: Life-sciences companies are more heavily regulated than other types of users, and it is important to understand the specific uses and needs of the occupant and to check those against the regulatory framework. This permeates a lot of different areas of the lease such as parking counts, hazardous materials storage and use and zoning compliance. The financial profile of life-sciences companies is often very fluid, so understanding the assignment and subletting and default and security provisions is critical for any practitioner negotiating a life science lease.
GlobeSt.com: What should owners of this space be aware of in order to remain on top of legal issues?
Saunders: I think owners who lease to life-sciences companies need to be willing to dive in and get to know their tenants. Owners also need to develop sophistication in how to manage hazardous substances, larger draws on utilities, faster depreciation of building systems and construction projects that go far beyond the typical office build out. The level of collaboration between landlords and tenants in the life sciences sector is much more critical than with other product types, and being a passive observer will not work if an owner wants to lease to life-sciences companies. Many owners develop internal expertise in the unique aspects of ownership of lab buildings, but owners also need to establish a good consultant network to draw upon and have robust accounting capability to underwrite the credit of potential tenants and continuously monitor their tenants to foresee potential defaults. Having a strong outside law firm and consultant network ensures that as new requirements come into effect, an owner is informed and ready to deal with those new requirements and to ensure that their tenants are informed and prepared to deal with them as well.
GlobeSt.com: What are some of the unique challenges and opportunities related to this sector?
Saunders: One area that presents both challenges and opportunities is the dramatically increased capital requirements for laboratory space and the fact that the improvements are often specialized for a particular tenant and not easily reconfigured for other users. This creates an incentive to lock in a long lease term and gives heavy incentive to renew in place, but there is often a lot of negotiation around who funds costs, who manages the build out and who owns the improvements at the end of the term (or who has to dispose of equipment that has become obsolete). Tenants are often cash rich and credit poor, so securing the upfront transaction costs often results in letters of credit or other creative security options, and having strong default and bankruptcy provisions is important. In multi-tenant situations, the control of hazardous materials within the project and the capacity for storage of waste need to be considered. Building infrastructure and system capacity may need to be upgraded or very carefully monitored, and in a manufacturing setting, there are very specific monitoring and building-management-system requirements that often necessitate that the tenant have control of building systems.
GlobeSt.com: What else should our readers know about the legal side of life sciences and biotech leasing?
Saunders: Given the nature of the relationship between landlords and tenants in this area, the negotiations are often very collaborative, and the role of an attorney in my view is to ensure that the client understands the nuances of the deal that they will be living with for many years to come and that foreseeable risks are managed or minimized to the extent possible. The tenor of lease negotiations lays the groundwork for the ongoing collaboration between landlord and tenant, and the lawyers I consider to be most effective are those who are keenly aware that they are an extension of their client and part of a larger business strategy. I enjoy working in this area because the work being done by companies in this space is often very impactful, and being able to play a small role in providing a home for innovation is rewarding.