My husband and I have experienced some challenging dealings lately with a young, local businessman who is developing a shopping center behind our house. As part of the zoning discussions years ago that eventually allowed this center to be built, this kid businessman agreed to build fences around our property and that of our neighbors, separating the development from our residential neighborhood. The proposal seemed like a straightforward deal; he was obligated to build fences once (if) the development broke ground, at a cost determined by market prices at the time, and we were to be compensated for any noise and disruption from the construction once it started. He had someone draw up a contract that we all reviewed and signed.
It appears that the shopping center development is this kid’s first big real estate project, or as we say here in Texas, his first rodeo. In our conversations and emails with him now that construction has started, it is evident he has a lot to learn about Business 101 tenets that could save him much time and money. Since his project is already behind schedule and over budget, and since I am eager to avoid having a failed real estate development in our neighborhood, I would like to share some of the business lessons I have learned over the years. Hopefully, someone in his company will read this and sit him down to explain how strong contracts supported by fair negotiations benefit his business by helping him avoid costly, time-consuming mistakes.
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Read what you sign – before you sign it – and know what it is going to cost you. Your signature on the dotted line of a contract or agreement is a financial obligation on behalf of your company, your investors and your bottom line, so you better understand what you are signing up for. Even if someone else writes the contract and informs you of the terms, make a point to read it and understand it. Not knowing what a contract says is a surefire way to delay a project, incur cost overruns, and waste a lot of everyone’s time.
Before you sign, spend the time up front to craft a thorough – and ideally, equitable – agreement. Signing a contract that will benefit both parties is a great milestone, but a signed contract only means the work can begin; it is not the final objective. Just like good fences make good neighbors, solid contracts that address many likely scenarios enable your work to proceed efficiently, without delays that come with addressing questions or resolving conflicts. “Let’s see what the contract says,” should be welcome words to all parties that a resolution can be found in the contract when there is a question about the work to be done. It also means contracts and business agreements should be kept available and referred to often, not filed away (or lost!) in a drawer somewhere. On the lost front… it is a good bet the other party has their copy – with your signature on it!
Renegotiation is not a dirty word. Conditions change, and sometimes contracts and business terms should too. It is often OK in business to request new terms, and doing so in a fair, honest and forthright manner is a great way to earn the respect of the other party. If this young whippersnapper had come to us early on to say he didn’t think he should have to put a fence on all three sides of our yard, we would likely have agreed with him (frankly, we were surprised he signed on for 3x the fence when he proposed the agreement!). Had he asked to renegotiate the contract, the worst thing that might have happened is that we would say No, and he would have spent a few minutes on a conversation that changed nothing. Instead, he chose to pursue a route that involved stalling tactics and lots of email traffic, which ultimately required much more of his, his team’s and his COO’s time.
The last lesson I would share with my young Padawan businessman is that lawyers are rarely a cost-effective solution to a conflict. Telling the other party “maybe we should just let our lawyers duke it out” illustrates naivete about the value and costs of the legal system. Lawyers are expensive; anyone who has pored over their invoices knows they are long, with lots and lots of zero$. I personally prefer to spend my time architecting a good contract rather than haggling with attorneys over fees. Chances are your lawyers read your snarky, provocative email about lawsuits as “$o $$ue me.” I read it as… job security for your lawyers.
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I am happy to report that our fence is finished, and the shopping center development construction is wrapping up. Our young businessman’s email activity has ceased, which hopefully means he has moved on to more productive, revenue generating activities for his company.
Heather Nelson is a partner with PeopleResults. You can reach her at hnelson@www.people-results.com or on Twitter at @HeatherGNelson1. Sign up to receive the PeopleResults blog at Current.
