The right moves
Reports that WeWork has pulled out of two agreements to lease Dublin office buildings reminded me of that nervous period for agents, developers and vendors - the state of limbo between agreeing a deal, and getting contracts signed. But is there anything that can be done to reduce your risk?
The collapse of an agreement can be a tough blow for the landlords/vendors side.
Not only have you lost your deal, but there can be the extra pain of having lost another tenant while you were 'deal agreed' and who has since gone elsewhere.
The agent has done months of work and suddenly, with the deal abandoned, there is no fee payable, and all of that work was wasted.
It's particularly frustrating when the deal collapses at an advanced stage, for reasons that have nothing to do with your deal.
For example, the global restructuring of WeWork has seen it pull out of deals worldwide, and it's unlikely that there is anything that can be done locally to salvage an agreement.
Landlords will naturally put a brave face on the situation and will talk about the other enquiries they have, but they will be annoyed that details of the terms of their aborted deal may have leaked into the market.
This dangerous period arises because, although parties can agree the terms of a sale or a letting and may be morally and contractually bound, an agreement for the conveyance of property is unenforceable unless it is in writing and signed by both of the parties - in other words, a formal contract.
This risky 'sale-agreed' period is often up to four weeks for a straightforward letting or sale, but can be months for the pre-letting of an office building.
This is because the deal is complex; the landlord is agreeing to build a building to an agreed set of plans and specifications, within a certain time-period.
There will have to be agreements as to what happens if the building is completed late, and how to deal with disputes.
A full set of plans and specifications becomes part of the contract.
The tenant is agreeing that, provided the landlord completes the building to the agreed standard, and timescale, the tenant will take a lease of the property on the basis of a lease which must also be agreed in advance.
Pulling all of that information together requires a lot of liaison between the agent, landlord, designers and solicitors.
Furthermore, as the building is under construction, issues tend to arise which require changing specifications, eg. a delay in procuring components.
Every change means delay and altering the documents.
From my experience, developers can reduce their risk of losing deals by having as much of the paperwork as possible ready from the start of construction.
Typical reasons for delays are that the estate management company legal structures haven't been set up properly, the allocation of common areas, service charges and car-parking hasn't yet been completed, and the lease maps can't yet be prepared.
For any new scheme, I would insist that my solicitors had a package of contracts, plans, specifications and maps, ready for each unit before marketing started, so that contracts can be issued immediately after a deal is agreed.
The other magic ingredient in all this is an agent's experience.
A sharp agent will sense the change in momentum in a deal and will know when to advise their client to issue an ultimatum to sign (which may work), rather than let the deal drag on while staying 'off the market', in a forlorn hope that it comes through.
In a booming office market, WeWork remains Dublin's biggest provider of 'flexible offices' and plans further expansion.
And with approximately half of the buildings under construction in Dublin 'pre-agreed', there's every chance that the developers of the buildings that WeWork have walked away from will secure new tenants, maybe even on better terms than they had originally agreed.
It's all part of the risk in property development.