What Do Lawyers Do Anyway?
- Oct 05, 2016
As a practicing lawyer at a 200-lawyer firm, I represent many different types of real estate companies: some institutional, some entrepreneurial and some “startups.” I have developed a sense of what we are good at and what we are less efficient at doing. The “less efficient” group is where the legal fees add up. Some law firms have set up separate companies just to handle these less efficient functions, and more mature companies have recognized that it is in their best interests to assume some of these functions.
All entities have to maintain their corporate documents and have standing resolutions stating who is authorized to sign contracts. This becomes more important if the entity is a limited liability company and wants to appoint officers. Most companies do business in states other than where they are formed—who monitors that qualification and tax filing requirements? Have registered agents been appointed for each company? Many companies have wholly owned subsidiaries that perform certain functions different from the parent company. How does the subsidiary perform its services—through employees of the parent company? Is there an administrative services agreement in place to document the allocated cost? Finally, where are all the contracts organized, including appropriate utility accounts and payment obligations? Who has fobs, card access keys and other access control information for leased space? Who has calendared renewal options, rent bump ups and other information that needs to be abstracted from a contract? Oftentimes, this information resides somewhere in the institutional memory of a company, and when a key employee leaves and a demand from a landlord or contract counter party is made, they must determine the location of the copy of the executed agreement and the information required to surrender space or confirm final payments due (including return of a security deposit).
Law firms are less efficient at these functions, in part because these client-driven requests are quasi-legal and in part because law firms are not cost-effective providers of these types of services—we simply go overboard, in part for liability reasons, in responding to these requests. It is more cost effective for a company to hire a paralegal to work in house or a well-qualified human resources person to handle these functions. One thing I have done with clients is to send over a lawyer to work out of the client’s offices for a few days, spending time with HR or the in-house person responsible for legal compliance to set up proper systems.
Real estate operating companies are not unique in facing this cost-benefit question, but there is definitely a lot more paper flying around, given the various entities and investments and property management-specific procedures that are required to be managed. For example, knowing what a company’s insurance coverage and policy limits are, and understanding what endorsements can be obtained, not to mention the proper issuance of certificates of insurance, requires a close working relationship with a company’s risk management consultant.
Generally, when lawyers get involved with these functions, it is at a stress point, when documents and responses are needed on a time-sensitive basis (or to avoid a claim that may lead to litigation) and the required information has disappeared when an employee has left the company. Executive management should conduct periodic tests of their corporate and contract retention policies and should review with their outside law firms who is assuming responsibility for making sure contracts are correctly signed and lodged in the company’s digital filing system.
Lawyers are good at setting up policies and at strategic thinking about how to develop contract terms that minimize or allocate risk. And of course, we close transactions and coordinate input from various team members on a transaction. A quick review of the “General” file of a law firm’s invoice is a good place to start to see if the company is paying for services that could more efficiently be brought in house.