Contracts in the Time of Covid
2020 has been a strange ride, hasn’t it? The pandemic exposed our divisions and we’ve experienced unprecedented fear, isolation, frustration, helplessness and stress. Regardless of how you lean politically, whether you think it’s a “hoax,” whether you disagree with the mask mandate or you want to blame any politician or group, or if you subscribe to any conspiracy theory, it’s here and our lives have changed dramatically – these realities transcend all our differences.
This article discusses how the pandemic has affected some of my small business clients. Nobody anticipated a global pandemic in their contractual dealings, so we’re all playing catch up with ill-fitting contracts. Since March I have counseled a diverse range of business owners about challenges caused by the pandemic and have learned much. In a moment I will share case studies of people whose contracts needed work, but there are two main themes:
Everything is Negotiable
Don’t worry if a contract says it is not cancelable or how well written and thought out it is. Every term is negotiable and if you disagree with a clause there is no harm in asking to modify or delete. Even if you are halfway through a contract term, changed circumstances might cause the parties to rethink their contract.
Don’t be afraid to negotiate or renegotiate. It is in the other party’s interest to modify the contract instead of seeing it breached and abandoned. Given our present limited access to the judicial system and the potential difficulty in finding someone to replace you in the contract, the other side has a strong incentive to be reasonable and work with you. This brings me to the second point.
Be Human in Your Business Dealings
Sometimes you might ignore or waive certain contract terms. Maybe you are legally justified standing on your contract, but should you? The other party in your contract is a person; even if it’s a corporation, corporations are owned and operated by people. Altruism aside, being ethical and compassionate in your business dealings is actually good business.
First, it’s the right thing to do. Second, it can be profitable in the long run because compassion is conducive to fostering relationships, loyalty and good will.
The following are quick case studies in some of the contractual issues I’ve encountered with clients since the pandemic hit.
The Private School
I was contacted by the owner of a private school early in the outbreak, before schools had converted to remote learning. We reviewed his contract in anticipation of parents asking about cancellation. The contract did not contain a force majeure clause and had no provisions about a pandemic (why would it?) and it did not allow mid-semester cancellation.
I concluded that he would be within his rights standing on the contract if someone wanted to cancel, but offered a word of caution. 24 Hour Fitness continued charging monthly dues even though its gyms were closed by the stay at home order. It was a public relations disaster, customers revolted and sued, and the company went bankrupt.
I advised the owner to consider the optics of refusing cancellation during a pandemic while the school is closed and parents are out of work. Parents talk with other parents and one aggrieved person could quickly inspire others.
School since shifted to remote learning, for better or worse, so the school remains open. I am now modernizing the contract to align with the times and to factor in remote learning.
The Wedding Service Vendor
I wrote a service agreement for a wedding service vendor years ago. Deposits are non-refundable because the vendor blocks out the date. Standard language in the industry.
The vendor now has brides requesting refunds because venues are closed and nobody is getting married right now. I advised that she would be within her rights to stand on the contract and retain the deposit, but asked, “Do you feel that is the right thing to do?” She said No. These are my kind of people.
As with the school and the gym, business owners must be mindful of the optics and be flexible and compassionate. Sometimes you must forego immediate revenue for a long-term return. We decided to retain a portion of the deposit as an administrative fee and to refund the rest. The bride was appreciative and the vendor’s reputation was enhanced.
If someone has been paid a deposit to provide a service, then circumstances outside everyone's control renders it impossible to provide the service, then return the customer's money. Keep some percentage to cover your admin or out of pocket costs, communicate that, then issue a refund. Don't keep someone's money for a service you cannot provide.
A retailer’s business was hit badly by the pandemic. While it still processes orders online, the pandemic caused a sharp reduction in demand for its products. The retailer couldn’t afford its lease and needed to renegotiate.
The landlord presented us with a draft rent deferment amendment. I reviewed and explained it to my client and identified areas of concern. Some clauses were fine, some were unreasonable. The lawyer’s role is to spot issues and ambiguities and identify language that should be revised or deleted. Ultimately the client makes the business decision whether to sign.
We pushed back to negotiate better terms, but landlords are reticent to have different terms for different tenants. They want uniformity among their leases, and as with parents at the school, tenants might share details of their terms, and that can complicate things.
On the other hand, no landlord wants empty inventory and the court system is slowed down and backlogged significantly. Trial dates are being set way out in the future, so litigants are having to work things out between themselves. A landlord is better off having a tenant paying reduced rent now, and recoup the lost rent later in the lease, than having a tenant simply break the lease and move out.
In this sense, tenants have leverage they lacked previously. Breach of contract and breach of guaranty claims are dischargeable in bankruptcy and vacancies are hard to fill. These conditions are fertile ground for renegotiating.
The Gym Owner
A gym owner was nearing completion on tenant improvements (TI) and making plans to open when the pandemic hit. The parties amended the lease to extend the rent commencement date and the amendment process was smooth.
The problem is nobody knows what the future holds here. When the state was beginning to ease restrictions in June, we discussed how some people are itching to get back into the gym (myself included), while others, especially the elderly or those with compromised immune systems, would go nowhere near a gym. It was impossible to project membership, revenue, or how long the facility would run in the red.
It was also impossible to know how long the gym would be allowed to stay open. The gym agreed to start paying rent on a date certain, but what if the governor shuts it down again? A month later, that’s exactly what happened. What do you do when circumstances outside your control change your plans? You adapt. You renegotiate.
I could provide more examples from different industries, but the common theme is that nobody’s contract, whether a lease or service agreement, contemplated a global pandemic. If a contractual relationship isn’t working out for one or both parties to a contract, it’s in both sides’ best interest to work together (preferably through counsel) to find a compromise.
If you have a contract issue you'd like to discuss, grab a spot on my calendar for a free 15-minute consultation:
Stay in Your Zone of Genius
I recently ran out of business cards, but decided to redesign the card from the ground up, including the logo.
You know what I didn't do? I didn’t spend hours watching YouTube tutorials on how to use Adobe Illustrator to design a logo and business card. I’m a business attorney, and that is my zone of genius. Do you think I designed the image accompanying this article? Why would I spend hours researching a new skill set that takes me out of my zone, and turn myself into an amateur? Why would I sacrifice time away from the practice of law and business development, for a task that could easily be delegated? The opportunity cost is too obvious to belabor here.
Instead, I hired an experienced graphic designer to create card files (front and back), and she included a new logo, as well as this image. The files were uploaded to an online card creation service and arrived in the mail a few days later.
Do it Yourself?
Effective entrepreneurs know to stay in their zone of genius and delegate the rest. Unless you have a legal background or substantial experience in business, it is foolish to be your own lawyer. As a business owner, you have intimate knowledge and expertise in your trade or profession. There might be some tasks you could accomplish without counsel, and doing them yourself would eliminate legal fees. You might even feel pride. But what would you give up in exchange for that savings and pride?
You would have to research and figure it out on your own, whereas a lawyer could do it in a fraction of the time. During that time you could have stayed in your zone of genius, practicing your trade or profession and growing your business. Even worse, legal work done by non-lawyers is more likely to contain errors, and this can cost you more stress, time and expense over time. (Click here to read an article on the perils of DIY contract drafting.)
Let’s say you’re a business coach. Instead of taking the time to develop your programs and messaging, you’re researching the intricacies of entity formation or trademark law. Would you really counsel your clients to do the same? As a coach, would you honestly advise your clients to spend hours educating themselves on legal concepts so they can do it themselves, and save the cost of hiring counsel? Those clients are guaranteed to spend more in the long run, as an attorney will have to un-do everything the client did incorrectly.
Also consider what you would be modeling to your team. If your subordinates see you doing everything yourself, being a poor delegator, can you blame them for failing to delegate?
I run a law office, and this already requires me to wear many hats. Why, for example, would I spend hours teaching myself to use Adobe Illustrator so I could design my own logo? Think of the hourly rate I’d be giving up, or the potential clients not getting a follow up, while I’m learning complicated software and watching YouTube tutorials on content that has nothing to do with my core business. Great, I don’t have to pay a designer a couple hundred bucks. How about the opportunity cost? It’s also guaranteed that an experienced designer is going to do a better job than me anyhow.
As you may know, I have a side videography business called Eternal Roots, where I create custom documentaries about people to preserve their memories. The biggest mistake I made in that venture, besides not charging my worth, was doing everything myself. I could have completed so many projects sooner and with less stress if I had the wisdom to delegate editing to others.
In closing, stay in your Zone of Genius and delegate the rest.
How to Select a Lawyer
Let’s assume you decided you need to hire counsel to help with some aspect of your business. I might be biased, but I think that’s a great decision! I firmly believe in delegating out various functions of your business that are outside your realm of expertise, especially legal matters.
The question becomes how to select a lawyer. This article provides insight, from a lawyer’s perspective, on how to research and select the best lawyer for you.
Consider Your Legal Needs
Lawyers are educated on a wide variety of legal concepts. Law schools require us to take classes across the spectrum just to graduate, and the bar exam tests us on a broad and rotating list of subject matter. However, once we enter the real world most lawyers, like doctors, become specialists. Would you rather hire a lawyer who knows a little about many practice areas, irrelevant to you, or someone who is a specialist in your area of need?
I’m a business attorney. I do litigation and transactional work. This often bleeds into related fields, such as real estate, employment and consumer law, but I stay in my lane. I won’t touch a family or criminal issue with a 10-foot pole. Maybe don’t hire an estate planner to litigate your contract dispute? Maybe don’t hire a criminal defense lawyer to file your trademark application?
Figure out the nature of your legal need (i.e., employment, contract, regulatory, insurance, real estate), and look for an attorney in that area of practice. Find a specialist whenever possible.
How to Find Counsel
It can be tempting to run a web search for an attorney in a certain practice area in a certain geographical region (i.e., “San Diego Contract Lawyer), but the results will not necessarily pair you with the right person. The top hits of every web search are paid ad placements. Those attorneys are literally paying for those placements, and they pay per click. The person at the top of the list isn’t necessarily the one you want to hire.
The hits just below the paid ads aren’t necessarily the “best” lawyers; they are just the ones with the best SEO. It could be because their website is packed with valuable content, rich in keywords, or it could be because they invested heavily in digital marketing. This isn’t necessarily the person you want to hire. To clarify, I’m not advising you against hiring someone with good SEO; I am advising you not to hire someone just because they’re at the top of the page. Good search placement just means this person has money to burn.
I suggest you tap your network and seek a referral. Word of mouth is the best marketing, and a recommendation says a lot more about a person’s competency than their SEO. If you belong to a networking group or chamber of commerce, I suggest kicking the tires on a lawyer in the group. It’s a great way to build a relationship, plus the lawyer should raise his or her game because they will feel more accountability.
Don’t be afraid to ask the attorney for references. You really don’t need this if the attorney came from a referral, and the need for references really depends on the intensity or complexity of the project. A simple contract or trademark filing probably doesn’t warrant references, but a heavy litigation case should. I’ve had a couple prospective clients request references from me and was happy to comply because I respected their diligence.
Another resource is your county’s local bar association. Most counties have bar associations, which are separate from the state bar (a governmental licensing agency), where attorneys voluntarily pay for membership. These associations often have lawyer referral services, where you can connect with attorneys experienced in your area of need. For San Diego County, visit www.sdcba.org/lris.
How to Interview Attorneys
You absolutely should interview your prospective attorney before making a hiring decision. The interview serves multiple purposes, the most important being whether you are a fit for each other and whether the attorney has the requisite experience.
Attorneys and clients tend to take after each other. In my years of litigating disputes, I’ve come to learn that attorneys and their clients often seemed to share values and personalities. Hire someone who makes you feel comfortable, who listens to you and doesn’t talk over you and dominate the conversation. Hire someone who returns your call and responds to your email, someone whom you like and with whom you feel chemistry. You might be working together for a long time, so only hire someone you like and trust.
Personality aside, you want to hire an attorney who is competent and experienced in your area of concern. You don’t want to pay for your lawyer’s education, so ask the attorney if he or she has worked on your issue before, how many times and with what results.
On the one hand, you want to probe the attorney’s experience and competency for your legal issue. On the other hand, you do not want to come across as seeking free legal advice. It is unwise for any attorney to offer opinions with incomplete information and without having first been retained.
Don’t be shy to inquire about the anticipated cost of your project. Ask the attorney whether the project is more conducive to flat rate or hourly and request a quote. I’ll quote a project on the spot if the matter is straightforward. If it is more complex I’ll think it over and submit a written proposal.
Also, you want to inquire about the attorney’s availability. Does the attorney have the time to give attention to your matter and what is the turnaround time?
Don’t be afraid to interview multiple attorneys while seeking the best fit. Find the right balance between chemistry, experience and cost. I’m not offended when prospective clients disclose they’re interviewing other candidates. I tell them to go with their gut and hire whomever they believe to be the best person for the job. I do not recommend trying to put lawyers in a bidding war. Just go with the person who offers the best value and results for your money.
How to Research Attorneys
Attorneys are licensed by the State Bar, and information relating to all attorneys’ licensing is public record. Here you can find the attorney’s contact information, how long they have been practicing, where they went to school (undergrad and law) and whether they have been subject to disciplinary action. If the attorney has been disciplined by the State Bar, official documentation is available for download, right at the attorney’s profile page. To research California attorneys, go to www.calbar.ca.gov.
You may also search the attorney’s name online. It would be helpful to include terms such as “California lawyer,” along with the person’s full name in quotation marks. You might find some interesting articles, blogs, videos, reviews, complaints and comment threads. Having said all this, take what you find online with a grain of salt (aside from disciplinary records) and consider the source. For any complaint you may find there is always more to the story and another perspective.
At a recent chamber event the table moderator asked us to share an aspect of our business we dislike. I cringed because the question was an invitation to complain and vent – not a productive activity – and nobody wants to hear you complain.
The moderator mercifully pointed at someone other than me to begin, so I had a moment to consider something productive and constructive to say. People took turns around the table venting about collections, administrative tasks, marketing, overwhelm, spam, tech issues and burnout. Any entrepreneur can empathize with such things, including me, but I really don’t want to whine about these nuisances, especially at a networking event.
What’s a pain point I experience in my law practice? From my perspective as a business attorney, I see too many people excited about their product or service, with a dream and vision about making it a reality, but they cannot get out of their own way. It might be fear of success or fear of failure, but fear is usually the root cause. You might call it self-doubt, but that is also rooted in fear.
They analyze until they paralyze.
Prospective clients often contact me to discuss their legal infrastructure, such as entity formation, contract drafting, trademarks, copyright, limiting liability, etc. This is in my wheelhouse. I quote a scope of work and cost, the client agrees, but sometimes the client joins the witness protection program and goes dark. I give them a few days then follow up, and I usually hear a variation of the following:
I need to run it by my spouse; I’ll let you know when I’m ready; I’m thinking about it; I’ll be ready to get started after I’m done dealing with __ situation; I just want to generate some revenue first.
I’m human, I get it. Life gets in the way. Money is tight. You’re overwhelmed. You doubt yourself. You need to get all your ducks in a row before you start. I see right through these excuses because I’ve made them myself. People get scared and feel like they need to figure it all out before starting, as if the path from startup to success is a straight line. They analyze until they paralyze. People rationalize that, because entrepreneurship entails risk, they must plan it all out in advance because they cannot fail. They are so afraid of failure (or success), they fail to get started and self-sabotage. You can’t fail if you never start, right? No matter how much you plan or wait for the "right time,” you’re going to get knocked down in business. So stop analyzing, and just start now with the tools you have. Failure is also the best teacher, and every successful entrepreneur has many failure stories.
I’d rather try and fail then allow fear to stop me from beginning. When I’m on my deathbed, I’d rather reflect and know I tried and learned. The regret of having not tried would be too much to bear.
I’m saying all this from a place of empathy and understanding, not judgment. I unhappily worked in toxic law firms, trading my entrepreneurial spirit for the perceived safety of a paycheck. I stayed in places longer than I should have, trading hours for dollars while watching law school classmates go out on their own.
We’ve all heard the expression, attributed to Abraham Lincoln, that if he had six hours to chop down a tree, he would spend the first four sharpening his axe. Go ahead and sharpen your axe, but that tree isn’t going to chop itself. You must take action. That’s where I come in.
Once your LLC is formed, your contract is written, and/or your trademark application is filed, you’ve become invested in your business and are in action mode. Now you have skin in the game and it’s time to overcome paralysis and get to work. Setting up your legal infrastructure is an excellent way to thrust you into activity mode.
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