Story of a Landlord-Tenant Dispute

      Confusion over three-phase power throughs a shop leasing agreement into chaos. Here are insights into the legal and practical issues involved. October 27, 2008

Question
I just received word that my landlord isn't going to be installing three phase power in my newly leased space. Unfortunately, the real estate agent told me that the space, prior to my leasing it, already had three phase service. There isn't any mention of it in the lease agreement - the only thing mentioned is the property address and that it is approximately 2000 sf. She (the agent) did email me about the three phase existing and has more-or-less admitted that this is her mistake. I have both of these in emails and there isn't any room for misinterpretations. All of this has been dragging on for almost a month and now they're clamming that they (landlord and agent) aren't responsible and won't pay for it to be installed. Installation has been priced at $12k (existing transformers are 477 and will need to be reduced so I can run a computer and coffee maker).

I haven't paid for March's rent, since this hasn't been resolved. Now they're asking for the rent money and a couple of ticky-tac things before they'll discuss the electrical. The electrician quoted me $4k to wire my equipment, etc. and I'm ready to pay for that out of my own pocket.

All of this is messing up my schedule and potentially costing me business. Aside from the fact that I'm currently unable to produce anything, I've got two jobs lined up (this is a new business so these are the first two jobs) that I will probably lose. One is a little $3k job and the other is a sub job worth anywhere from $10-$20k. Both butter, considering I'm a one man show and haven't advertised yet because I might have to find a new shop.

By not paying my rent, am I endangering my rights to expect the landlord/agent to hold up their end of the deal by providing three phase power? I know this will probably matter more by state than anything else. Also, how do I document lost business to sue for damages? This would be easy to do for the existing orders but I certainly don't want to offer services I know I won't be able to perform just so I can document them as lost work and sue. I'm not looking to take advantage of the situation, but they're directly affecting my ability to put food on the table. I'm just trying to steer them to pay for the three phase without going to court. I've already told them about the two jobs and my monthly overhead ($6k). Plus, they'd have to pay me for moving in, building an office, and moving out. I would guess that including the lost two jobs and a month or two of overhead, we're taking about $20k-$40k. Worst case for them would be $40k and they'd probably be happy to settle for $15k. I'm sure it won't be as easy as that but given that this whole issue is documented on paper, and they're wrong, I would think they wouldn't want to play any games. I'm going to see an attorney tomorrow. Any suggestions?

Forum Responses
(Business and Management Forum)
From contributor J:
Your question is whether to pay the rent? Well, get a cashier's check for the rent and go get a lawyer. I am no lawyer, but I've got a lot of clients who are. Been sued and have had to sue. There are easier ways.



From contributor E:
I think you're jumping the gun and better get your ducks in a row first. Your next step should be to talk to a lawyer. It doesn't sound to me like you have a case against the landlord, as he/she never made the promise of 3 phase, and you never bothered to check out for yourself if it was there? Maybe I'm misunderstanding the situation, but it sounds like you failed to make sure the space was adequate for your needs before signing a legal document. Basically you just took the word of the agent, and in that case I don't see how the landlord is responsible.

By not paying rent right off the bat, you're in the wrong and that's not going to look good if you go to court. Talk to a lawyer and maybe see if you can go to an arbitration with the agent and landlord and work out a deal first. In the meantime I would also keep an eye out for alternative spaces as this is not a great way to start a relationship with your landlord.



From contributor S:
As I see it you have two separate issues:
1. Pay rent or don't pay rent.
2. No three phase power.

Issue one is simple. Pay your rent. You are contractually obligated to do so. Issue two is not so simple. If your lease agreement does not state that the landlord is responsible for providing 3 phase power to the space, then you are most likely out of luck. You should contact a qualified real estate attorney. Since you have it in writing from the agent that the space has 3 phase power, then you might have a case against the agent but probably not, because it is usually up to the buyer/lessee to verify the accuracy of any information provided by the agent. Is the agent your agent, the landlord's agent, or both? Were the e-mails also sent to the landlord? If they were and the landlord did nothing to correct the agent's mistake, then you might have a case against the landlord. Again, speak to an attorney.

In the meantime, if your equipment requires 3 phase power, have your electrician install a phase converter and start producing your product.

As far as, "how do I document lost business to sue for damages," I believe you will have a tough time claiming "lost business" since you sold a product to your clients prior to having a means to produce the product (an operational shop). You should not sell new business knowing you have no means to produce what you are selling. That is illegal and you will be opening yourself up to be sued by your clients, which may cost you well above the $12,000 installation for the three phase power. If your landlord pays for the installation of the three phase power, he will probably increase your rent the moment he can legally do so.

Best of luck to you and I hope you get your shop up and running soon.



From contributor B:
Read your lease - the topic is addressed in the lease. You may not like what you read. See an attorney right away to decide if you should pay the rent so as to not cause delays, if indeed you should pay.


From contributor D:
I agree - pay the rent. Your lease says you must. That will only be to your advantage later. Then see a real estate attorney, not just any attorney.

Then as stated, get a phase converter. Prior to buying it, although it will probably end up being your best option, have a sit down with agent and landlord. Everyone should have a lawyer there. See about sharing the cost. If you are successful in your business then the landlord comes out great in the long run. If you're not, he/she has a building that is more valuable as leasable commercial space.

Unfortunately you have learned a lesson the hard way. Get everything in writing. Have the proper trades do an inspection to make sure it fits your needs prior to signing any contract. Even if it had 3 phase, you may find something out later that will cost big money to make suit your needs.



From contributor K:
I have been on both sides of this coin, as a tenant and landlord. In general, you never have grounds to not pay rent unless it says so in the contract (which I doubt it does). I agree that you have two different issues. Keep paying the rent so not to create another problem for yourself. You must see a lawyer right away to find out what recourse you have against the agent. Is this agent a third party realtor promoting the shop space or an employee of the building owner? This could make a difference to a judge. You probably won't get restitution for lost work and expenses incurred, but you may get your electric. Bottom line, see the lawyer.


From contributor T:
Before you pay the rent, realize that the landlord absolutely will not pay for three-phase power. Why would he, when he has a tenant lined up under contract who he knows needs to use three phase? My landlord was a complete jerk about electrical, but I was in there with three different electricians before signing the lease.

Here's another surprise: Any money spent on permanent electrical improvements like new breaker panels and transformers is not deductible as a business expense. It's known as a lease improvement (a permanent improvement to the building) and is effectively money into your landlord's pocket. You can skirt around this by calling it something else to your accountant (i.e., just bundling the expense together with the machine wiring, which is deductible). I guess I was relatively lucky in that I only spent $3500 for my new panel work, but once my accountant knew what it was for, there was no putting that cat back in the bag.

Bottom line is this: If you're not prepared to pay for the three-phase, you should not pay the rent and instead start negotiating for getting out of the lease. You do have a legitimate case for that, though as others have stated, the landlord is not liable for the agent's mistake. Just as he's not likely to sue you for withdrawing from lease (though you will lose your security deposit), you're not going to successfully sue the landlord either, and any money you give to a lawyer right now will just amplify the pain. Maybe you have a case against the agent, but an e-mail has little legal standing next to a lease. As others have said, you needed to get into that space with an electrician to verify the conditions and requirements before signing anything. Lastly, you may try to negotiate for sharing the cost with the landlord, though it's a long shot, as he holds the strongest cards now.



From contributor I:
I suggest you see a lawyer before paying any rent. The rent is the only leverage you have. Remember that the agent was the landlord's agent, not yours, and what she said does have a bearing on the situation. How much bearing remains to be seen.


From the original questioner:
Thanks for the responses. Unfortunately, I haven't heard anything from my lawyer today. My initial thought regarding the rent owed was to escrow it, but I was waiting for a final decision on the power. This has dragged on for about a month now. I was hoping the late rent would make them move quicker to a decision. I also swapped a month's free rent for building an office. Naturally, the free month is the last, but the office is 80% complete. I know it's not even-steven, but I'm not stiffing them completely.

I agree that I don't have a case against the landlord. I'll be going after the agent. She was working as his agent and had me sign off that I understood this. I'm confused that I am responsible (or in the eyes of the court, will be responsible) for verifying the electric, and that the agent's actions have no bearing. Of course, in today's world of no responsibility, it makes perfect sense. I hadn't purchased any equipment at that time so I wouldn't have known how much power I would need.

Single phase isn't an option as I'd need to upgrade the panel to 400 amps and that is almost the same cost as three phase. This has already been quoted.

I would think that I would be entitled to damages by lost wages if they're guilty of not holding up their end of the deal. I didn't have signed contracts or anything, just a couple of "I might need ya's" from previous contacts as a home builder. Two have called me to action but I'm unsure of their timelines. Depending on how quickly this goes I might be able to salvage both jobs, but probably not.

I want to present as scary of a story as possible and work a deal from there. I think they should bear some responsibility, and vice versa. Nobody wants to go to court. This is all about money, and right or wrong is for the movies. I'm just trying to start a business. I'll keep everyone posted.



From contributor U:
Could you outsource the parts for the projects you have lined up?


From contributor J:
Just how much and what kind of three phase are you putting in?

Get a cashier's check dated so your willingness to pay is documented at a minimum, or jump ship and pray the next landlord does not require six months rent in advance for bad reputation. Woodwork = ethics.



From contributor G:
The area of law you are dealing with, other than the obvious one of real estate, is "agency." The question is one of "respondeat superior" which means that the master is responsible for the acts of the employee or agent. The particulars (including who is and who isn't an agent) will depend on what state you are in, what exactly was promised, what you can prove was said, and whether in your state verbal assurances can be admitted to either contradict the written contract or fill in areas in which it is silent.

Whether you can or cannot withhold rent as a way of forcing the issue, or as a measure of "self help," also depends on the situation and the state you are in. Whether you are able to collect lost business profits, assuming you prevail on the other issues, also depends on where you are, if they can be determined with some accuracy and your contract.

Since we don't know the law of your particular state, what the written contract says, exactly what was said by the agent, and if the person was an agent, we can only speculate as to your outcome. The comments and advice above cover some of the possible outcomes, but not all. You will have to seek the advice of a lawyer in your area, who will hopefully be able to negotiate an outcome that you and your landlord can live with.



From the original questioner:
I spoke with the lawyer briefly on the phone and I'll see him Friday afternoon. He seemed to be focusing on finding a loophole to void my lease. I'll have him present all of my options when I fully explain my situation.

In the meantime, I wrote a letter addressing my not paying rent and two ticky-tac issues they brought to my attention. Just so you know all of the details - one was not presenting written notification for construction of the office I built, and the other was for not already pulling a building permit for said office. I offered to rectify both situations. It isn't too late to get a permit - although, I never said I was, nor is it outlined/stated in the lease - other specifics about its construction are outlined. It would be a pain, but I could unpin the free-standing office and move it around to an agreed upon location with a forklift and repin it to the floor. The written notification is a misunderstanding since the office is specifically outlined as to its construction, etc. later in the lease. There is really only one location for the office (where I put it) that doesn't intrude too far into the space or overhead door. Both of these are distraction issues that they want resolved before they'll discuss my three phase issue.

I also listed a bunch of other items that I've fixed at my own expense and pointed to a bunch of examples of why I'm a great tenant. I also elaborated on other repairs I'm prepared to make and my own contribution to upgrading the existing electrical structure (inside) to suit my needs. In doing so, I'll also be adding value to his property at my expense.

I also asked them to respond to my needs with a greater sense of urgency and detailed the amount of lost revenue and overhead expenses I'll incur without being able to produce. In summary, I suggested a face-to-face meeting to resolve our issues. I feel that this whole thing has escalated to everyone lawyering up way too quickly. I think the real estate agency is probably portraying me in a bad light to the owner and vice versa. I also don't think the owner is really liable for any of the expense for providing three phase. It appears that this was a statement made by the real estate agency and should be theirs to bear.

I don't know if my letter will have any affect or not. It certainly isn't going to make the power cost any less. It might be wishful thinking that this can be resolved without getting lawyers involved but it would be in everyone's best interest to try.

I might be able to sub the larger job out, but this might not work due to the specific work and tight budget. I'm subbing laminate cabinets from a larger shop. I guess I could get the panels cut elsewhere and just assemble them. It hasn't been determined exactly what I'll be doing, as it all depends on how busy the larger shop is when the orders start to process. The other job is an entertainment center inside of two 45 degree inside corners. It's what the customer wants but probably not something I'll add to my picture book. Most of it is open shelving with a couple of doors and drawers. I was already planning on subbing those.

I don't think I elaborated on the specifics of the three phase upgrade. The existing transformer is three phase, 477 (I think the numbers are correct) as it powers some big vertical saws in the solid countertop shop next door. That will need to be reduced to run my 230 equipment and to provide the right power for standard 110 equipment (computers, etc.). According to the electrician, all of this 477 equipment is triple the cost of 207 three phase (what he'd be reducing it to). My numbers might be off but that's the gist of it.

I'm running a 9 hp sliding saw, an 18 hp wide belt, and a 5 hp dc. The kicker is the wide belt and dc running at the same time.



From contributor H:
I would get a second electrician's opinion. According to my electrician, power is power. It doesn't cost any more to run higher voltage because you draw less amperage and vise versa with lower voltage. I don't know if this is really true, but I would at least look into it before I go spending a bunch of money on electrical work.


From contributor V:
Talk to another electrician. The 477 breakers will be more money but the wiring should be lower (smaller wires) and if you use used transformers to do the step up/down you should save a ton of money. Our last building to run a similar amount of equipment was around $5k panels, breakers, transformers, wiring, labor, etc.


From the original questioner:
The agency responded that they received my letter and are trying to nail down a date when we can get together. The girl that has been my contact just informed me that the owner of the real estate company will now be handling all of this. Funny, last week when I left him a message to call me back, he turned it over to the girl.

The electrician's prices (for my work) is in line with commercial work for our area. The only concern I have regarding his pricing is if he just adds a percent to material costs like most guys in the trades. His price would be pretty out of line if that's how he figured his numbers. He's the real estate company's electrician, so they've got confidence in him. Tomorrow I meet with the lawyer.



From contributor A:
Finding a loophole to get out of the lease may be an option, but usually can only be obtained on the basis of Constructive Eviction which can be claimed for either a dangerous condition (such as nonfunctioning sanitary waste system), or the landlord keeps entering your space without notifying you and seeking your authorization (you are entitled to quiet enjoyment once you have leased). Short of either of those options, you may have little to go on.

As for the real estate agent, she represented the landlord only, and you were informed and signed off on that. Based on that, she could have told you the ceiling was gold leaf, and it was your job to determine if that was true or not. If there is nothing but she said/he said, you may have hit a wall. Intentionally misleading you is tough to prove without written statements. Due diligence is required at a much higher level in commercial transactions.

I hope your attorney has some slight of hand he can perform on your behalf as it seems to me you may be best off getting out and moving on. Lost business is close to impossible to prove damages when it is a new venture with little to no track record.

There are lots of empty buildings out there these days and if you can get out and start over for less money, you may really want to consider it. Landlords are notorious these days for sucker punching their tenants into improving their buildings.

Lastly, don't forget, attorneys make their money off of your troubles, so be mindful and make your decisions carefully. Litigation is expensive.



From contributor M:
The cheap way to solve the problem is to buy a 3 phase converter. 25 hp should run your whole shop.


From contributor E:
After re-reading this post one thing I'm confused on is your referring to taking your single phase 110v off the 477v 3 phase. Are you saying there is no power at all in your space? I can't imagine how the landlord could expect you to cover the costs of running power into your space.

I also would strongly recommend getting another electrician in there. When I first read the post I thought the $12k was to have the utility company put 3 phase into the building. But now it sounds as if you're just running it from another location in the building to your space and dropping down the voltage with a transformer. That seems like an awful lot of money regardless of what area you're in.

Lastly, how long is your lease for? As another poster suggested, I would be very concerned the landlord is going to leave the electrical work to you, then jack your rent when the lease is over. All in all I'd say this is a lousy way to start your new venture, and hopefully things get better from here on out. But cover your butt and get at least three quotes for the work. It won't cost you anything and you may well find out you're being taken.



From contributor I:
The point of an agent is that the agent speaks for his (or her) employer. If she is the landlord's agent (which she is) then she speaks for him. What she told you has the same power as what he might have told you. That's the whole point of an agent. If the agent told you something was true, and it turned out not to be true, then that's the agent and her employer's problem, not yours, unless you did something else (like sign some small print contract that said that it was your problem).


From the original questioner:
Thanks for all of the support and realistic suggestions. Unfortunately, the lawyer cancelled on me today, so we've rescheduled for Monday. I received only an acknowledgement of my letter from the landlord (no meeting arranged so far). The agent (female) said that her boss, the broker/owner, would now be taking over this whole mess. So far, he's turned my messages over to her to handle. Inconsistent, if he's wants to handle it. He seems very arrogant and like all of this is completely my problem.

Single phase isn't an option. The current electric is 100 amp single phase. This was a total oversight given the fact that I was under the impression that the building was three phase. I had 100 amp service in my 1964 house but didn't know it would even exist in today's commercial properties. This property is 90's or newer. Again, I figured it was three phase and at least 200 amp (plenty to run my machines, especially if I'm running them one at a time). Their electrician also put a bid together to upgrade the single phase to 400 amp and run a converter. He figured 200 amps to run the converter and the rest to cover the machines. He priced this higher than the three phase. Biggest problem with this is the meter base is approximately 200 lf away from my panel box. It gets very expensive running that much wire.

I've reread the lease agreement and their disclosure statement. Neither specifically states that they should be held harmless if they mislead/misrepresent. It does state very clearly that they are the lessor's agent.

I also reread the letter they sent me asking for the rent and the other tic-tack fouls. The agent writes that as a courtesy to me, she has been researching the electric issue for me to upgrade. This statement is a total lie and, unfortunately for them, they've directly contradicted this many times. If she was doing all of this for me, how come I've never been shown the estimate? Why did the owner, agent, and electrician have a conference call to sort out the details?



From contributor L:
Read the text carefully: She is not doing it for you, she is doing it as a courtesy to you. That seems good. If she did it for you, she might argue that she was, for that effort, acting outside of her agent status. If she has declared that she is the agent and that she is doing an analysis as a courtesy, she is acting as the agent: The issue is what she did, not whether she needed to do it.

Is the attorney your normal attorney or a real estate attorney? As noted above, you need someone who is an expert in your jurisdiction's real estate laws. That person will charge more per hour but should be able to give you an answer that is correct and do it with fewer hours billed.



From contributor P:
No landlord and no agent are responsible for it. You should check all power sources before you sign the lease. Hire an electrician, get permits, and fix it before you lose your business.


From contributor N:
It doesn't have to be a real estate attorney. An attorney that specializes in contract law or at least has ample experience with it should be sufficient. If you have what you say, you don't need a loophole. Misrepresentation, deceit and negligence are valid reasons for rescinding a contract. They are also valid reasons for claims against an E&O insurance policy.

Real estate agents are recognized as professionals and they are considered to be experts at what they do. They should not be running off at the mouth if they aren't sure. She should have checked into it beforehand. Based on what you have said, she wasn't giving an opinion; she was stating it as fact.



From contributor I:
For anybody who is a bit vague on whose agent she is, all you need to do is ask yourself who paid her? Whoever paid her, or paid her boss, that's whose agent she is.


From the original questioner:
Well, friends, it isn't looking good for anybody but the guys in suits. Today I was supposed to have a meeting with the owner of the property and the agency, but it was cancelled at the last minute. The owner was apparently never going to be there even though I had requested his presence. The agent that I've been working with called and offered to pay for half of the cost to bring three phase to the building. She tried to pin me with the cost of the inverter saying they could provide three phase in high voltage form but that I would be responsible for the inverter since it was more specific for my equipment needs (total bs). I called her bluff and told her that their electrician explained to me that the inverter is necessary to run anything "normal" and without it he could not provide power to any of the existing electrical equipment (heater, lights, outlets, etc.). This conversation didn't go any further as I figured it would be best to touch base with my attorney before going further.

I called the electrician to confirm what I retold the agent and he confirmed all of this. He's already told the owner and agent this stuff when they had a conference call with him to discuss all of this a couple of weeks ago. When I first had that conversation with him, he indicated that they were hunting for a way to deflect some cost. It's nice to have another honest person on my side. This will not look good for them when I have their electrician testify against them.

When I met with the lawyer yesterday we discussed my situation in general terms but he said that I have a leg to stand on with regards to her email stating that the building is three phase equipped. I asked him who would be responsible for a discrepancy like this and he said usually no one. He said that she took responsibility when I asked her the question and she answered it. He's going to call me tomorrow after he has a chance to review this with his partner.

I just wish they would step up to the plate to pay for their mistake. All of these games aren't going to make it any less expensive for them and are helping to ruin their reputation. I think (all depending on my legal advice) I might offer to pay less than half and renegotiate my monthly nut. I'm not sure why I want to do this since this would mostly benefit them, but I know I'm not making any money now and a lawsuit would keep food off the table for another couple of months. Even if I win I would probably have to go to court to get paid.



From contributor P:
Several years ago I had a very similar situation with my landlord. I did not fight, I hired an electrician, paid and fixed a problem. Even if you are honest and right, going through legal procedures is going to take forever, and at the end you are going to end up with no business. The lawyer can tell you anything to make money. Whatever it is, and whatever she emailed and told you, you are not going to win. I'm on your side. I can relate to your problem, but it is going to cost you your business if you do not stop it.


From contributor E:
How long is your lease with this landlord? I'd be more concerned with what's going to happen then than now if it's a short term lease. For the investment you're going to shell out for this space, regardless of who pays the 3 phase portion, make sure it's something that you're doing for the long haul. If it's less than 5 years I think I'd walk away now since you don't have anything significant to lose at this time.

If it's less than a 3 year lease I would bet you'll see an enormous increase as soon as the lease is up. And the nitpicky stuff they've already started is not likely to go away. Think long and hard before paying the suits a lot of money for something that may be an endless progression of problems you don't need when trying to start a business.



From the original questioner:
The lease is for a year but I've already negotiated extensions for years two and three. Since this is a new venture I didn't want to commit to anything longer but in three years I'll either be looking for a bigger space or building my own place.

I'd consider walking away from this deal if they would consider paying me for my time and the office I've already constructed. I figure just to move out I'm probably talking about renting two forklifts (one for each location) and a truck just to get my stuff out. Roughly $750 there, then about another $100 or so in setup fees with the utilities. I've got about $1500 in the office so far (not counting labor) and I built a separate spray room that I would have to take down ($500 or so in materials). And I'm out all of the overhead for a month ($6k). I don't think they would even entertain paying me half of this. We'll see what the lawyer says.



From contributor E:
Well I hope this works out for you in the end. I don't want to sound critical, but seems like you're spending a lot of cash on a place you're only planning on staying in for several years. I'm in my second shop and if everything goes well I'll only move once more, and that will be into my own building. But that's still quite a ways down the road for me.

I'm also curious, if you don't mind sharing, what part of the country you're in? My overhead for my 2k sq. ft. shop is about $2k a month (a little higher this time of year with the heat). I know my rent is on the low side, but $6k for overhead without anything running yet seems pretty high. I'm about 20 minutes north of Boston so definitely not the cheapest area either.



From contributor H:
Just out of curiosity what did you expect the power to be like? Did you expect to just be able to plug in your three phase?


From contributor A:
Lawsuits never get to the merits of the case in a couple of months. There is all kinds of posturing and motions to dismiss, etc., that take place before anything meaningful happens. The frustration and misery is more than you can imagine. If you make them the defendants, they will stall in every way possible. If you are the defendant (because you walk), then the ball is in your court if you want to stall.

That said, this is contract law. Contract law is based on many principles (autonomy, justification, justice, compensation, security and so on). Could the issue have been anticipated at the time, and if so, would the contract have been written as it was, or to address the issue, or abandoned (not contracted)?

If the emails from the realtor clearly state that your space has 3 phase and if she copied the landlord on the emails (giving him the opportunity to correct the information), then you have a case for misrepresentation (be it intentional or latent). If the space was contracted for on the basis of 3 phase existing in your space and it does not, then there was a breach of the contract on the day they signed it.

If there is a breach and you are unable to perform your work because of it, then you have the right to file suit and ask for (among other counts) injunctive relief, which provides you the right to stop making payments until the issue is resolved or ruled on (excuse for nonperformance). Note, you would need to file suit as a plaintiff first to safely take this action (best to escrow the payments if you can until a ruling comes in). If you do this they should counter in the same law division, but beware they could also pull a forcible entry and detainer suit in a different court and then you have to motion to get it consolidated into your suit. The first suit filed determines where the case is heard. But there is always the problem of the possibility that their attorney goes on fishing trips with their judge. The color of justice is often green.

This is of course a very simplified and incomplete accounting of the law on this problem you are facing. Think about the possibility of being in court for a long time, because even though it shouldn't take long to get to the merits, it more often does. Look for the cleanest, fastest means to the end, so that you can get back to work. Sometimes that means taking your marbles and leaving. This is a poker game. You entered the game (may have been bluffed), and they are not going to play fair if they can help it (poker is similar to the court system). You stay in, you may win or you may lose. How strong are your cards, deep your pockets, and strong your stomach? How about theirs?

If your attorney is willing to write a fraud (misrepresentation) suit, then you may be able to receive attorneys fees and punitive, but this may vary from state to state. However, if he feels he can make that case, then a letter from him telling them to get to the table now (to fix the problem or rescission of contract) or else he will prosecute, may bring them to their senses. If not, then walking away may be your sanity (you can leave and file suit for your costs or you can see if they come after you and provide your defense), or you can pay what you must to get up and running. If they have not stepped up to the plate so far, it doesn't look good that they will suddenly find religion or honor.

It would be wise for you to look up your state's Statutes on Uniform Commercial Code and Rights and Remedies. This will arm you with knowledge and help you watch over your attorney and also follow his logic if you have found a logical attorney (oxymoron).

Three years ago I walked into a snake pit deal, building purchase on contract. Nine defendants, realtors, professional engineers, sellers, extremely well done multi-layered fraud, misrepresentation, negligence, etc. A multi-million lawsuit still pending and losses of over $750K to date (not including loss of business). My case is solid as a rock, but still ongoing and complicated. If I knew then what I know now, I would have walked away from the then $60K and moved on with my life and happiness.

If you can get out/resolve the simplest way possible, you will win. Walk away = X$ and a bit wiser, peace of mind = priceless!



From the original questioner:
The emails didn't copy the owner (to my knowledge). I don't know if this will exclude him from responsibility. I honestly think that the realtor has hidden the fact that the agent has misrepresented the property. Otherwise, if I were the owner, I'd be putting some serious pressure on the realtor to settle this from their bank account. I think the owner thinks I'm asking for an upgrade after the fact/signed lease. I'm probably going to have a meeting with the owner, after all of this is settled, and let him look over the facts. I'm anticipating a surprised look on his face.

I'm waiting on a call back from my lawyer before I send over some options. Option one, and the most beneficial for them, is I pay $3k of the $10k for three phase and we rewrite the lease for less money. Since I'm only willing to commit to one year at a time, I will be financially motivated (for shelling out $3k) to stay there for more than a year. This way everyone gets to recoup some of their money from the long-term tenant, me.

Since this is a new venture, and given the current economic outlook, I'm trying not to over commit myself with regards to debt. I don't plan on being out of business after a year but you never know. I think by the third year I'll be ready to find a place of my own. Owning your own building can be more profitable for a one-man show than actually making product.

Option two would be to pay me some money for all of the losses and expenses I've incurred due to their misrepresentation and void the lease. This isn't in anyone's best interest.

Option 3 would be to proceed to court. Again, I don't think this is in anyone's best interest.

No one really wants to go to court because crazy stuff happens there. You could be totally in the right and still lose the case. So, just like on Law and Order, everyone plea bargains as a means of controlling the outcome (managing risk). So if I file suit for $X, chances are they would be willing to settle for less than $X rather than go to court and risk losing the whole amount. I know a lot of this depends on the strength of your case legal staff but if you've got a 50/50 chance of losing, and we're talking thousands of dollars, I think most would settle.

I'm in Southeastern VA. My overhead is just like my resume, fluffed. The money out of pocket is $3k, and $3k is my salary. I won't be able to make payroll this month (or for a couple to come) but if someone were asking my overhead, I'd give them this figure. I'm also planning a pretty expensive advertising campaign for the first year. I've budgeted $1k a month in advertising. I know there's ineffective advertising but I'm not sure if there is a thing as too much advertising, especially for a startup.



From the original questioner:
I first found out that the building wasn't three phase before my lease officially started. I had signed the agreement but it didn't start until March 1st and I notified them as to the power discrepancy on February 23rd. I don't know how this matters since the agent's first email response was, "I called Dominion Power (our local power company) and they told me it was three phase. I'll get this resolved immediately." I'm not sure where this leaves things but I was under the impression, as her email stated, that she took responsibility for her "mistake" and would be correcting it. Again, I'm not sure how this will affect my case from a law standpoint, but her intent was very clear.

As I said before, the electrician quoted me $4k to wire my equipment, etc. and I'm ready to pay for that out of my own pocket.



From contributor L:
Your last post suggests that you've not yet internalized that the landlord and agent might not be trustworthy. I would not meet with them without your attorney present. Recognize that, if you do litigate, you can be financially ruined even if you do, eventually, "win."

How much does your attorney charge per hour?
What will he charge during litigation (that's frequently a higher rate)?
How many hours of his time will it take to burn through what you seem to consider your extensive investment in this property?
How many hours of his time does he estimate it could take to resolve this?
What are his expectations of success?
Is he confident enough to structure his billing so that your final rate depends on whether he wins? (Very unusual if he did!)

If it were me - and I'm truly thankful that it's not - I'd ask my attorney how I could walk away from this with or without my deposit.



From the original questioner:
I am trying to resolve this without going to court. They've already offered $5k for the $10k cost. All I'm asking them for is another two and a lower monthly rate so I can recoup this expense by renting there long-term. I've also listed a bunch of improvements that I'll be doing on my dime to make this space more suitable for my needs. Most of these improvements are general and will benefit the next tenant. My lawyer just quoted me $275/hr. He's going to think about this some more and get back to me tomorrow. I hope he isn't charging me for thinking time.


From contributor A:
I am sorry to have to tell you this but, survey says, you are not in good shape. You found out about the discrepancy before moving in and accepted a lame promise that it would "be resolved." You proceeded to move in prior to it being resolved physically or in writing. You have technically accepted the conditions by doing so. You had an obligation by law to mitigate your potential damages and you did not. You needed to pull the plug right then and there, rescind.

As for going forward from where you are right now, I recommend the following, tomorrow morning:

1) Take a shot of whiskey or scotch. Hell, take two.
2) Forget the attorney, completely. (But don't tell the other side that.)
3) Bring in a new electrician. Tell him what you need accomplished and ask for a price. Do not even mention the problems, the landlord, lawsuit, it isn't fair stuff, just get a price to do what needs doing. Do not tell anyone involved that you have another quote.
4) Work out this deal with the landlord/realtors and accept whatever you can get them to pony up towards the upgrade. Get in writing the dollar amount they will contribute. Take the $5K and run. Stop dickering (but don't make it too obvious). You are officially a lucky guy to be getting this much.
5) Thank them (graciously but not obviously), shake hands.
6) Hire whichever electrician you want and "git er done".
7) Pat yourself on the back for learning to move things forward, saving yourself from extreme misery and go home and kiss your wife and kids.
8) Sleep well knowing you have done the very best you could and get back to business. Make some cabinets!

Lastly, yes, if you take one more step with him, your attorney will be charging you for thinking... even if he is in the shower or out drinking. You have actually learned a very hard lesson for very short dollars. You'll make up this money in no time if you get back to business.



From contributor A:
I don't even think this was an intentional misrepresentation on their part - it was an oops! If they had tried to set you up, they would be telling you to go pound sand right now. They are making their best effort to correct the wrong. (Just to be sure, get that other quote from someone who is not their electrician. If the new quote is substantially less, then there was a sweetheart kickback going on.)


From the original questioner:
Thanks for all of the insight. I'm totally lost on the fact that it is, according to your post, up to me to rescind the contract because of a misrepresentation, and subsequent misrepresentation (they'd correct the problem). Why am I the only one accountable and playing by rules which almost no one (except real estate attorneys) understands? Aren't real estate agents recognized as professionals who should be competent in their duties? I find it hard to believe that they are totally exempt from any responsibility.

So far my lawyer has indicated that we have a pretty strong case but that going to court isn't going to be fun. They've already offered $5k which shows that they are willing to take some accountability for their actions. I'm probably going to present my offer tomorrow and see what happens. I've spelled everything out in real dollars so as not to be misinterpreted. To summarize, assuming I stick around for three years (which if I'm in business, I will), owner gets $44k for $7k worth of electrical upgrades plus an office built by me (building will be more marketable and valuable), real estate company gets $5k for their $2.5k contribution (assuming their fees are 10%). I save $1.2k over three years from our original contract including recouping my investment of $3k. I guess I could add that the building was vacant for a whole year before I moved in and we are in the middle of a recession. While the owner might be able to get the same lease for no cost to him, every month it sits, he's not making any money. It goes without saying that they're not going to pony up for the whole thing. I just want them to do a little better than their first offer.

As for the electrician, no problems there. Having been a residential general contractor for the past five years I've got a good feel for what this should cost. He's basically got to remove the existing panel, rerout all of the existing to the opposite wall (approximately 75 lf away) and do everything to bring three phase in. We've talked and he knows they're trying to screw me. His price is fair.



From contributor H:
Please don't take this too hard, but you are really going to have a hard time with a new business. Take what they will give you, realize that you made a mistake too, and they are meeting you halfway. You did not check to see if what she was saying was true until you had signed a contract. Get your equipment hooked up and get back to work. Realize that this is part of owning a business. Take the money, get several other quotes from other electricians, and get it done. The fact is that it is costing you thousands of dollars to not have your shop up and running. They will never pay you any money for damages. They will never reduce your rent. Get your shop set up and get to work.


From contributor A:
I understand you feel wronged. However, this is America. If you have not been through this before it is easy to believe that you should be compensated. Let's talk reality for a moment.

The agent received her information from the utility company - the building has 3 phase going to it. She is a real estate agent, not an electrician. She did not knowingly, intentionally, unlawfully with willful, wanton intent provide you with false information. She may have, even in writing, said that she would get to the bottom of this and "resolve it." This does not mean she promised to get 3 phase into your space at any cost. In her misguided innocence to assure you she would resolve this, what she really meant and said was she would figure out what was going on, because she was working on information provided to her, which turned out to be inaccurate after the fact.

They are making you an offer which is golden if you get it. If you can get more than they have offered, praise your god, but thank them and be grateful. You have little legal ground based on how this played out.

As for your lawyer, he is trying to figure out if he can sleep at night (he will) by telling you that you have a good case, because he knows he is going to take every dime that he tells you he is going to save you. At $275 per hour, he is going to write a letter, have a couple phone conversations, research how to write this lawsuit on your dime, write it, drive to the circuit court clerk's office, pay the filing fee, and file his appearance papers. Then he is going to bill you for the 17 hours it took him to do all this, and that equals $5K, and you are not even in front of a judge yet, nor will you be soon.

And once you get on that horse, you can't get off of it or you may have to pay their costs. Before you know it, you will be $40K in debt and you still don't have power for your machines because you spent your money on attorney fees.

You are playing with fire, and when you play with fire, you are gambling on getting burned. This is your first brick and mortar venture, I am guessing. Your landlord has had an empty building for a year. What makes you think he is in a position to pay for what you want? He may be in worse shape than you are. These people are trying and that shows good faith on their part. You have to accept some responsibility for not doing your homework. You didn't know you needed to, but now you do and that is a lesson well learned.

Tenant improvements are the norm. You need to do them to benefit yourself. Landlords may benefit from your improvements or not. It is immaterial. Save this relationship with the landlord and move on to what you leased this place to accomplish. Take it out of your advertising budget, make excellent cabinets, and let the word of mouth advertising recoup your investment in yourself.

Trying to win this case is going to make you lose in the end. Negotiate fairly with them and move forward. Find the money to get what you need to get up and running, now!



From contributor Y:
I said early in the post that you would get nothing from the owner, so I've been proven wrong if they are willing to kick in $5000. That shows a real desire on their end to get you into the space, and a remarkable fairness really. To push for more, both up front for the 3-phase and in reduced rent, would be a display of foolishness in my opinion, and could backfire in so many ways.

I was in a similar position almost 3 years ago. I had a lawyer review my lease, at no charge, and we discussed my getting out of it, due to my concerns with electrical issues and costs. In the end I went forward and everything worked out. In hindsight, all the to-do about electric was at least in part an excuse for me to continue sitting on the sharp fence of ambivalence over the whole enterprise, the whole fat nut of a first lease. Part of me wanted to run, and the electric issue (and the landlord's stubbornness and poor reputation in our little borough) gave me what I thought was a perfect out. Are you sitting on that fence? It's very understandable. I was nearly physically ill when I signed my lease. Once you move forward this will all quickly recede in the rear-view mirror. But maybe you do want to get out. Maybe you have doubts that are legitimate. It will cost you some - lawyer, security deposit, money already spent. But that may end up being the right thing. (The slowdown can't be helping!) But if you get off that fence and want to move forward in earnest (you have work under contract, right?), then stop talking to your lawyer and get going with the offer they've presented. And you'll sleep better for the first night in how long?



From the original questioner:
We'll have to agree to disagree about right and wrong and life in America, but I truly appreciate different views.

I just submitted my proposal to the agency. She is going to circulate it to the decision makers and I'll hopefully know something soon. I didn't ask for too much more than what they were already offering. I did take the time to do the math on what I was requesting so they can see exactly how many dollars we're talking about.

I'm not a fighter, but I know when to stick up for myself. I'm also not made of money and work way too hard to give it away. I'm surprised that I haven't received more "way to stick up for yourself" responses. How are small businesses ever going to survive if we lay down at every opportunity? Seeing how the future is shaped by the present, if small guys continue to give in out of fear, it won't be too long before we're all working for someone else.

I would hope that the real estate company would learn that they shouldn't make statements about things that they don't know. I would also hope that they would follow any statements up with "you cannot hold us responsible for these statements" or something like that. If the girl said something like that to me I definitely would have spent the $50 to hire an electrician to do an inspection. As it is, she definitely answered my question and left no doubt as to her answer. So why is this my fault? Why am I lucky the owner and agent are kicking in 50% of their mistake?



From the original questioner:
Well, the landlord/agent clarified their offer to pay half with a small stipulation - turning my one year lease with options for years two and three into a guaranteed four year deal. That pretty much canned me trying to stay there. While I'm not planning on failing, I cannot commit to anything more than a year. I would be able to if the business had some history but this is a new venture so I'm trying to limit my liabilities.

The agent just sent over the lease release agreement. They're willing to pay me $1500 for the partial completed office I built (I showed receipts for $1950, not including any of my labor) and fully refund my $1400 security deposit provided I don't do any damage. They also want me to hold them harmless against any further action. The one bright spot is that they are willing to let me remain until May 1st.

Since they aren't going to give me any credit for my lost time/money/opportunities, it's became an easy decision to move. If I could get them to agree to me only being committed for one year, I'd still be out $5k (three phase) plus $4k to wire my machines, the office, and add outlets. If I can find a space with three phase already existing (I'm supposed to check out two different places later today), I'd save myself $5k and probably another $1k depending on what electrical work is already existing. It will probably cost me a grand to move (rented forklifts and gas driving back and forth) and hopefully I can be up and running in about two weeks. That might be optimistic but I don't have that much stuff and can get by without everything perfectly positioned to get some work done.

This scenario is vs. spending $9k to remain where I am and being up and running in a week plus. So $9k in a week vs. $3k in two weeks - I think I can wait it out. And it's not like I've got business beating down my door. My smallish entertainment center is aware of my situation and is willing to wait, and the other job is already lost. Since all of this has been in limbo, I haven't gotten business cards made or started any of my marketing campaign. So for now, I guess I'm lucky to have had the opportunity to do two jobs without even having a shop sign.

So in the twisted reality of real estate law, is their offer (which would make me their tenant for four years) any type of bait-and-switch (illegal)? I don't have any plans to seek legal action against them. I'll protest signing the "hold harmless" part and create a paper trail so, if legal action needs to take place in the future, I can show my protest and demonstrate that they wouldn't pay my deposit unless I signed it. My years in recreation, and limited understanding of liability waivers in that field has told me that these cannot prevent lawsuits and, for the most part, simply discourage them.



From contributor E:
I think you'll be better off in the long run. Get yourself into a space with the power all set to go. Sure you'll still have to wire things up, but in a crunch you could always run machines with a temporary extension cord. For my own shop I made one up for giving new (to me) machines a trial run. One end plugs into a 3 phase outlet and the other end also has a 3 ph outlet I can plug the machine into. Made it up out of a 25' 12 Gg cable and it works great for what I need it to do. I've set my shop up one bit at a time over 7 years now and I still have plenty to do. Just get up and running so the money is coming in and forget about the other place altogether.


From contributor Z:
When you blunder into a contract without checking every detail, it has nothing to do with rolling over or lying down. I had to sign up for 3 year lease terms when I bought my business six years ago. I also signed in my excitement without having an attorney check the contract. Had one issue that was a problem and paid an attorney $3000 to push back. You are correct that you would be personally responsible for the lease but I will be surprised if you find any landlord willing to let you move in for a year. Has everything to do with risk and business. If you are not willing to risk 3 years, then why would the building owner think you will be a good long term tenant? I rolled the dice of life and it has scared me to death at times but it also makes you understand the downside to failing.

From contributor R:
Take the deal and move on. You didn't get screwed, you just didn't check everything out for yourself like you should have. In the future I bet you will not take anyone's word on what is or isn't, but will do your due diligence.

You are wrong about everyone lying down and not standing up for their rights. These people are trying to help you see that whether or not the realtor or owner told you the place was powered properly, you should have checked it out yourself. It is your business to know your business. Just because you didn't check it out properly doesn't make it someone else's fault for misstating the facts. You are lucky they offered you anything, as it would have cost you far more if you tried to sue and win. We live in a sue happy society and are all better off trying to resolve our differences without lawyers if possible.

Just for perspective, if you still think you got screwed... Listening to the news yesterday, the US military is paying Iraqi families $2k for each family member they accidentally killed. Consider yourself lucky to live in the US of A as always.



From contributor A:
I am happy to hear that you spent some time reflecting and have made the decision that is right for you.

To answer your legal question, no, there is no illegal bait and switch they have committed. They are just doing their best to watch out for themselves and get this put to bed. They are not trying to hurt you and they recognize that this has been an unfortunate misunderstanding. They are doing the best they can as evidenced by their letting you out of this lease with additional accommodations included. This is fair even though it hurts a little.

This has provided you with more than a semester worth of business contract law knowledge in less than 6 weeks. You may not know every nuance a law student would have learned for the money spent, but you have learned the bottom line of dotting every I and crossing every T before signing a document. You are going to come out of this relatively unscathed very soon and will move on to a better situation.



From contributor N:
He asked about three phase and they answered in the affirmative. He used what's called ordinary care, which a reasonable person would use. He's not an electrician, he knew he needed three phase, he asked and was answered. Even if he did inspect the place, would he even have known what a three phase panel looked like? Is he required to?

You don't have to sign anything holding them harmless as a condition of getting your deposit back. They couldn't care less about doing the right thing - they are trying to cover their butts for their screw up.KEYWORDSBEGIN-->



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