Sleeping with the enemy? No… Well, maybe just a kiss?

OK, the enemy metaphor is a bit strong, but service providers in the real estate technology industry often ask our firm for legal and other advice. Most of our firm’s clients are REALTOR® associations, MLSs, and leading brokers. It’s flattering to have the “other side” in a contract negotiation contact us after the deal is signed and ask if we can represent them. But it’s something we avoid doing. We speak of wanting to “stay on one side of the table” in the industry; but we also look for ways to work with the service providers And we try to avoid claims that we’ve “blessed” one contract or another. We encounter these situations regularly, and this post talks a little about how we handle them.

Consider one scenario: Imagine that ABC Technologies has developed a new MLS system, FlibgibbetMLS. It wants to develop a standard contract that it thinks most MLSs will be willing to sign. ABC approaches our firm, asking if we can write the contract. Technically, there’s no conflict for us, because (we’ll assume) ABC does not yet have any clients. But our problem is this: If we draft the FlibgibbetMLS contract for ABC, we won’t be able to advise any of our MLS clients about that contract if they choose to work with ABC. Imagine being an MLS exec and having your lawyer say, “Sorry, we can’t review that agreement for you, because we wrote it!” 

We have occasionally dealt with this type of situation by telling the service provider to get an MLS or association client first. If that MLS or association is our client, we can represent the MLS in drafting an agreement that meets that particular MLS’s needs, but with an eye toward it being useful for future clients of ABC. ABC agrees to pay our MLS client’s legal fees (usually up to some limit). As a result, we can fully represent that MLS client and any future MLS or association that works with ABC. We performed a variation of this recently when Point2 asked if we would draft a new syndication agreement. Point2 found one of our clients, an MLS working with it under its old contract. The MLS agreed to have us draft the agreement, and Point2 agreed to reimburse the MLS for our fees (up to a very reasonable cap ;-).

Consider a second scenario: Suppose XYZ Co. is about to launch a new project that could have important implications in the real estate business. XYZ wants advice from us on branding and communications to address, in advance, concerns it anticipates that MLSs and REALTOR® associations might raise. But what if we learned during that project some confidential fact that would have a considerable impact on some or all of our MLS and association clients?

We have occasionally agreed to help on these projects with carefully defined limitations. First, the service provider must agree that we will not keep information about the service provider confidential from our clients if we would have a duty to disclose something to them. Second, we get to talk about the engagement and what we did on it after the termination of the project. Technically, this means we must advise the service provider at the outset: “Nothing you share with us is assured to be kept confidential.” Practically, we can still provide value by helping the service provider develop and weigh options, though we tell them not to share too much with us! For example, we helped LPS back in 2009 before the launch of RPR by talking through some of their draft communications to MLSs about the role LPS would be playing in the new venture. Once LPS’s role was publicly announced, we were free to talk about our work with them.

The third type of situation is the most difficult: Assume we’ve had hard negotiations with service provider MNO, Inc., two or three times. MNO takes a bunch of the changes that we made to their standard contract and creates a new version of it based on our firm’s revisions. When MNO gets a new REALTOR® association or MLS client, they will either (a) send the client the new version of their standard agreement and say we’ve “blessed” it (because our other clients signed similar deals) or, (b) find out that we are representing the client and expect that we will accept the previous version of the contract as-is.

The problem is that we view every contract negotiation as a unique pairing of our client and its service provider. Let’s say that last time we negotiated with MNO on behalf of a client association. In our first markup of the service provider’s contract, we asked for provisions 1-7, which we identified as raising legal issues, and items 8-14, which reflected peculiar needs of that client association. During the course of negotiations, the service provider accepted 1-4 and 8-11, agreed to modified versions of 5 and 12, and rejected 6, 7, 13, and 14. Now, MNO is working with a new MLS client. We get MNO’s standard agreement, we mark it up, asking for provisions 1-7 again, because they arise from general legal concerns, and items 15-20, which reflect the new client’s peculiar needs.

Often, this situation will precipitate a call from MNO, who says, “We agreed last time that you would not get 5 unless we modify it, and that you would not get 6 and 7 at all! And what are all these new items, 15-20?” MNO mistakenly assumes that because we are negotiating for the MLS, the vendor is negotiating with us and that we are bound by previous negotiations for previous clients. In fact, the first client may not have been that concerned about provisions 6 and 7 when we advised them about their legal implications; the second client, on the other hand, might think that 6 and 7 are critically important. We don’t get to decide, the client does! But the service providers can be quite indignant about this. We’ve even been accused of trying to draw out the negotiations to pad our fees. (Wrong: We do almost all these types of agreements on a flat fee for our MLS and association clients, so we actually make less money if negotiations take longer.)

As for this last issue, our clients and the service providers in the industry should know:
Our firm doesn’t have “approved” or “blessed” contracts (despite what some vendors tell our clients).

• We don’t accept agreements (take on the risk, expect a product, etc.) — our clients do. 
• It’s up to clients to decide whether they are comfortable with the balance of benefits, costs, and risks in a contract. Different clients view contracts differently. 
• Our advice and suggested revisions change over time as new issues in the industry arise (e.g., CIVIX, AHRN), technology changes (e.g., the move to mobile), and vendors change their agreements. 

Do our strategies make us pure as the driven snow? No. First off, we’ve seen enough driven snow in Minnesota this year, thank you. Second, our friendships, relationships, historical interactions, etc., with all the service providers and clients in the industry likely affect our unconscious responses to them all. We strive to be as transparent as possible with our clients and hold ourselves to very high standards. If work we’ve done with a service provider would have an impact on a client’s project, we’d bring that up. If you are a client and want to know whether we have done consulting work for a particular service provider or for any service provider in a particular area, just ask. And don’t believe it if someone tells you that we’ve “blessed” some form of a contract for all MLSs and associations.

 I welcome your comments and thoughts!
-Brian