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Office Space Primer for Lawyers, Part I: How to Find a Home for Your Law Firm

Dom Portwood: Hi, Peter. What’s happening? We need to talk about your TPS reports.
Peter Gibbons: Yeah. The coversheet. I know, I know. Uh, Bill talked to me about it.

(Whoops …. wrong “Office Space“).

Today is the start of what will be a series on how to find a home for your law firm.  With several options ranging from leasing a hot “Class A” downtown office to sharing space to rigging up a newfangled virtual law office, the choices are numerous and there are all sorts of plusses and minuses to each.

Option 1: Leasing a traditional office (or offices) on your own.  If you can afford it.

Prior to listing out some actual tips on leasing physical office space, take a step back and approach with caution even if – and particularly when – it feels as though the work is piling up and clients are pouring in.

For any small business – law firm included – recurring rent can end up being one of the biggest operating expenses after payroll, and also one of the most difficult to defer.    Like a houseguest that stays too long, once it’s signed that lease is always there, and the payment seems as though it’ll never leave.

Also, unlike a lot of trade creditors who will often give you a break when payment is late by a few days, landlords (particularly those with steep mortgages), usually don’t respond too favorably to blown 10-day grace periods.

Given that, if you’ve chosen to make a leased office your true home base or storefront, know that your landlord can inadvertently become a pretty powerful influence on the business side of your firm.

A quick aside and cautionary tale…

Early in my career I had the opportunity to work on several high profile Chapter 11 bankruptcy cases involving retail, storefront businesses.  As a young lawyer, in between plodding through the oh-so-fun bankruptcy schedules (they never showed THAT work on “LA Law“), I was lucky enough to also spend some time with senior business executives learning how these businesses got into the spot they were in.

Many shared the same pattern.  Each started small, rapidly grew sales – some achieving crazy initial success – and they aggressively expanded at a pace that matched their quick sales growth. For these retail businesses, that meant quickly adding stores, which in turn meant adding several real property leases to their operating costs.

When the business growth rate inevitably leveled off, they were stuck in a highly leveraged position with big lease payments due each month. Strapped for liquidity and unable to keep up with all the fixed monthly rent payments, landlords started taking action.

Nothing highlights better how an otherwise decent core business can be seriously and immediately jeopardized by a landlord than hearing the utter panic in a client’s voice when (prior to bankruptcy) they’ve been unexpectedly locked out! The effect of that kind of action can quickly snowball throughout an organization, and pretty soon those landlords become the tail wagging the dog.

The analogy between a retail chain and a law firm certainly isn’t perfect, but some of the lessons can definitely overlap.   Be conscious of the leverage on your business that you’re creating by signing a traditional term lease.

There are often situations where, from a business perspective, taking on additional financial risk can be justifiable – like for investments in networking or marketing. However, barring some clear, strategic upside that directly supports one of those objectives (like leasing space that is assured to generate new business or referrals just by virtue of its location) – “conservative” is a good way to lean when leasing physical space.

If you’re not certain you can comfortably afford that space, even during times when business or cash flow may be temporarily slow, you’re likely better off looking at options other than leasing physical space on your own.    You don’t need that extra pressure.

In Part II, we’ll take a look at some tips for leasing law firm office space once you have decided it could be the right, affordable move for your firm.