Filter Coffee #108
On The Accommodation Strategy
FC #107 on the longevity of the feline was well received. Thank you all for the support and the comments.
Preeta Arun says: “‘Curiouser and Curiouser,’ says Alice (from Alice in Wonderland) as she witnesses and experiences all the strange things happening around her. Saying this, she doesn’t hesitate going where her curiosity leads her, making her quite the intrepid little heroine of this wonderful classic. I think a curious mind can keep it from idling away, too. I would also like to mention there are many who think they are ‘the cat’s whiskers’ whether they shine on the ‘catwalk’ or not and behave like ‘a cat that’s got all the cream!’ Jokes apart, I enjoyed this edition.”
Shahji Jacob says: “While I have heard and even used the adage ‘Curiosity kills the cat’, I never thought there was so much to write about it. The links that Pras gives indeed show the depth of his research. Who indeed thought that Catwoman, or for that matter, Garfield, Tom & Jerry, or even Oscar Wilde, Einstein and Newton would figure in an explanation of this old adage? Congratulations Pras for going so deep into the subject — all for our (his readers) benefit.” Thank you Shahji.
🤝 The Accommodation Strategy
Some of my readers desired that I write intermittently on legal or quasi-legal topics. In the past, I have written about living Will, gifts, and other topics. In deference to the readers’ wishes, in this post, I will be sharing some thoughts on one of the many negotiation strategies. I have kept the language simple for ease of reading by non-legal persons.
This strategy is about accommodating the points of view of the people with whom you may be required to negotiate a deal. It is all about being flexible without having to compromise on the core of the subject matter. The idea is to ensure that the deal gets done in a way that both parties feel they have negotiated to their satisfaction and there is a feel-good factor.
In my avatar as the legal head of L&T, and then Aditya Birla Group, I drafted countless contracts and also negotiated numerous contracts which were drafted by others. In either case, invariably, there were differences of views, expectations, and opinions between the parties. One could simply reject all of them and call off the negotiations, or stay engaged in the hope of getting them to agree to some of your points and concede some of their points. It may not result always in a win-win situation, but definitely better than an ‘I-win-you-lose’ situation.
We find ourselves negotiating almost every day. Not all negotiations are of the same genre.
Some may be quite ordinary or routine, and some will require careful consideration of the pros & cons of shaking hands.
Is there a difference between negotiation and bargaining? Indeed, there is. Bargaining is when a person focuses on the price. In contrast, negotiation is about discussing the various other terms and conditions, which would then help determine if what you pay for is worth the value you get. There are people who cannot resist bargaining even if they walk into a shop that has a notice displaying ‘no bargaining, fixed price’. The die-hard bargainer will not heed that sign. He will try his luck and who knows, the shopkeeper may make an exception to the general rule of ‘no-bargaining’.
Bargaining about the price typically happens in the case of off-the-shelf products, and there are usually no other terms and conditions involved. Bargaining is thus a one-sided approach to get something for less, unmindful of the expectations of the other party.
Negotiation is aimed at getting the best terms possible, and in the process, price too may be negotiated. Negotiation is bilateral or, at times, a multilateral process. The parties involved will engage with each other and strike a deal. There’s an accommodation strategy that plays out during negotiations between two or more parties who are keen to get the deal done. Accommodating each other’s expectations, aspirations, and points of view is at the core of this strategy.
Inflexibility is the antithesis of negotiation. Being open-minded, understanding what the deal means to the counterparty, and being receptive to innovative ideas to create a win-win situation is at the heart of the accommodation strategy. Accommodating the requests or terms of the other party without undermining your position will create a great deal of goodwill, and the relationship between the parties is cemented with trust and confidence.
To illustrate the usefulness of this strategy, let me take the example of a lease transaction with which you are all familiar. You may be a landlord or a tenant, but there is a shared need to get the best terms possible.
In FC #017 I had written about how people building a house are considered fools and wise men (tenants) live in them. Please read, if you haven’t. 🔗 Click here to read.
It is inevitable that people build houses and lease them out. How wisely the owner negotiates a lease will be the key to ensuring that they are none the worse.
In FC #035 I dealt with the difference between a lease and leave & license. If you wish, you may visit Filter Coffee #035 - by MR Prasanna.
Supply & demand are the two factors that play out. You could then be either in a Lessors market or Lessees market. The former helps owners to negotiate hard, and the latter helps tenants to look elsewhere and not even bother to negotiate if they consider the terms laughable. They will listen to the terms and say “Ha!” and walk away.
Brokers are always eager to get the deal done and collect their fees and towards this intent, they may nudge the owner or the tenant to accommodate each other’s requests even if either of them is reluctant. This kind of external influence should be carefully controlled. You don’t want to regret later having accepted a condition that does not work for you.
Pre-negotiation checks are critical. Both the owner and tenant should do their own background verification and make sure that the title to the house is undisputed and that the tenant is someone who can be trusted.
Let us look at the various components of the lease: Personal or Company lease:
The duration
The lock-in period
The rent
The deposit
Taxes & other outgoings
Maintenance charges
Minor & major repairs
Nature of usage, residential or commercial
Defaults
Stamp duty & registration
Revenue sharing in the case of commercial property.
Rent & deposit are the monetary components, and there's bound to be some bargaining. Some prefer high deposits & low rent and, if the Model Tenancy Act is brought into force, the deposit may be legally limited to two months' rent. There are other implications too. At your leisure read and get familiar with the Act using this link: The Model Tenancy Act, 2021
Outgoings are another basket of monetary terms. Whilst the owner will pay property tax, the tenant is usually expected to pay the maintenance charge if the house or apartment is in a gated community or controlled by the Apartment Owners Association. Owners must ensure that there is a clause in the lease deed which obligates the tenant to abide by the bye-laws, rules, and other notifications issued by the association.
The lock-in period is always a vexed question. The owner does not want the tenant to fly by night.
In an 11-month lease, some would prefer the entire period as lock-in and if the tenant vacates, they should be in a position to recover the rent for the balance period. There are many ways to deal with this. You can ask the tenant to give you 11 post-dated cheques(PDC) and with the receipt of each month’s rent, the PDC for that month will be given back. This will ensure that you can have recourse to the PDCs if the tenant vacates before the end of the lock-in period. This PDC arrangement works well when the tenant wants a personal lease and is not able to get a company lease.
Owners should ensure that they are protected if a tenant defaults. In one instance, the owner asked the tenant to find another tenant in order to avoid paying for the unexpired lock-in period.
In certain circumstances, the owner may withhold 3 months' rent and refund the balance deposit. During COVID times, many people pleaded hardship and vacated commercial premises overnight.
Just as one negotiates at the time of entering into a lease, one should learn to negotiate its termination, taking into account the circumstances leading to such termination. Accommodating genuine concerns helps keep the relationship on an even keel. People avoid getting into litigation. You would rather settle and move on than spend time and money on lawyers and court proceedings. It may be useful to opt for mediation as a means of resolving disputes.
As a general rule, contracts, as negotiated and signed off, must be honoured. However, there are situations when the contract may be terminated contrary to the terms of the contract. If that happens, one must focus on how to make the termination consensual and not confrontational.
After all, discretion is the better part of valour! Right?
I am happy to answer any question that readers may have.
Have a great Gowri & Ganesha festival. Buy eco-friendly idols and give mother earth a new lease of life. Until next week, stay safe and take care.
Subtle and yet a realistic value proposition. Thank you!
Thank you for the good exercise that you did of making a distinction between negotiations and bargaining. The difference is strikingly clear and thanks for making it so.
While I agree that the investment may not give much return by way of rent, the appreciation in the land on which it is situated goes on increasing. While “the fool” may be given a poor hand-out in terms of return, the actual return could be high indeed, if the land value is monetized years, say by way of sale, later on. Of course todays flats and apartments may not give the expected rise that an individual house property may have. Indeed in many cases the return could turn negative in such cases especially if the time value of money is concerned. I know of many people who are making a killing by selling of the land. Of course, I agree that in most cases it may be “the fool’s” legal heirs who gets the real benefits and actually laugh all their way to the bank. But then there is the also the need to diversify the different investments too instead of putting all the eggs in one basket.