Magazine

Finders Keepers?


Q: I'm consulting on new equipment purchases for a manufacturing firm in the construction industry. Some potential vendors have asked how much they should add for my finder's fee. Can I legally accept such a fee? — Dan Hellwig, Warsaw, N.Y.

A: If it is truly a finder's fee—and your contract does not prohibit it—then yes, you can accept it. But there's a thin line between a finder's fee and a bribe.

A finder's fee is a reward given to someone outside a company who helps make a sale. Typically, a finder's fee is between 2% and 5% of the sale amount. A finder's fee becomes a bribe if it's meant to affect the judgment of the person who gets it, or even if it merely appears to have influenced them unduly.

In the construction industry, cash is seldom the preferred way to say thank you, says Robert La Reddola, a business attorney with La Reddola, Lester & Associates in Garden City, N.Y. More common are tickets to a sports game or a show, gifts, or future job referrals.

All government contracts prohibit taking money from vendors, a restriction that carries over to private contracts involving government work. Other private contracts often forbid finders' fees, but they're not legally required to do so. Still, "Unless there's disclosure and consent about this money changing hands, it's a big no-no," says Richard Leisner, an attorney with Trenam Kemker in Tampa. "You owe your [client] your undivided loyalty."

Check your contract for guidelines about finder's fees. If there's no mention of them there, ask your client about these offers and how to handle them. That will point up your inexperience in the industry, but presumably the manufacturer knows you're an outsider—and your fresh perspective may be one reason you were hired. Your honesty should enhance your reputation and recommend you for future consulting projects.

THE PATH OF LEASE RESISTANCE

Q: My husband and I are negotiating a lease for our startup. The landlord plans to increase our rent every year and charge us proportionately for his yearly tax increase. We also have to pay maintenance fees and a 5% realtor fee. Is this fair? — Ilana Reitikh, Fair Lawn, N.J.

A: The terms you describe are not unusual for a commercial lease, says John Logan, a partner in the Denver real estate law firm Laff Campbell Tucker & Gordon. "Startup companies often get sticker shock negotiating their first commercial leases, but none of these demands sounds like a deal breaker," Logan says. He estimates that 90% of leases running for three years or more include some form of rent escalation.

That doesn't mean you can't do better. Shop around—compare term sheets from various landlords, and consider working with a real estate attorney to help you negotiate. "Ask for an initial three or four months of free rent," says Logan. "Look for a tenant improvement allowance that will give you some funds to fix up your space. There are a number of incentives you might get."

You'll probably also see references to the landlord's operating expenses—taxes, insurance, maintenance and management fees. Some landlords may cap these at a reasonable figure—say, 5%. If you get lucky, you'll find a gross lease, in which you pay a fixed monthly figure with the landlord covering expenses out of that amount. But pay close attention to exactly what constitutes an operating expense. Some unscrupulous landlords will make building improvements and then try to pass them on to tenants as operating costs.

Back to BWSmallBiz June/July 2008 Table of Contents

Karen E. Klein is a Los Angeles-based writer who covers entrepreneurship and small-business issues.

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