There are times when things don't work out as you planned, and not in every case is it because of something you did.
Over the years we have learned to identify, to “smell,” transactions and projects, marketers or developers whom we prefer not to have as clients of our office, whether because the working methods they described to us did not match our value system, or because the rumor “in the market” is to be careful of them, or because we did not believe in their project/venture.
When Eliyahu came to the first meeting at our office he came with a marketer we know and have worked with for several years. Eliyahu described his business activity as a real estate developer in Israel, said he was fed up with the bureaucratic procedures and the drawn-out projects in Israel, added that he had moved most of his activity to the Greek islands and mentioned his interest in 2-3 projects that would be marketed in Israel by the marketer. His plan was based on buying small hotels whose owners are already elderly and whose second generation is not interested in hospitality, or small hotels in difficulty, and turning them into apart-hotels with a central management company. The idea sounded interesting, and it seemed that Eliyahu “swims” in the field. The presentations he put up were polished and promising. The portfolio of properties/projects held by the company he owns was impressive.
Something about the conduct during the meeting started to raise red flags for me; I felt uncomfortable with the way he treated the questions I raised and the outline of the transactions he wanted to advance. In the afternoon I called the marketer and warned him that I was “uneasy” about Eliyahu.
“You're just stressing and getting stressed for nothing,” the marketer told me. “I've seen projects he set up in Israel. The man knows and understands real estate.”
“Excellent, if you're calm, I'm calm too. We'll send him a fee quote and start moving forward,” I replied.
After receiving the fee quote he asked for another meeting to discuss the proposal. Although I told him on the phone that the proposal was not open to negotiation, he insisted on coming to my office, and I agreed.
“Money is not the problem,” he opened by saying. “I'm not arguing with you about the amounts you ask for. I just want to pay you the entire first payment in a month.”
“That's not acceptable,” I replied. “We don't start working before the client pays an advance of 50% of the fee for the first stage.”
“I understand, and I'm not avoiding paying, but money is supposed to come into the company in a month, I don't want to bring money from home or transfer from another company, but in a month I'll be able to pay you the entire amount for the first stage, and not just half of it,” he said.
“No problem, so we'll start working in a month. There's no rush,” I replied.
“We'll miss the momentum. I have to start selling in order to raise money, in order to meet the payment deadlines to the seller.”
“Eliyahu, I understand, but without an advance we won't start working. You can try another firm. You said at the previous meeting that your deals in Israel are handled by a certain firm; it's a big firm and I know it also has a department that handles transactions abroad.”
“The marketer is not willing to work with them. He insists that we work with you,” he replied.
After haggling that went on for a few more minutes, I agreed to depart from my practice and sign a fee agreement and start working with the payment to be made a month later.
From here on everything went wrong. The seller's lawyer for the first project that was decided on did not cooperate and did not transfer documents to our local office so that we could start the checks, Eliyahu did not agree to the legal structure we proposed and was not willing to give security to the buyers other than his personal guarantee (and as much as I saw this as a positive sign of Eliyahu's belief in his project, I explained to him that I found it hard to see potential buyers settling for such a guarantee, especially in light of the fact that Eliyahu wanted to use the buyers' funds to complete the purchase of the property). A first draft was prepared and after several long meetings with Eliyahu and the marketer it was decided to shelve it and change the legal structure, and another, new draft was prepared.
And then Eliyahu disappeared. Vanished. Not answering phone calls, not answering messages from me or from the marketer. A month passed, and another week, and the payment did not arrive and Eliyahu did not answer, until one day the marketer called me and told me he had managed to reach Eliyahu, who, he said, had had a cardiac event and had just been discharged from the hospital.
“Let's wait for him to get back on his feet and continue,” the marketer told me in the call. “I have potential buyers who have already paid earnest money. I want to move ahead with the project.”
“How do we move ahead when there is no cooperation from the client?” I asked.
Almost a year went by. Eliyahu did not contact our office, and of course did not pay the fee (nor did he see fit to pay even part of the fee for the work we did), and I learned an important lesson, which I already knew but gave up on in this case out of a desire to help the client and advance the project - to go with my gut feeling, and if I feel that the developer or the project does not match the profile we know how to work with, or want to work outside the framework we set, or that our value system does not match - simply not to work with the developer/client. And one more thing - never waive the retainer advance!!!
Stories are based on real situations, with identifying details changed. Not legal advice.
Translated from the Hebrew original. עברית