Today I received the following inquiry from reader Ryan:
I’m curious if you have a view on a practice that continues to baffle me. In the process of negotiating tri-party or multi-party agreements and exchanging drafts or mark-ups via e-mail to a large distribution of the parties and their counsel, some attorneys always include something like the following: “Please note that [my client] reserves the right to further comment on the attached.” or “Please note that this draft remains subject to [my client’s] further review and comment in all material respects.”
The types of agreements I’m referring to are among large, sophisticated institutions. Is there some view that unless this is stated, it is in any way binding? In a non-consumer context that seems ridiculous to me. Instead, I find it counterproductive to receive a mark-up along with the expectation that I should review and respond when the transmittal message suggests that it may not reflect the views of any counterparty. Am I missing something?
Because my deal-making days are long behind me, I leave it to other readers to offer their thoughts.
If someone did that on every turn of the document, I’d be annoyed. But it can certainly be appropriate where timeliness is important, counsel is generally trusted, and the client can’t review/discuss in a timely manner for some reason.
To put it another way: sometimes it is better to send out something that you’re only 90% sure is correct, if the 10% is likely to be immaterial or you know confirming that 10% will take lots of time in a time-sensitive deal. And in those cases, setting expectations properly (“client hasn’t reviewed yet”) is helpful.
If you’re particularly annoyed by this, I think it is fair game to ask (1) why haven’t they reviewed? And (2) are there any areas particularly needing review/confirmation, so that you can postpone those until later? If the other side can’t answer those questions, then being annoyed is more justified.
This was usually a red flag to me. It meant that they could get us to reveal our position, then change their asks using the cover of blaming client feedback. Plus, it would cost my client money to review this draft, only to have to re-review if the client did have comments. Generally, I would ask the other side for a comprehensive revision so that we could do a single pass in response. Eric.
Keep in mind this practice only really works in an environment where client reviews are a formality, or, as Luis says, only result in minor changes. In that environment, quite opposite from being some sort of gamesmanship (which, with due respect to Eric, I fail to see the effectiveness of anyway) it’s a courtesy as it gives counterparty’s counsel maximum time to review. I will always take 90% now and 10% later rather than waiting 24 hours for 100% (and thus having one less day until closing). Of course, if the client comes back with substantial comments, and particularly if they start reversing course, then the practice breaks down and you will only review “final” drafts from then on.
On some kinds of deals, between some kinds of players, language sent back without comment is understood as language accepted. Negotiators take turns until there’s nothing to change or reserve comment about. Then the deal is done. Very orderly.
Some negotiators don’t know this rule, or don’t follow it. The rule can always break down in the wrong circumstances.
When “reserve comment” happens knee-jerk, as CYA or a ploy, it’s counterproductive and unwelcome. I’ll often go ahead and review, but make sure to send my own turn with a note that we’re proceeding on the assumption that the last turn was solid. In other words: If you double back, we’re not following the rule, either.
This can be hard when the content of our draft wants to disclose potentially tactical information, like our willingness to consider an alternative. If I see that happening, I’ll hold back the language and insert a conversation-starter comment, instead, and push for a phone call. That slows things down, but concedes nothing.
On the other hand, when “reserve comment” happens for expedience, to avoid unnecessary delay or to rush toward an extrinsic deadline, it’s a very positive sign. The other side is telling me they know the rule, and want to follow it. This is just one of those circumstances where they think suspending it saves time.
There is always the chance you’ll get a draft without disclaimer, and see the other party renege, or come up with new points, later on. It’s important to send savvy counterparts signs that you aren’t that kind of wheeler-dealer, especially when you need to play loose for a turn.
The answer may depend on domain context. Some agreements have complex budgets subject to esoteric regulations that are negotiated by different personnel (on each side) than the main contract. In these cases, the parties generally understand that some parts of the agreement may take longer to negotiate, and marking the budget piece as subject to further review/negotiation simply makes the implicitly-understood process explicit.
Reserving rights for client review helps maintain the pace of the deal. Since deals usually require a quick review and turn of the drafts, the lawyer will often not have the opportunity to review all his/her revisions to the documents with the client, but rather will send the revised documents to opposing counsel in the interest of time reserving rights for client review. This maintains the pace of the iterations while leaving the door open for client changes.
In my experience, this is just a signal that my client hasn’t had time (or hasn’t bothered) to review my draft, but instructed me to send it to keep the deal moving. I see it as a courtesy, because there is normally an understanding that nothing is meant to be binding until the definitive agreement is signed. (If I had a dime for every time a vendor changed its positions between its RFP response and the final agreement…)
I run into this issue in the context of real property purchase contract ‘contingency’ clauses, such as inspection, mortgage approval, and legal review contingencies. The contingencies let the buyer or seller cancel the deal by some deadline if a contingency isn’t met.
Many people are alarmingly willing to sign a house purchase contract first, then cast about for a lawyer to review the contract already signed, quickly, quickly, because the legal contingency is 72 hours. If no cancellation within that period, that ground of cancellation vanishes. Luckily, brokers can often suggest lawyers known to be able to review a purchase contract quickly.
In collective bargaining, there’s often a written ground rule ‘no agreement until a complete agreement’, so parties can get a ‘tentative resolve’ on, say, overtime, and move on to sick time without waiving the right to revisit overtime.
Bearing in mind this is described as occurring during (presumably simultaneous) multi-party review of a document, I can see merit in reserving further comment on issues an alternate party brings to the table subsequent to my client’s submission of their comments. I wouldn’t see this as brinkmanship (or that the client hasn’t fully reviewed the document at first pass), but if circumstances change as a result of a later counterparty position, or an “unforeseen” issue in my client’s original review is raised by another party, I’d see value in having reserved the right to comment further for my client.