Use Digital Signatures to Streamline Lease Deals

Technological advances that provide security and convenience for users are being made in leaps and bounds, and even the traditional commercial real estate industry is benefitting—most recently, from digital signature software. Traditional methods of executing leases and related documents—that is, ink-on-paper signatures—leave the door open for potential misunderstandings and even fraud. Digital signatures are a game changer—protecting both office and retail owners and tenants from the inherent flaws of traditional lease signing. Here’s what you need to know about this method, and how you can convince your prospective tenants to use it in your deals with them.

Protect Both Parties’ Interests

Digital signatures shouldn’t be confused with so-called electronic signatures, which have become commonplace. An electronic signature is purely a mark on a digital document—such as a pinpad at a store checkout or the checkbox at the end of a “Terms of Use Agreement” on a website. The electronic signature indicates that you are signing that document and it could be a digitized version of your own signature if you sign a pinpad with your finger or a pen, or a checkbox online. The result is the same, however; there is no way to verify that it was you who made that mark on the pinpad or website.

“That’s why an e-signature is very problematic when it comes to maintaining integrity and security. It’s so easy for an individual to type another person’s name,” says California attorney Lisa Spiwak. “A digital signature is a completely different process that is unique because it’s verifiable,” she emphasizes. A digital signature authenticates and provides evidence that the owner or tenant is the actual signer.

“Digital signature software has been specifically designed to authenticate a digital signature using ‘cryptography,’ which relies heavily on algorithms that prevent hacking,” Spiwak explains. And the information constantly changes to prevent any security breach. “This is important because the signer of a document is given a ‘private key’—essentially a super-password that only she has, and the document to be signed has another key; the two keys have to fit together so the signer is not only authenticating the digital signature, but also the document,” Spiwak stresses. This becomes the signer’s unique document fingerprint.

The use of two keys provides proof that the signer is signing that particular document, but digital signature software goes a step farther. It makes the process even more secure by time stamping the signature on the document at the exact moment that it is digitally signed using the personal, private key and the second document-specific key.

“This is important particularly for owners because lease agreements typically have multiple drafts after many rounds of negotiation, and if a lease is not time stamped, one party could say that when it signed the document, it had different terms,” stresses Spiwak. Time stamping prevents accusations that the terms were changed, making it especially useful for landlord-tenant law, she adds. There also may be signatures for interim documents like letters of intent, she points out. Time stamping those prevents disputes as to what was agreed upon at a certain moment in time; the state of the document with any new changes is known exactly. “Using a digital signature means that you can never question the terms of the document,” Spiwak points out.

Owners, Tenants Reap Digital Benefits

Digital signatures protect owners and tenants, and simplify the administrative process of lease deals. But that doesn’t mean that all of the prospective tenants for space you own will see it that way. Long-time commercial property tenants may be used to ink-on-paper signatures and filing away paper copies of leases for use later. They may be reticent to use what they see as a fleeting trend. Pointing out the advantages—and legitimacy—of digital signatures could help tenants embrace the technology.

“At a basic level, digital signatures make the signing process quicker because new drafts of the lease don’t need to be typed, sent out, and returned by the parties. Changes can be made instantaneously because the parties can look at them online,” says Spiwak. Carrying out the administrative part of a lease deal digitally saves money by cutting out transportation costs, time away from work for meetings, and printing and shipping costs, among other fees. And it’s eco-friendly.

“Having all of your documents online presents a professional image for owners,” says Spiwak. So-called Millennials as well as an increasing number of professionals from other generations are now completing everything electronically. “If you’re leasing to a Millennial the old-fashioned way, it won’t present an image of sophistication,” Spiwak warns. Your willingness to use digital signature software could attract a better class of tenants, she notes. Owners who refuse to use digital signatures may be doing themselves a disservice by not offering this method to do business.

Face Time Still Crucial in Digital Age

There is a disadvantage to using exclusively digital means of getting deals done, including using digital signatures, however. “When owners do all transactions online, the human element of the deal is lost, and that’s significant because relationships are important between owners and tenants,” stresses Spiwak. She notes that the nature of the relationship is unique because owners want tenants to have a level of respect for their space and take care of it, and tenants rely on the trustworthiness of the owner of the space where the tenant is conducting their livelihood. There are high stakes for each party, but the bond that can be built through face-to-face meetings that allow each party to get a feeling about the intentions of the other can’t be formed by digital means. “There is a whole aspect of the owner-tenant relationship that goes beyond the signed agreement—you’re sharing property and a business with each other,” says Spiwak.

The safest and smartest way to handle a commercial lease is to create a hybrid deal where documents themselves are preserved digitally online, and owners and tenants have as many face-to-face meetings as geography and budgets allow. Spiwak thinks that meetings can be one way to build trust. While the digital age has bred a generation of tenants who feel more comfortable with technology than relationships, they still should understand that meetings create an unquantifiable connection, and that so much of business remains relationship driven, she stresses. You can’t develop the same type of relationship through email and texting that you can through phone calls and meetings.

Spiwak notes that several generations of business people coexist in commerce, but essentially speak different languages when it comes to the way in which they want deals to be done. One thing is certain: Solely electronic relationships, which might be encouraged by digital signatures and other tech advances, are a downside.  

Evaluate Tenant Before Choosing Method

Before determining whether or how you’ll use digital signature technology for your deals, you should examine who you’re dealing with—for example, a Millennial or a Baby Boomer. If you get pushback from a tenant who doesn’t want to use digital signatures for your deal, try to explain the advantages. Point out that storing documents online is much safer than having a lease in a file cabinet that can’t be found in five years for a renewal. If the lease is online, you can make changes and renew it immediately. And you and the tenant can review changes on your own time, without having to coordinate schedules for multiple meetings.

If this is especially convenient or important to you, you may even go so far as to negotiate a clause in the lease that specifies that future lease-related documents, such as renewals, will be done digitally.

Evaluate Industry-Specific Software

If you decide to use digital signatures for your lease deals, you’ll have to invest in the appropriate software. While digital signatures can be used on any kind of document, certain software is aimed at landlord-tenant needs. Industry-specific software packages are designed for the unique commercial leasing process and problems. Spiwak recommends that interested owners call digital signature software companies to ask for recommendations from current users.

“Ask those users if and why they like that software,” she recommends. “It’s important to do that kind of research,” she urges, “because digital signatures can be so helpful to owners.” More good news: The cost isn’t prohibitive—even for owners of small properties on a budget. And it could end up saving enormous costs in the end.

Insider Source

Lisa E. Spiwak, Esq.: Partner, Spiwak & Iezza, LLP, 555 Marin St., Ste. 140, Thousand Oaks, CA; www.spiwakandiezza.com.