Let’s Shake On It – When is a handshake a binding commitment?

Q. Recently I shook hands with a client who wants to lease some commercial space that has been vacant for a while, thus entering into an informal agreement. Days later a current tenant with an adjacent lease asked to rent the same space to expand her business! What do I do now?

A. You certainly have a perplexing ethical dilemma. On the one hand, you don’t want to go back on even an informal agreement. On the other hand, you would like to be loyal to your current tenant, and garner the additional advantage of reduced paperwork and knowing that you have a reliable occupant.

Both of these dimensions are emphasized in Jewish tradition. One who goes back on an agreement, even when the agreement is not formally binding, is deemed untrustworthy. Yet at the same time, Jewish law gives neighbors conventional or even formal legal right to “first dibs” on adjacent properties.

Your first avenue should be to try and seek an equitable compromise, one advantageous for all concerned. Here is one possible direction: Keep in mind that the new tenant may not really insist on the specific lot he seeks to rent; a similar property may be just as acceptable to him since he is just starting out.

By the same token, the advantage of proximity may mean that your current tenant is willing to invest time and money in acquiring the abutting area.

Why don’t you suggest that your current tenant look around for a comparable alternative property for the new client, perhaps throwing in an incentive like paying a month or two of rent? Then explain the situation and present the suggested compromise to the newcomer.

One of three outcomes may occur:

1 . If you are lucky, the newcomer will find the offer advantageous and agree to release you from your agreement. Now all sides are satisfied.

2 . Perhaps the newcomer will convince you that he has a decisive need for exactly the property you agreed to; the substitute is just not acceptable. In this case, you need to take your handshake very seriously. It is true that retracting an informal agreement is not necessarily untrustworthy if the situation is significantly altered, but an ethical businessperson should invoke this exception only on rare occasions. Consider very carefully if your situation justifies this.

3. One awkward possibility is that the newcomer rejects the offer but you feel that he is acting in bad faith; he really would be happy to accept a compromise but pretends to need your exact space in order to extract concessions. Even in this case you shouldn’t retract your commitment frivolously, but given the combination of changed circumstances (that is, the new offer from your tenant) and evidence of bad faith on his part you can be a little more flexible than you otherwise would be. You don’t have to let others exploit your desire to be trustworthy and to go beyond the letter of the law, as if they have you over a barrel.

We need to take our business commitments most seriously, even when we have legal loopholes to evade them. But with a bit of creativity it is often possible to find “win-win” solutions, or to provide a more solid ethical basis for retraction.