Real Estate Non-Competes
Recently received an offer with a 6 month non-compete and 24 month equity solicitation restriction. What is considered "market" for the industry and how would one go about negotiating?
Recently received an offer with a 6 month non-compete and 24 month equity solicitation restriction. What is considered "market" for the industry and how would one go about negotiating?
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What level are you at? I don't think non-competes are standard, but the equity solicitation makes sense if you're more senior.
It’s Associate role but implies moving into senior management role quickly (12-24) months. I understand the concept and purpose but think both timelines are pretty long.
There should be zero non competes while you are at an associate level.
Agreed - you shouldn't have a non-compete at Associate level I'd definitely push back on that. The equity solicitation is trickier.
Assuming the equity solicitation means you can’t raise capital from their sources, two years isn’t fair. That hampers a your ability to grow. Additionally, What if you move firms that is broadening relationships, does that effect you? I would say 12 months is fair, but that’s just me. Lastly, I don’t think there is marker for this stuff. You can always negotiate it, though firms may say no negotiation and move on. Also is the non-compete you can’t chase the same deals they were chasing, or you can’t work at your next firm for 6 months? If so, that’s pretty much BS and I would either push back or not worry. But have a lawyer check that out for you. It’s probably not enforceable. But if you work for an office developer and they tell you that you can’t work for another office developer, having a 6 month non compete is going to make it really hard to leave and get that next job unless you’re super senior. Sounds like you’re junior as you’re an associate and having a non compete like this is pretty asinine in my opinion.
I can relate to this. My first job out of college, I worked for a small developer in a large city, and I had a 10+ page "Employee Protection Agreement," which included a non-compete clause (among other things). It was complete non-sense to give to an entry-level employee fresh out of college, and why anyone would waste their attorney's time to draft one for an entry-level position is beyond me. I would say the same for an associate level position as well. Honestly, I think non-competes in the CRE industry are pointless. This isn't tech... it's only about control in CRE.
I've found that the places with the best culture (and often times more sophisticated and organized) do not have their employees sign non-competes or protection agreements. I've also found that a lot of small developers will have their employees sign these.
I would mostly agree. They are a very small developer so maybe you're on to something there. We ended up agreeing to a 90 day non-compete and 12 month non-solicitation. I think its more a function of ensuring I don't leave versus telling anyone else in the industry something so valuable in all honestly.
So, I have yet to ever personally have an issue with one of these, but have had some close friends deal with them. A few general points when this stuff comes up...
1. Worth talking to a local employment attorney, the legality (or really, enforceability) varies a lot state by state and usually due to case law precedents. On averages, judges don't like these and side with the employee leaving, but if done tightly/correctly they can be enforced. The real issue is that if you sign one, even if of dubious legal validity, it gives the employer an easy vector to sue you... sure you can win in court, but that takes time and is costly and may fuck up your deal. Leads to next point...
2. Really only two reasons employer use these... 1. To stop you from legit stealing business (i.e harming their bottom line) and 2. To intimidate you from leaving or going to a competitor. From a legal, moral, ethical point of view... only issue 1 is valid! In fact, to prevail in court, they need to show/assert you would actual harm or did harm their business by competing with them (like you just steal all the investors and leave them high and dry). Unfortunately, this is often a long/costly court battle, hence worth talking to attorney to know how realistic they would have a shot at it.
3. What is more easily enforceable is "repayment" clauses (can be considered a liquidated damage). Here the tie the non-compete to a signing bonus or even make it a "forgivable loan" with full promissory note (the big banks do this). These will be 100x easier to enforce in court, but the "cost" is limited to that amount! This goes back to basic contract law, there has to be "consideration" for these non-competes to be valid and just giving you a job will not be enough most of the time! FYI, just because you get a sign-on bonus of whatever amount, does not mean the contract makes it a "liquidated damage", better have lawyer read if curious.
4. In all reality, at the junior level, especially, the chance they actually want to spend the money to pursue is low. It really is not a great business decision 99% of the time. BUT, some managers/owners of firms are total dicks... and if you pissed them off, some will totally spend (waste) the lawyer fees just to fuck with you. I have personally watched this happen to a friend, got sued, took two years to resolve (in his favor and actually recouped a lot of his expenses from the other side). The thing was, the person/firm suing had the world's shittiest legal case, and it still took TWO years to resolve!
5. From a practical standpoint, if you get asked to sign one of these... consider it a negotiating point of leverage. IF they do the sneaky thing of presenting you this contract to sign AFTER you have come to monetary terms... re-open negotiations! Use your lawyer as a justification, make it sound like you are on board but need to get checked out. Then, if they say offered you $10K sign-on, now come back with $50k sign-on, or say can we just keep our original deal and forget this thing? I'd guess 50% of the time (or more for junior people) they will forget it. I used this move once, and guess what... they suddenly didn't ask me to sign it!
Hope it helps, but seriously, I would want to know how the state you are in deals with these before signing, worth knowing regardless!
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