Negotiations

Module 6.1 Forms

The Importance of Developing a Term Sheet.

A Term Sheets is normally an unenforceable expressions of intent, but a useful tool in negotiating a favorable property sales agreement or lease. A Term Sheet put emphasis on key elements of the sales agreement or lease. Once the landlord submit the sales agreement or lease offer in writing, compare all of the offers you receive. In negotiating term sheets, it is important to set limits. If you need expansion options or renewal options, be sure your prospective landlord or property owner addresses your concern in its term sheet. Although not binding the Term Sheet request may result in the owner retracting the offer. The Term Sheet is however a useful negotiating tool because it clarifies the deal. Property owner can face a dilemma if there is a missed opportunity to close because of their resistance to negotiate. The owner’s ability to turn over the space can be adversely affected the long term prospects of closing if the owner gains a reputation for retracting or renegotiating term sheets.

Time investment in negotiate a Real Estate or Lease Agreement.

There is a mistaken belief that the deal is done after negotiating an agreed upon Term Sheet. A well-negotiated term sheet can certainly streamline the process, but a term sheet cannot address all of the legal issues that arise under a purchase agreement or a lease. The Term Sheet lacks specificity and often results in ambiguities that only a negotiated purchase agreement or a lease agreement can determine.

FORM 1

ISSUES YOU OWNER

DESIRED OUTCOME:

What’s the want? Need to learn more, Why? What’s do parties value?

KEY INTERESTS:

What do the parties want? What alternatives are available if no deal is reached?

WHAT ARE THE WALKAWAY ALTERNATIVES:

Why? What happens will they do if we do not reach a deal?

BARGAINING CHIPS:

What do parties have that other party values?

POSSIBLE SOLUTIONS:

What solutions could work for both parties?

AGREEMENT:

What could the parties agree to?

Term Sheet

FORM 2

Identify the advantages and disadvantages of buying the Property

Advantages: Disadvantages:

Advantages: Disadvantages:

Purchase less risky than Leasing because? High purchase costs? Is buying a property the best option for you? Outright Sale – buying

property in full. Ownership is transferred immediately. Payment is expected right away

Identify the advantages and disadvantages of Leasing the Property

Advantages: Disadvantages:

Advantages: Disadvantages:

Reduced startup costs? Immediate cash flow? Added inventory cost?

Identify the advantages and disadvantages of Leasing the Property under the various Leasing Terms offered (Term Lease, N, NN, NNN)

Advantages: Disadvantages:

Advantages: Disadvantages:

Existing problems? Which deal does owner feel good about? Is Gradual Sale possible through leasing? Are there flexible option transferring property, which benefits individuals who cannot afford to purchase outright, but are able to finance a long- term payment plan? Lease Agreement – requires commitment to a contract that details the conditions and payments you will make for temporary rights to the business.

Identify the resources available to assist in buying the Property

Consider period and costs required before Restaurant generates a cash flow. Transitioning starts before the deal is complete, what effect on new business?

Key Objectives:

Property Owner: Restaurant owners: Considerations:

Key Objectives and Considerations in the Real Estate Purchase or Lease Agreement

Table 1

Loss opportunity Cost Cost of Loss money

1. Unpaid or late rent 1. Security deposit forfeited

2. Search for better replacement Tenant 2. Damaged or bad credit

3. Paying Tenant’s delinquent utility bills 3. Unable to find a new business location

4. Unexpected shared costs

Unexpected repairs to property Unclear maintenance obligations

4. Permanent damage 5. Unnecessary replacements

5. Losing customers because common areas not maintained

Expensive lawyer fees to Property damage caused by

6. Help with an eviction notice 7. Seek remedies for unlawful use of the premises 8. Clean up hazardous materials 9. Remove unpermitted liens on the property

6. Unsecured premises 7. Poor security of entryways 8. Other tenants businesses 9. Landlord’s failure to repair 10. Improper janitorial services 11. Burst pipes during the winter

Mental anguish of Mental anguish of

10. Illegal business activities taking place on your property 11. Responding to complaints from neighboring tenants 12. Not being a “named insured” on tenant’s insurance policy

12. Being unexpectedly evicted 13. Not placing an advertising sign of your choice outside 14. Unfair competition from other businesses despite promises to be the exclusive store

Benefits of a Term Sheet Agreed to by Landlord and Tenant

Table 2

Adjusted Purchase Price: Includes prorated items such as rent, utilities, and inventory up to the time of

closing.

Review of required Documents: The documents you need to review include a corporate resolution

approving the sale, evidence that the corporation is in good standing, or any tax release that may have been promised by the seller. You may check with your local department of corporations, state corporation commission, or Secretary of State for more information.

Signing Promissory Note: In cases where the seller has back-financing, have an attorney review any

note documentation.

Security Agreements: This lists the assets that will be used for security as a promise for payment of the

loan. UCC Financing Statements (UCC): Uniform Commercial Code documents are recorded with the

Secretary of State, in the state in which you will be purchasing your business.

Lease: if you agree to take over the lease, make sure that you have the owner’s concurrence. If you are

negotiating a new lease whit the owner, make sure both parties are in agreement about the terms of the new lease.

Bill of Sale: the bill of sale proves the sale of the business. It also explicitly transfers ownership of tangible

business assets.

Closing or Settlement Sheet: The closing or settlement sheet will financial aspects of the transaction.

Everything listed on the settlement should have been negotiated prior to the closing

Bulk Sale Laws: Make sure that you comply with sale laws, which govern the sale of business inventory

Purchase Lease Agreement Issues