Phase V Topics
You might be thinking…
The landlord is interested in my business and has issued a proposal or Letter of Intent (LOI) for the space. What do I do now?
Congratulations! You’ve successfully pitched your business concept to the landlord and provided all the details and supporting materials they needed to feel confident to issue you a proposal to lease the space. This proposal is often called a Letter of Intent (LOI). Keep in mind: While it includes many of the the key business terms of what will appear in the lease, it is typically not legally binding — even if you sign it. An LOI is a precursor to the lease document and serves as an important foundation for the subsequent legal documentation of your rental deal.
Terms to familiarize yourself with
Tips for LOI and Lease Negotiations
If you are working with a capable broker, they may issue a proposal on your behalf, with terms you have agreed upon in the landlord’s Letter of Intent (LOI). Your initial terms are likely a combination of the economics, market data/comps, and your comfort level with the space, location, scope of work, and/or sales potential.
Respond to your landlord’s proposal in a timely manner with your Phase IV due diligence and feedback from your team of investors, stakeholders, brokers, contractors, architects, and other trusted advisors.
If you are working with a capable broker, they may issue a proposal on your behalf, with terms you have agreed upon in the landlord’s Letter of Intent (LOI). Your initial terms are likely a combination of the economics, market data/comps, and your comfort level with the space, location, scope of work, and/or sales potential.
Respond to your landlord’s proposal in a timely manner with your Phase IV due diligence and feedback from your team of investors, stakeholders, brokers, contractors, architects, and other trusted advisors.
Correspondence
Depending on the landlord’s responsiveness, the availability of the space (be it now or a year from now), and the complexity of the deal terms, the LOI negotiations can take as little as a few weeks or as long as a few months.
Many of the above variables are out of your control; however, being proactive and responsive to all emails, phone calls, and meetings can help keep the process moving forward smoothly.
Negotiation Skills
Focus on sections of the LOI that are most important to you and your success. To find common ground and show a willingness to move the deal forward, do not mark up every section of the LOI for comment or re-negotiation.
Compromise is key. You are trying to build a long-term partnership with the landlord.
That being said, do not make a financial commitment you find unfair or disagreeable. Make sure your business model works within the economic obligations in the LOI/lease.
Be responsive in a timely manner. Communication and response to the LOI demonstrates interest and intent to move forward.
Be patient. There may be many rounds of negotiations with both the LOI and the lease.
Leverage your advisors as a sounding board throughout the negotiation process.
Do not rush the LOI process just to have a lease; make sure you have all the business terms worked out in the LOI phases, which, in the end, will save you time and money in the lease negotiation phase.
Signing Papers
Once business terms have been agreed upon in a final LOI, both parties will usually sign the document prior to moving on to the process of drafting the actual lease. The LOI serves as a guide for drafting the formal, legally-binding lease.
The LOI, unless otherwise stated, is a non-binding document. You can walk away without any legal liability or costs prior to signing a lease.
- Note: Because the LOI is non-binding, landlords may not always sign the proposal prior to drafting a lease.
The LOI, unless otherwise stated, is a non-binding document. You can walk away without any legal liability or costs prior to signing a lease.
- Note: Because the LOI is non-binding, landlords may not always sign the proposal prior to drafting a lease.
Expect the landlord to issue the draft lease in their standard format. In very rare instances, a tenant (likely national or global companies) will issue their form lease.
Once you receive the draft lease, you should engage your legal counsel to review, edit, and make comments on the lease and flag key business and legal issues that need to be modified and/or discussed with the landlord.
Your attorney should come equipped with experience in retail/restaurant leases, and not just commercial real estate experience. If you need referrals, ask your team or others in your network. You can also review Graffito’s resource list of experienced attorneys in our network.
