Time Investment in Negotiating 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.

The below forms include questions that must be answered in completing your Term Sheet. Detailed responses provide critical information required for several assignments that employ this Term Sheet. Incomplete sentences, short responses, or forms containing white space will not be graded.

FORM 1

Term Sheet
ISSUES	YOU	OWNER
DESIRED OUTCOME: What’s the want? Do you need to learn more? Why? What do the parties value?
KEY INTERESTS: What do the parties want? What alternatives are available if no deal is reached?
WHAT ARE THE WALKAWAY ALTERNATIVES: What do you or the other side lose if no deal is struck? Why? What options do you have, if they disagree with your terms?
BARGAINING CHIPS: What do you have to offer that the other party values?
POSSIBLE SOLUTIONS: What solutions could work for both parties? List solutions that will overcome any disagreement during the negotiations.
AGREEMENT: List the items that both sides should have no difficulty agreeing with.

FORM 2

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

Key Objectives:	Property Owner:	Restaurant owners:	Considerations:
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 a 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:	What are the: 1. Reduced startup costs? 2. Immediate cash flow? 3. 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 (Sale or lease) do you think the owner prefers? Why? Is there a potential for a Gradual Sale through Leasing? What would be the terms? Are there flexible options for transferring Property that benefit an individual who cannot afford to purchase outright but can finance a long-term payment plan? Explain. Lease Agreement – requires a 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			Estimate the timeframe and costs required before the Restaurant generates a cash flow. If the transition starts before the deal is complete, what financial impact will it have on your cost structure? List the items impacted.

Table 1

Benefits of a Term Sheet Agreed to by Landlord and Tenant
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 the 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

Table 2

Purchase Lease Agreement Issues

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 the seller may have promised. 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: The SA lists the assets used for security, such as a promise to pay 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, ensure that you have the owner’s concurrence. If you are negotiating a new lease with the owner, make sure both parties agree to the new lease terms.

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 include the financial aspects of the transaction.

Everything listed on the settlement should have been negotiated before the closing

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

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Time Investment in Negotiating a Real Estate or Lease Agreement