Three weeks ago, Ruminations posted a piece titled: Why Does It Take So Long To Get A Deal Done? You can see it here. Thus far, between direct comments to the posting itself and comments made to various LinkedIn Groups, it has garnered 61 comments, a new record for us. Obviously, it hit home for a lot of us.
There were many points of view expressed. Some pointed fingers at one class of player or another, remarkably, however, in respectful and helpful ways. Others bemoaned the general “turmoil” in the economy. The single most common thought, call it the largest minority’s point of view, suggested that a more complete letter of intent at the outset could trim the time it took to get a deal done. Our September 21, 2011 posting: How Do You Wear Your LOI, Short or Long? raised a closely related issue and some readers might want to revisit it. To do so easily, click here.
Those endorsing use of a more comprehensive Letter of Intent suggested that the business people were in a better position to quickly reach agreement on the covered issues than were the attorneys or others charged with getting the documentation completed. To that end, here is a proposed checklist for a LOI covering a lease. If this is well received, we may offer one for a property purchase in a later posting. The following checklist is available from Meislik & Meislik in the form of a laminated desk card, but quantities are very limited. So, if you would like a copy (on a first come, first served basis), send a request to email@example.com.
ITEMS TO INCLUDE IN A LETTER OF INTENT FOR A LEASE
1. Parties: Identify names and addresses of parties (LL, T, and any guarantor[s]).
2. Accurate identification of: (a) the land, if a ground lease; (b) if not a ground lease, the building within which the T will lease space (including, preferably, a street address): Include the street address, municipality, and state, and, if known, the tax block and lot numbers.
3. Accurate identification of the Leased Premises: Include the location, dimensions, square footage, and, if applicable, the name of the former tenant.
4. Rent: Fixed monthly rent, percentage rent [if applicable], etc.
5. Additional Rent: Clarify if T will be paying a proportionate share or direct pay for additional rent charges (or, if both, separate them out). State the proportionate share, if known (or, if Additional Rent is to be paid pursuant to another formula, provide a brief description of the formula).
6. Term: How many years is the initial term of the Lease?
7. Renewal option(s): How many options, how long is each option, rent during renewals, required notice period prior to T’s exercise of the renewal option(s), etc.
8. Term Commencement Date: If not a fixed date, describe how it will be determined.
9. Rent Commencement Date: If not a fixed date, describe how it will be determined.
10. Security Deposit: How much? Does it change as the rent amount changes?
11. Tenant Improvement Allowance: How much? When and how is it paid to T?
12. Permitted Use: Be as broad or specific as possible, depending on whether you are the LL or T.
13. Exclusive Use Rights: Be as broad or specific as possible, depending on whether you are the LL or T. If you are the T, include the nature and extent of the exclusive and any carve-outs, as well as remedies for LL’s breach.
14. Parking: How many spots? Are they reserved? Where can T and its customers, employees, etc., park? Exclusive rights? Reserved spots?
15. Signage: Where can T hang its signs and at whose expense? Pylons? Monuments? Directories?
16. Tenant Alterations: What kind of alterations will T be permitted to make? What LL’s consent, if any, is needed?
17. Assignment and Subletting: Is it permitted? To what extent? Consent(s) needed? Carveouts to any consent requirements? Restrictions on transferee? Is T released from liability? Does the LL get any proceeds? Does LL have any recapture rights?
18. Site Plan: Attach drawing of leased premises and of the entire property, and identify certain critical features (signage, parking, ingress and egress, etc.).
19. Operating Expenses: How and when to be paid? Full percentage or escalation basis (if latter, provide base year). Audit rights?
20. Landlord Services / Maintenance: What services will LL provide, and at whose expense? Who maintains, repairs, and/or replaces what?, and at whose expense?
21. Utilities: Is space to be submetered? If not, what is T’s share?
22. Environmental: Who is responsible for any necessary environmental cleanup, and at whose expense?
23. Insurance: Which party is required to obtain what insurance? How and when does T reimburse LL for LL’s insurance?
24. SNDA: Is LL required to have its lender deliver an SNDA to the T? If so, when?
25. Right of First Refusal: Does T have any first rights to lease? Buy? For parking spots?
26. Due Diligence Period: How long? Right to terminate if T is unhappy with results of its due diligence?
27. Broker(s): Names and addresses, as well as which party is paying the brokerage fee(s).
28. Exclusivity: Negotiations between LL and T will be exclusive for X days after execution of LOI.
29. Nonbinding: LOI is not a binding document.