LEASING The Letter of Intent. Presented by: Sean P. Callan. The Letter of Intent. Non-binding outline of fundamental economic terms of lease Varying degrees of detail for varying business reasons Important to us because they are the basis for drafting the lease. The Letter of Intent.
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Sean P. Callan
3. Early Termination
4. Use, Exclusives and Radius
5. Assignment and Subletting
How critical is it?
If not mentioned in the LOI, is the Tenant required to continuously operate?
Landlord – of course – part of standard lease form!!!
Tenant – of course not – its not in the LOI!!!
When the lease ends prior to natural expiration of term …
Huge issue for Landlord
- changes pro-forma cash flow
Huge issue for Landlord lenders
- lenders limit early termination rights
Typical early termination scenarios
Termination of Right
Protection intended for tenant’s core business; need for protection may go away
After some period of time, substitute rent – 5% gross; ½ minimum rent
After further period - termination
Landlord Concerns – Remedies
Flip side of exclusive
Prohibits tenant from competing with landlord’s center
5 miles – negotiate down – have seen 10 miles
Remedy – add in Gross Sales
Assignment of Lease
An assignment (i.e., the transfer of rights or property) in which a lessee transfers the entire unexpired remainder of the lease term
All of the space for the rest of the term
Where a lessee transfers a part of its premises for the whole remaining term, or the whole premises for a part of the remaining term
Some of the space for the whole term, or all of the space for less than term
Installed in a good and workmanlike manner
In accordance with applicable law
Design should reflect tenant’s prototypical store
In accordance with plans and specs reviewed and approved by Landlord
Design, plans and specs need to be finalized as soon as possible in the build-out process – Critical point! Cost & timing implications
Commencement – When does the clock start?
Commencement – late delivery
Tenant’s obligations under lease are conditioned upon the continued presence and operation of another entity at a certain location
Remedies for violation