legal and practical advice – negotiating a commercial lease
Post on 11-Apr-2017
Embed Size (px)
LEGAL AND PRACTICAL ADVICE NEGOTIATING A COMMERCIAL LEASEBUSINESS ADVICE- FROM START UP TO SALE 2016 SERIESPremier date: March 9, 2016
LEGAL AND PRACTICAL ADVICE NEGOTIATING A COMMERCIAL LEASEPremier Date: March 9, 2016
BUSINESS ADVICE- FROM START UP TO SALE 2016 SERIES2
WE WOULD LIKE TO TAKE THIS OPPORTUNITY TO THANK OUR SPONSORS
meet the facultyPANELISTSPeter D. MorrisGreenstead Consulting GroupHoward KlineCommercial Real Estate Radio CEO and Host
MODERATOR Michael SchwarzmannCrowe Horwath LLP4
Practical and entertaining education for business owners and executives, accredited investors, and their legal and financial advisors. For more information, visit www.financialpoise.com
DISCLAIMER: THE MATERIAL IN THIS PRESENTATION IS FOR INFORMATIONAL PURPOSES ONLY. IT SHOULD NOT BE CONSIDERED LEGAL ADVICE. YOU SHOULD CONSULT WITH AN ATTORNEY TO DETERMINE WHAT MAY BE BEST FOR YOUR INDIVIDUAL NEEDS.5
about this webinar
There comes a time when the business needs to move from the kitchen or garage into a larger space that is either more production or customer friendly. This is frequently one of the larger financial commitments the start-up will make, and it can either support growth or threaten financial survival. How much space do you need? Do you sublet? Personal guarantees are commonly requested but can you limit your exposure? Is it better to lease more space than you need for growth, or do you want to minimize expenses so you can live to the next payroll? This Financial Poise webinar discusses things to consider when executing contracts, and provide some helpful tips.6
about this series
Great companies fail for lots of reasons that have nothing to do with the product or service they are selling. Turning an idea into a business is hard, often because the creative entrepreneur with the great idea does not have the same level of skill, training, experience, and passion in the other critical areas required to make a product into a successful company.
These areas include knowing how to attract and retain people, understanding accounting and finance, and being able to negotiate various contracts - including potentially a contract to buy a competitor or, ultimately, to even sell the business. This Financial Poise webinar series covers some of these topics, as always, in plain English.
As with all Financial Poise webinars, each episode in the series is designed to be viewed independently of the other episodes, and listeners will enhance their knowledge of this area whether they attend one, some, or all of the programs.7
episodes in this series
EPISODE #1Legal and Practical Advice 2/10/2016Starting a Business
EPISODE #2Legal and Practical Advice 3/9/2016Negotiating a Commercial Lease
EPISODE #3Legal and Practical Advice 4/13/2016Roadmap to Selling your Business
EPISODE #4Legal and Practical Advice 5/11/2016Roadmap to Buying a (Competing) Business Dates above are premier dates All webinars also available On Demand through West LegalEd Center and Vimeo 2016 DailyDAC, LLC d/b/a/ Financial Poise8
The type of business or product shapes the emphasis and priorities for the leased space.
Office Space in Class A Building
Retail (food vs. fashion)
Warehouse / Distribution
What Is Important
Map out the priorities for your new space:
Frontage on busy street needed?
Proximity to Freeway, School or Water?
Customer parking? Loading dock?
Class A office space or working cubicles with few visitors?
Warehouse with limited offices?
Must it be Custom?
New build or Site Modifications
Do you need a custom configuration?
Can you use equipment that is in place (Commercial Oven)Is association with space positive or negative?
ModificationsAdditional restroomPatio / fencingHeating / AC upgrade11
Commercial Leases are ComplexHow is it different from residential lease?
Fewer consumer protection laws
No standard forms
Long-term and binding
Negotiability and flexibility
The Issues Are Not SimpleDont simply focus on whether rent includes:Insurance
Terms To Consider Length of the Lease & available extensions
Rent and Rent Increases (renewal options @ fixed rent)
Tenant Improvements (who pays and restrictions)
Subleases and Assignments
Terms To Consider Repairs & Maintenance (who pays, including CAM repairs)
No Competitors in property (what is a competitor)
Parking (Dedicated? Sufficient? Lighting?)
CAM charges (what do they cover)
Terms to Consider
Ability to expand occupied space as need arises
Building Code compliance with use
Ability to install / remove equipment (is machine poured into floor of the warehouse?)
Can you access the required electricity?
Get professional AdviceExperience in Commercial Leases
Entrepreneurial Approach will Identify and Include Helpful terms
Get professional AdviceTrustworthy (you will follow advice)
Zoning (can you operate in the leased location / how difficult is variance)
Lender review (will lender loan against proposed lease terms)
Experience in the Geography
Details To Consider
Issues to be aware of:Agreements impacting your business (prohibition on selling competing products)i.e. does liquor stores sale of sandwich or frozen pizza violate Subway / Dominos leasesPass through CAM chargesAre they arms length vendors?Do you pay more if there are vacancies?Do you pay for actions of others?Require Good Faith / Reasonable efforts by landlordLimitations on landlord liability?Can you go beyond equity in fully mortgaged property?19
Details To Consider
Issues to be aware of:We dont enforce that clause is not a waiverEveryone signs that is not a reason you shouldIts boilerplate does not mean it is not negotiableUse restrictions can business evolve without violating leaseUsable vs Rentable square feetAfter Hours / weekend? costs lights, AC, heating, security after close of business max on costsEnd of lease restoration costsRight to take better space in building if it becomes available?
Details To Consider
Clauses to consider carefully
Percentage Rent / Kickout clauses
Relocation clauses (within property)
Preparation for the Negotiation includes both the terms you want / dont want, but also your approach to the interaction.
Where you meet mattersKnow your priorities AND their prioritiesDo they need you for a refinance?How long has the space been available?Think through the issues and how you will address them, including the order and who will raise the issue (if you bring a professional / business partner)22
Rank deal points and concede on lower priority items to gain higher priority concessions
Make the first offer to anchor the negotiations
Request range in counter
Ask questions to determine areas of flexibility
Draft the documents (email summary and contract)
Have an alternative it helps you get the right deal
Give first on minor issue important to other side
Negotiate where you are comfortable host the meeting
Disclose personal information to build a rapport
Show signs of disappointment24
Communicate share your perspective and prioritize
Prepare how badly do you need the space
Leverage understand who has it and on which points
Ask for things you can get
Deal breakers what MUST you have
Rank priorities rent, length, TIs, signage, etc.
Compromise to help both parties reach consensus, not just to move
Eye on the Prize dont lose sight of the big picture
Sleep on it dont feel obligated to agree on the spot
Culture consider cultural nuances
Losing the property is sometimes the best result.
A bad deal can cripple a company, and not making a deal may set you up for future success because it opens you up to the next opportunity.
Dont be afraid to walk away27
More About The Faculty: MICHAEL SCHWARZMANN
DMichael.Schwarzmann@crowehorwath.comMichael Schwarzmann is a Director at Crowe Horwath LLP.Michael has over 20 years experience providing advisory services to lender groups, companies, bondholder groups, unsecured creditors committees, and other stakeholders on financial, operational and strategic issues affecting underperforming, stressed, and distressed companies. Michael s advisory and consulting work experience focuses on assisting distressed companies, revitalizing underperforming businesses, marketing troubled companies and advising their creditor constituents. In addition, he is a licensed bankruptcy attorney.
Michael has assisted clients in developing and evaluating business and turnaround plans, analyzing financial and operational performance, and formulating successful workout, restructuring or bankruptcy strategies to preserve or improve asset values for stakeholders. Michaels industry experience inc