Making the Offer

The Anatomy of a Letter of Intent

Part 4 - Lease Term and Contingencies

Lease Term and Commencement: If you’re offering (or need) a five (5) year lease with a five (5) year option to renew, spell it out for the Landlord and do not forget to include when the rent and term should start. If you're a franchisee, your lease term should always match your length of your franchise agreement. Having a franchise with no location has a real negative effect on one's business...

It’s also important to understand that depending upon your specific requirements; the Rent Start Date and Term Start Date are not always going to be the same and many times they are not specifically defined or “hard” dates placed into the contracts.

Because your intended use will probably require you to obtain building permits and or approvals from a town or city agency before you can build and operate your business, you don’t want to be paying rent or burning lease time while you go through the process (and there are many horror stories about stalled permits and/or approvals while the tenant suffers in silence while they pay rent).

Structuring the deal to fit your needs is what this letter is all about. So if you estimate that it will take a month or so to get the necessary approvals, add a little cushion to the time frame and write it down (i.e.; 90 days after full execution of the lease or the receipt of building permits, which ever shall first occur).

Contingencies – Aside from the landlord’s work letter, this is going to take a bit of consideration on your part. Before you offer or commit to anything, you should list all of the things that need to occur in order for you to do business in that particular space. From obtaining the required government approvals and permits, to furniture and equipment ordering and installation through opening day (and try not to be too optimistic).

Do you need to secure financing or a building permit before you can operate your business? Identify it as a condition of the lease. Also make sure to include a statement that the Landlord needs to complete any work that he promises, and what happens if they don’t.

Chances are the Landlord is going to be very focused on the day that they are to start receiving rent, the sooner the better as far as they are concerned. Your goal, on the other hand, is to start paying rent no earlier than the day you open for business. The bottom line is make sure that you are comfortable with whatever timeline you establish.

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