Creating a Letter of Intent For Your Business
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Alan Guinn
May 2, 2013, 2:51:32 PM5/2/13
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Please consider this free-reprint article written by:
Alan Guinn
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Article Title: Creating a Letter of Intent For Your Business
Author: Alan Guinn
Word Count: 1673
Article URL: http://www.isnare.com/?aid=1836135&ca=Business
Format: 64cpl
Contact The Author: http://www.isnare.com/eta.php?aid=1836135
Easy Publish Tool: http://www.isnare.com/html.php?aid=1836135
*********************** ARTICLE START ***********************
Any good entrepreneur planning on developing a retail space will need to acquaint him or herself with a Letter of Intent, or LOI.
The LOI represents your first indicator to a landlord that you want to lease their space for a period of time, and it covers what the entrepreneur anticipates will be the basics of that lease. An LOI is basically an Agreement that says to a developer �I as a retailer am interested in locating in your development, if we can agree to some terms and conditions.�
After that point is when the LOI gets interesting. Whether or not the Letter of Intent ever becomes a formal contract depends upon several factors---1) how much the retailer is interested in locating in the center, i.e, what he or she will pay---and 2) how interested the developer is in having that specific retailer locate in their property�how anxious are they to negotiate.
Consider this to be a �first step� in the ritual of negotiation for a business location.
Why is an LOI important? Generally speaking, every retailer approached to develop in a location must successfully complete a budget for what they believe any property they develop will generate in sales and revenues. The LOI defines, in writing, what both parties are willing to do. It can be written by the landlord and presented to the retailer for approvals, or it can be written by the retailer and presented to the landlord. The key is to come to an agreement which leads to a formal contract between the parties. How well the LOI is constructed often determines whether or not a contract will be forthcoming.
Many landlords determine from the structure of the LOI how astute a tenant may be from a negotiation standpoint. They may arrive at a decision as to the professionalism of the agent representing the tenant, and that decision may impact their agreement to certain terms and conditions within the lease that is offered.
It is important to understand the importance of a formal LOI because sales and revenues are different. Revenues can be impacted by incentives offered, tax payments that would generally be paid that are forgiven, development costs that are underwritten by state or local governments, funds that are assessed by the developer, common area cost collections, and a host of other charges and revenue streams which impact the revenue stream of the various retailers.
Potential tenants walk away from Letters of Intent. It happens all the time. The developer won�t agree to some of the retailer�s requests, or they can�t get together on the price per square foot or on the CAM--the Common Area Maintenance Costs.
By the way, the format of an LOI may or may not follow a template. LOIs can be formal, or they can be as informal as a cover letter sent to the potential landlord.
If written as a simple letter, it might say, �I, as a retailer am interested in locating in your development, if�� and the list of items would go on in a very significant way. A retailer generally locating in a center that is large (over 500,000 square feet or so) would ask for what is called exclusivity. That means that if they locate in the center, no other retailers similar to them in design or buildout, or offering similar offerings, could locate there. Your exceptions to this, of course, would be what are called the anchor locations.
An anchor location generally defines major retailers that locate in a specific center.
People must feel comfortable spending money for retail to be successful. It matters not who the retailer is, or what they sell, or how much someone wants them to have an outlet in their area. The reality is that unless a willing consumer wants to spend his or her money there, and he or she feels comfortable spending money there, and the pricing constraints are elastic enough for them to spend their money there, they are not going to spend. If you they don�t spend, you won�t succeed.
And against that backdrop, the retailer�s Letter of Intent is even more demanding.
What might some terms of restrictions be?
1) A Base Rent that the tenant is willing to pay, along with any percentage increases they would be willing to agree to over a defined period of time;
2) Forgiveness of rent for a period of time, in order to build up the business.
3) The specific number of square feet the retailer is interested in leasing, and if a site plan has been developed for the location, which of the several sites in the plan they would be interested in leasing.
4) Developer contributions to a marketing pool of which X% would be directed to their retail business.
5) The ability to determine operating expenses to a certain, limitable level.
In every instance, the position within a development, or location, can be critical to business success. Even more critical, however, is the concept of visibility and accessibility. You may be able to see a location for miles-- from a relatively long distance�but potential shoppers must clearly see how to get to it in order to shop there. The inability to see how to access a location could become a significant barrier to access.
Let me share a great anecdotal story that illustrates the importance of visibility and accessibility.
When I started doing Retail development for one group, we had a new facility under development that was located in the median area of a major road, in a major city�with over 2 million people-- that laid in a curve right where the facility was located, offering amazing visibility and accessibility to the location. The center and the facility had been under development for over a year. Six weeks after a very, very successful opening----and some of the highest volume sales in the chain--the road turned one way, opposite the direction it had been going previously, giving drivers a perfect view of the location�in their rear view mirror. The sales dropped by over 50% overnight. Within seven months, I was negotiating with the owners of the property to lower the rent on behalf of the tenant. Two years later, I negotiated the premises out of existence�it was the last store left open in this retail center. There is an art and a science to locating a business.
There is no real sample of a Letter of Intent that is followed in every instance where a location is being sought, but the items I�ve mentioned are almost always included. Additionally, every retailer seeks what is called TI or Tenant Improvement allowances from the developer. TI is a financial contribution that the developer makes to the project to entice the retailer to build a store there. TI can be used for any number of different uses.
Because it generally represents money directly out of the retailer�s treasury, many developers try to limit what tenant improvement allowances may be used to do.
Another item that may be covered in the LOI is what allowable signage may be put up. Signage is generally dictated by the maximum square footage allowable by the government entity with jurisdiction over the location, but developers often negotiate for additional signage�and city and regional governments often allow square footage in excess of the stipulated guidelines in order to entice a developer to locate multiple businesses there.
Ultimately, it will be left up to the cities as to what to allow in terms of signage; the center may adhere to current guidelines, or they may be allowed a �carve out� or an �exemption.� Again, much depends on the developer and his/her abilities to suggest to the cities that additional signage might increase sales appreciably, and, thereby, increase taxes paid to the cities.
I mentioned CAM or Common Area Maintenance charges. These are sometimes also called Operating Expense Charges, and most retailers need to stipulate some type of limit on their percentage paid, as well as a limit on the increases that can be passed on to them during the term of their lease. They may have a 20 year lease, with a rent accelerator at 5 year anniversaries. They are going to want to limit any type of CAM charges they would pay to a percentage of their lease payment increases, in most cases. There is also the threat that a majority of tenants could vacate the premises for some reason, leaving the tenants �holding the bag� for a majority of CAM charges. It�s very important that you have a knowledgeable advisor review your lease prior to signing the lease to assure that you are fully protected for the term of your lease.
CAM charges cover items like lighting in the parking lot; maintenance of the landscaping, garbage pickup, snow removal in the wintertime, lighting for the center, proper. All of those charges can mount up, and someone has to pay them. Often, it depends on the developer�s ability to project many charges on basically raw ground, and the retailer�s experience in dealing with charges they may have experienced in similar build outs.
The retailer also can request access hours to his premises, can request a number of parking spaces for employees, can request renewal terms and first option positioning for any locations that become available during the term of his lease.
Finally, there is a drop dead date on any good LOI. If both parties don�t sign and return the LOI to the other party, or have a formal lease developed and delivered to the potential tenant, the tenant is under no obligation to execute any agreement that might be presented.
About The Author: Dr. Brent Lundell owns http://www.GainStreamGroup.com, a venture capital sourcing and consulting company, and is a partner in The Guinn Consultancy Group, Inc. The Guinn Consultancy Group provides a wide array of business services, including seminars, webinars, and venture capital sourcing services. See the group website at www.theguinnconsultancygroup.com or contact them for additional information at 800-335-9269.
Please use the HTML version of this article at:
http://www.isnare.com/html.php?aid=1836135
*********************** ARTICLE END ***********************
- To distribute your articles go to http://www.isnare.com/distribution.php
- For more free-reprint articles go to http://www.isnare.com
Message delivered directly to members of the group:
publish-the...@googlegroups.com
*****************************************************************
Please consider this free-reprint article written by:
Alan Guinn
*****************************
IMPORTANT - Publication/Reprint Terms
- You have permission to publish this article electronically in free-only publications such as a website or an ezine as long as the bylines are included.
- You are not allowed to use this article for commercial purposes. The article should only be reprinted in a publicly accessible website and not in a members-only commercial site.
- You are not allowed to post/reprint this article in any sites/publications that contains or supports hate, violence, porn and warez or any indecent and illegal sites/publications.
- You are not allowed to use this article in UCE (Unsolicited Commercial Email) or SPAM. This article MUST be distributed in an opt-in email list only.
- If you distribute this article in an ezine or newsletter, we ask that you send a copy of the newsletter or ezine that contains the article to http://www.isnare.com/eta.php?aid=1836135
- If you post this article in a website/forum/blog, ALL links MUST be set to hyperlinks and we ask that you send a copy of the URL where the article is posted to http://www.isnare.com/eta.php?aid=1836135
- We request that you ask permission from the author if you want to publish this article in print.
The role of iSnare.com is only to distribute this article as part of its Article Distribution feature ( http://www.isnare.com/distribution.php ). iSnare.com does NOT own this article, please respect the author's copyright and this publication/reprint terms. If you do not agree to any of these terms, please do not reprint or publish this article.
*****************************
Article Title: Creating a Letter of Intent For Your Business
Author: Alan Guinn
Word Count: 1673
Article URL: http://www.isnare.com/?aid=1836135&ca=Business
Format: 64cpl
Contact The Author: http://www.isnare.com/eta.php?aid=1836135
Easy Publish Tool: http://www.isnare.com/html.php?aid=1836135
*********************** ARTICLE START ***********************
Any good entrepreneur planning on developing a retail space will need to acquaint him or herself with a Letter of Intent, or LOI.
The LOI represents your first indicator to a landlord that you want to lease their space for a period of time, and it covers what the entrepreneur anticipates will be the basics of that lease. An LOI is basically an Agreement that says to a developer �I as a retailer am interested in locating in your development, if we can agree to some terms and conditions.�
After that point is when the LOI gets interesting. Whether or not the Letter of Intent ever becomes a formal contract depends upon several factors---1) how much the retailer is interested in locating in the center, i.e, what he or she will pay---and 2) how interested the developer is in having that specific retailer locate in their property�how anxious are they to negotiate.
Consider this to be a �first step� in the ritual of negotiation for a business location.
Why is an LOI important? Generally speaking, every retailer approached to develop in a location must successfully complete a budget for what they believe any property they develop will generate in sales and revenues. The LOI defines, in writing, what both parties are willing to do. It can be written by the landlord and presented to the retailer for approvals, or it can be written by the retailer and presented to the landlord. The key is to come to an agreement which leads to a formal contract between the parties. How well the LOI is constructed often determines whether or not a contract will be forthcoming.
Many landlords determine from the structure of the LOI how astute a tenant may be from a negotiation standpoint. They may arrive at a decision as to the professionalism of the agent representing the tenant, and that decision may impact their agreement to certain terms and conditions within the lease that is offered.
It is important to understand the importance of a formal LOI because sales and revenues are different. Revenues can be impacted by incentives offered, tax payments that would generally be paid that are forgiven, development costs that are underwritten by state or local governments, funds that are assessed by the developer, common area cost collections, and a host of other charges and revenue streams which impact the revenue stream of the various retailers.
Potential tenants walk away from Letters of Intent. It happens all the time. The developer won�t agree to some of the retailer�s requests, or they can�t get together on the price per square foot or on the CAM--the Common Area Maintenance Costs.
By the way, the format of an LOI may or may not follow a template. LOIs can be formal, or they can be as informal as a cover letter sent to the potential landlord.
If written as a simple letter, it might say, �I, as a retailer am interested in locating in your development, if�� and the list of items would go on in a very significant way. A retailer generally locating in a center that is large (over 500,000 square feet or so) would ask for what is called exclusivity. That means that if they locate in the center, no other retailers similar to them in design or buildout, or offering similar offerings, could locate there. Your exceptions to this, of course, would be what are called the anchor locations.
An anchor location generally defines major retailers that locate in a specific center.
People must feel comfortable spending money for retail to be successful. It matters not who the retailer is, or what they sell, or how much someone wants them to have an outlet in their area. The reality is that unless a willing consumer wants to spend his or her money there, and he or she feels comfortable spending money there, and the pricing constraints are elastic enough for them to spend their money there, they are not going to spend. If you they don�t spend, you won�t succeed.
And against that backdrop, the retailer�s Letter of Intent is even more demanding.
What might some terms of restrictions be?
1) A Base Rent that the tenant is willing to pay, along with any percentage increases they would be willing to agree to over a defined period of time;
2) Forgiveness of rent for a period of time, in order to build up the business.
3) The specific number of square feet the retailer is interested in leasing, and if a site plan has been developed for the location, which of the several sites in the plan they would be interested in leasing.
4) Developer contributions to a marketing pool of which X% would be directed to their retail business.
5) The ability to determine operating expenses to a certain, limitable level.
In every instance, the position within a development, or location, can be critical to business success. Even more critical, however, is the concept of visibility and accessibility. You may be able to see a location for miles-- from a relatively long distance�but potential shoppers must clearly see how to get to it in order to shop there. The inability to see how to access a location could become a significant barrier to access.
Let me share a great anecdotal story that illustrates the importance of visibility and accessibility.
When I started doing Retail development for one group, we had a new facility under development that was located in the median area of a major road, in a major city�with over 2 million people-- that laid in a curve right where the facility was located, offering amazing visibility and accessibility to the location. The center and the facility had been under development for over a year. Six weeks after a very, very successful opening----and some of the highest volume sales in the chain--the road turned one way, opposite the direction it had been going previously, giving drivers a perfect view of the location�in their rear view mirror. The sales dropped by over 50% overnight. Within seven months, I was negotiating with the owners of the property to lower the rent on behalf of the tenant. Two years later, I negotiated the premises out of existence�it was the last store left open in this retail center. There is an art and a science to locating a business.
There is no real sample of a Letter of Intent that is followed in every instance where a location is being sought, but the items I�ve mentioned are almost always included. Additionally, every retailer seeks what is called TI or Tenant Improvement allowances from the developer. TI is a financial contribution that the developer makes to the project to entice the retailer to build a store there. TI can be used for any number of different uses.
Because it generally represents money directly out of the retailer�s treasury, many developers try to limit what tenant improvement allowances may be used to do.
Another item that may be covered in the LOI is what allowable signage may be put up. Signage is generally dictated by the maximum square footage allowable by the government entity with jurisdiction over the location, but developers often negotiate for additional signage�and city and regional governments often allow square footage in excess of the stipulated guidelines in order to entice a developer to locate multiple businesses there.
Ultimately, it will be left up to the cities as to what to allow in terms of signage; the center may adhere to current guidelines, or they may be allowed a �carve out� or an �exemption.� Again, much depends on the developer and his/her abilities to suggest to the cities that additional signage might increase sales appreciably, and, thereby, increase taxes paid to the cities.
I mentioned CAM or Common Area Maintenance charges. These are sometimes also called Operating Expense Charges, and most retailers need to stipulate some type of limit on their percentage paid, as well as a limit on the increases that can be passed on to them during the term of their lease. They may have a 20 year lease, with a rent accelerator at 5 year anniversaries. They are going to want to limit any type of CAM charges they would pay to a percentage of their lease payment increases, in most cases. There is also the threat that a majority of tenants could vacate the premises for some reason, leaving the tenants �holding the bag� for a majority of CAM charges. It�s very important that you have a knowledgeable advisor review your lease prior to signing the lease to assure that you are fully protected for the term of your lease.
CAM charges cover items like lighting in the parking lot; maintenance of the landscaping, garbage pickup, snow removal in the wintertime, lighting for the center, proper. All of those charges can mount up, and someone has to pay them. Often, it depends on the developer�s ability to project many charges on basically raw ground, and the retailer�s experience in dealing with charges they may have experienced in similar build outs.
The retailer also can request access hours to his premises, can request a number of parking spaces for employees, can request renewal terms and first option positioning for any locations that become available during the term of his lease.
Finally, there is a drop dead date on any good LOI. If both parties don�t sign and return the LOI to the other party, or have a formal lease developed and delivered to the potential tenant, the tenant is under no obligation to execute any agreement that might be presented.
About The Author: Dr. Brent Lundell owns http://www.GainStreamGroup.com, a venture capital sourcing and consulting company, and is a partner in The Guinn Consultancy Group, Inc. The Guinn Consultancy Group provides a wide array of business services, including seminars, webinars, and venture capital sourcing services. See the group website at www.theguinnconsultancygroup.com or contact them for additional information at 800-335-9269.
Please use the HTML version of this article at:
http://www.isnare.com/html.php?aid=1836135
*********************** ARTICLE END ***********************
- To distribute your articles go to http://www.isnare.com/distribution.php
- For more free-reprint articles go to http://www.isnare.com
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