LEGAL AND PRACTICAL ADVICE – NEGOTIATING A COMMERCIAL LEASE

BUSINESS ADVICE- FROM START UP TO SALE 2016 SERIESPremier date: March 9, 2016

LEGAL AND PRACTICAL ADVICE – NEGOTIATING A COMMERCIAL LEASE

Premier Date: March 9, 2016

BUSINESS ADVICE- FROM START UP TO SALE 2016 SERIES

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WE WOULD LIKE TO TAKE THIS OPPORTUNITY TO THANK OUR SPONSORS

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meet the facultyPANELISTS

Peter D. Morris Greenstead Consulting GroupHoward Kline Commercial Real Estate Radio CEO and Host

MODERATOR Michael Schwarzmann

Crowe Horwath LLP

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Practical and entertaining education for business owners and executives, accredited

investors, and their legal and financial advisors. For more information, visit

www.financialpoise.comDISCLAIMER: 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.

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about this webinarThere 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.

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about this seriesGreat 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 #1 Legal and Practical Advice – 2/10/2016Starting a Business

EPISODE #2 Legal and Practical Advice – 3/9/2016Negotiating a Commercial Lease

EPISODE #3 Legal and Practical Advice – 4/13/2016Roadmap to Selling your Business

EPISODE #4 Legal 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 Poise™ 8

Property UsesThe type of business or product shapes the emphasis and priorities for the leased space.

• Office Space in Class “A” Building

• Retail (food vs. fashion)

• Manufacturing

• Warehouse / Distribution

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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? 10

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?

• Modifications• Additional restroom• Patio / fencing• Heating / AC upgrade

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Commercial Leases are ComplexHow is it different from residential lease?

• Fewer consumer protection laws

• No standard forms

• Long-term and binding

• Negotiability and flexibility12

The Issues Are Not SimpleDon’t simply focus on whether rent includes:• Insurance

• Property taxes

• Maintenance costs

• Common areas

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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

• Signage14

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)

• Personal Guarantee

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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?

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Get professional Advice• Experience in Commercial Leases

• Entrepreneurial Approach will Identify and Include “Helpful” terms

• Negotiator

• Diplomacy

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Get professional Advice• Trustworthy (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

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Details To ConsiderIssues to be aware of:• Agreements impacting your business (prohibition on

selling competing products)• i.e. does liquor store’s sale of sandwich or frozen pizza

violate Subway / Domino’s leases• Pass through CAM charges• Are they arm’s length vendors?• Do you pay more if there are vacancies?• Do you pay for actions of others?

• Require Good Faith / Reasonable efforts by landlord• Limitations on landlord liability?• Can you go beyond equity in fully mortgaged

property?

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Details To ConsiderIssues to be aware of:• “We don’t enforce that clause” is not a waiver• “Everyone signs that” is not a reason you should• “It’s boilerplate” does not mean it is not negotiable• Use restrictions – can business evolve without violating lease• Usable vs Rentable square feet• After Hours / weekend? costs – lights, AC, heating, security after close of

business – max on costs• End of lease restoration costs• Right to take better space in building if it becomes available?

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Details To ConsiderClauses to consider carefully

• Holdover

• Percentage Rent / Kickout clauses

• Radius restriction

• Default clauses

• Relocation clauses (within property)

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PreparationPreparation for the Negotiation includes both the terms you want / don’t want, but also your approach to the interaction.

• Where you meet matters• Know your priorities AND their priorities• Do 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)

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Negotiating• 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)

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Negotiating• Style Matters

• Have an alternative – it helps you get the right deal

• Mirroring

• 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

Negotiating• 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, TI’s, signage, etc.

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Negotiating• Be realistic

• Compromise to help both parties reach consensus, not just to move

• Eye on the Prize – don’t lose sight of the big picture

• Sleep on it – don’t feel obligated to agree on the spot

• Culture – consider cultural nuances

• Be honest

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NegotiatingREMEMBER:

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.

Don’t be afraid to walk away…

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More About The Faculty: MICHAEL SCHWARZMANN

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Michael.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.  Michael’s industry experience includes: health care, manufacturing, agricultural, construction, restaurants and franchising, energy, travel, and investment banking.

He has experience in identifying and implementing positive near term and long term change for clients, including identifying opportunities, negotiating with constituents, and building consensus where possible. © 2016 DailyDAC, LLC d/b/a/ Financial Poise™ 28

More About The Faculty: D

HOWARD KLINEhfk@hfkesq.com

Howard has been involved in commercial real estate for over 39 years now as both an attorney, broker, arbitrator and now radio show host and founder of CRE Radio & TV, since December 2010.

Over the years, I have worked in-house as General Counsel and Director of Real Estate for a national user of office, R &D and retail space, utilizing both my legal and brokerage licenses, General Counsel for a major regional supermarket chain that owned its own shopping centers. As an attorney, I have also practiced law as outside counsel to many major commercial landlords doing lease transactional work and lease litigation, including unlawful detainers and rent collections. As a real estate salesperson, I have served as a tenant rep in New York City and as a broker for numerous lease transactions throughout the United States.

While I continue to practice law on behalf of commercial landlord's and tenants, my passion has become the radio show. It is incredibly fulfilling to inspire others to improve themselves and reach for the stars.

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More About The Faculty: D

PETER MORRISpdmorris@greensteadcg.com

Peter D. Morris CRX, SCLS, SCSM, SCMD is a recognized real estate expert, holds multiple advanced accreditations in the field and was named to Who’s Who of North American Executives before age 40.As the founder of Greenstead Consulting Group Mr. Morris has worked in 8 countries to bring a unique global perspective to income producing real estate. He has worked with brand name institutional owners such as Cadillac Fairview and Brookfield Properties as well as for the global real estate service provider Colliers International. His clients have also included smaller developers and real estate owners, the Canadian Real Estate Association and the Toronto Real Estate Board and many occupiers of real estate.His broad-based industry experience covers almost every function and facet of the real estate industry including almost every known asset class from retail properties to office buildings, warehouses, apartments, mixed-use developments and seniors living complexes.As one client aptly said: “I know what I know, but Peter knows what the global industry knows.”He is an industry author having written the Masterguide to Leasing for Retail Landlords textbook (available through Amazon), was on the editorial board of an international real estate publication and has contributed to many other publications and online forums. Peter is sought after as a commercial real estate consultant, coach and trainer, speaker, frequent industry contributor, college lecturer, expert witness, and industry panelist. He is also an advisor to the Applied Research Department of the School of Retailing at the University of Alberta.

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Visit www.eisneramper.comEisnerAmper. Let's Get Down to Business®

EisnerAmper LLP is a leading full-service advisory and accounting firm, and is among the largest in the United States. We provide audit, accounting, and tax services, as well as corporate finance, internal audit and risk management, litigation services, consulting, private business services, employee

benefit plan audits, forensic accounting, and other professional advisory services to a broad range of clients across many industries. We work with high net worth individuals, family offices, closely held businesses, start-ups, middle market and Fortune 500 companies. EisnerAmper is PCAOB-registered and provides services to more than 200 public companies and to thousands of entities spanning the hedge, private equity, brokerage and insurance

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Global, EisnerAmper serves clients worldwide.

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Important Notes

• THE MATERIAL IN THIS PRESENTATION IS FOR GENERAL EDUCATIONAL PURPOSES ONLY.

• IT SHOULD NOT BE CONSIDERED LEGAL, INVESTMENT, FINANCIAL, OR ANY OTHER TYPE OF ADVICE ON WHICH YOU SHOULD RELY.

• YOU SHOULD CONSULT WITH AN APPROPRIATE PROFESSIONAL ADVISOR TO DETERMINE WHAT MAY BE BEST FOR YOUR INDIVIDUAL NEEDS.

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