Term sheet
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Embry-Riddle Aeronautical University *
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390
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Law
Date
Jan 9, 2024
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docx
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Term Sheet
The Importance of Developing a Term Sheet
A Term Sheet usually is an unenforceable expression of intent but a valuable tool in
negotiating a favorable property sales agreement or lease. A Term Sheet emphasizes critical
elements in negotiating a sales agreement or lease. Once the landlord submits the sales
agreement or lease offer in writing, compare all offers you receive. In negotiating term sheets,
it is essential to set limits. If you need expansion or renewal options, be sure your prospective
landlord or property owner addresses your concerns in their term sheet. Although not binding,
the Term Sheet request may result in the owner retracting the offer. However, the Term Sheet
is a valuable negotiating tool because it clarifies the deal. A Property owner can face a
dilemma if there is a missed opportunity to close because of their resistance to negotiate. The
owner’s ability to turn over space can be adversely affected by the long-term closing prospects
if the owner gains a reputation for retracting or renegotiating term sheets.
Time Investment in Negotiating a Real Estate or Lease
Agreement
There is a mistaken belief that the deal is done after negotiating an agreed-upon Term Sheet. A
well-negotiated term sheet can certainly streamline the process, but a term sheet cannot
address all the legal issues that arise under a purchase agreement or a lease. The Term Sheet
lacks specificity and often results in ambiguities that only a negotiated purchase agreement or a
lease agreement can determine.
The below forms include questions that must be answered in completing your Term Sheet.
Detailed responses provide critical information required for several assignments that employ this
Term Sheet. Incomplete sentences, short responses, or forms containing white space will not be
graded.
FORM 1
Term Sheet
ISSUES
YOU
OWNER
DESIRED OUTCOME:
What’s the want?
Do you need to learn
more? Why? What do the
parties value?
We want to secure the property in Boca
Raton for the restaurant in the most
affordable way possible
The owner wants to sell the property for as
much money as possible within the next
two months.
KEY INTERESTS:
What do the parties want?
What alternatives are available if no
deal is reached?
Sally wants a location to start her
restaurant. If no deal is reached, Sally will
have to be willing to pay more or find
somewhere not as ideal for the restaurant
The owner wants to receive the highest
payment possible for the property. If they
cannot get that from Sally, they will look
other places
WHAT ARE THE WALKAWAY
ALTERNATIVES:
What do you or the other side lose if
no deal is struck? Why?
What options do you have, if they
disagree with your terms?
Sally finds a new location that may not be
as ideal. They find somewhere more
affordable
The owner might lose a last chance of sale
before being forced to lower the cost of the
property by a much larger margin. Either
way, they can still find a new buyer.
BARGAINING CHIPS:
What do you have to offer that
the other party values?
Sally is willing to consider different forms
of paying for the property and can argue
that it is an older property making it less
marketable
The owner has the property to bargain
which they know is ideal for the
restaurant. They can bargain giving the
property to another customer who will pay
more
POSSIBLE SOLUTIONS:
What solutions could work for both
parties? List solutions that will
overcome any disagreement
during the negotiations.
I think Sally should focus on a
contingency plan would work as they can
stipulate conditions of agreeing to a
contract.
I think all 5 win-win solutions could work,
but I think the owner should focus on
Search for post-settlement settlements
such as getting a percentage of the income
or dining for free at the establishment if
sold for less or negotiating damage
upfront.
AGREEMENT:
List the items that both sides should
have no difficulty agreeing with.
Both should agree with this sale being
beneficial to them.
Both should also agree on trying to make
this sale sooner rather than later.
Both should agree that this is a fair price
range for said property.
Both should agree with this sale being
beneficial to them.
Both should also agree on trying to make
this sale sooner rather than later.
Both should agree that this is a fair price
range for said property.
FORM 2
Key Objectives:
Your Company:
Restaurant owners:
Considerations:
Identify the advantages
and disadvantages
of
buying the Property
Advantages:
Have a restaurant
location,
Disadvantages:
Since the value will
depreciate soon, it could be
hard to sell if the restaurant
is unsuccessful. Sally could
go into severe debt
Advantages:
No risk of Sally ending
lease
Disadvantages:
In the long term, money is
lost
Purchase less risky than
Leasing because?
High purchase costs?
Is buying a property the
best option for you?
Outright sale
– buying a
property in full. Ownership
is transferred immediately.
Payment is expected right
away
Identify the advantages
and disadvantages
of
Leasing the Property
Advantages:
If things do not work out,
Sally can end the lease at
some point
Disadvantages:
Sally will be spending more
money, especially if the
restaurant is successful. If it
is not successful. She will
not get the money back
Advantages:
The owner will receive
more efficient income.
Disadvantages:
A lease can be ended, and
the owner might have legal
issues in the future if the
property value depreciates
What are the:
1. Reduced startup
costs?
2. Immediate cash
flow?
3. Added inventory
cost?
Identify the advantages
and disadvantages
of
Leasing the Property
under the various Leasing
Terms offered
(Term Lease, N, NN,
NNN)
Advantages:
More
affordable,
favors sally
Disadvantages:
Advantages:
A win-win,
gives a higher
chance of the
property being
sold
Disadvantages:
Less money,
the value has a
better chance
of depreciation
Existing problems:
Which deal (Sale or
lease) do you think the
owner prefers? Why?
Is there a potential for a
Gradual Sale through
Leasing? What would be
the terms?
Are there flexible options
for transferring Property
that benefit an individual
who cannot afford to
purchase outright but can
finance a long-term
payment plan? Explain.
Lease Agreement –
requires a commitment to
a contract that details the
conditions and payments
you will make for
temporary rights to the
business.
Identify the resources
available to assist in
buying the Property
Lawyers, money, time
Lawyers,
money, land, facility
Estimate the timeframe
and costs required before
the Restaurant generates
a cash flow.
If the transition starts
before
the
deal
is
complete, what financial
impact will it have on your
Key Objectives and Considerations in the Real Estate Purchase or Lease Agreement
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cost structure? List the
items impacted.
Table 1
Benefits of a Term Sheet Agreed to by Landlord and Tenant
Loss opportunity Cost
Cost of Loss money
1. Unpaid or late rent
1. Security deposit forfeited
2. Search for better replacement Tenant
2. Damaged or bad credit
3. Paying Tenant’s delinquent utility bills
3. Unable to find a new business location
4. Unexpected shared costs
Unexpected repairs to the Property
Unclear maintenance obligations
4. Permanent damage
5. Unnecessary replacements
5. Losing customers because common areas not
maintained
Expensive lawyer fees to
Property damage caused by
6. Help with an eviction notice
7. Seek remedies for unlawful use of the premises
8. Clean up hazardous materials
9. Remove unpermitted liens on the Property
6. Unsecured premises
7. Poor security of entryways
8. Other tenants businesses
9. Landlord’s failure to repair
10. Improper janitorial services
11. Burst pipes during the winter
Mental anguish of
Mental anguish of
10. Illegal business activities taking place on your
Property
11. Responding to complaints from neighboring tenants
12. Not being a “named insured” on tenant’s insurance
policy
12. Being unexpectedly evicted
13. Not placing an advertising sign of your choice
outside
14. Unfair competition from other businesses despite
promises to be the exclusive store
Table 2
Purchase Lease Agreement Issues
Adjusted Purchase Price:
Includes prorated items such as rent, utilities, and inventory up to the time of
closing.
Review of required Documents:
The documents you need to review include a corporate resolution
approving the sale, evidence that the corporation is in good standing, or any tax release that the seller may
have promised. You may check with your local department of corporations, state corporation commission,
or Secretary of State for more information.
Signing Promissory Note:
In cases where the seller has back-financing, have an attorney review any
Note documentation.
Security Agreements:
The SA lists the assets used for security, such as a promise to pay the loan.
UCC Financing Statements (UCC):
Uniform Commercial Code documents are recorded with the
Secretary of State in the state in which you will be purchasing your business.
Lease:
if you agree to take over the lease, ensure that you have the owner’s concurrence. If you are
negotiating a new lease with the owner, make sure both parties agree to the new lease terms.
Bill of Sale:
the bill of sale proves the sale of the business. It also explicitly transfers ownership of tangible
business assets.
Closing or Settlement Sheet:
The closing or settlement sheet will include the financial aspects of the
transaction.
Everything listed in the settlement should have been negotiated before the closing
Bulk Sale Laws:
Make sure that you comply with sale laws, which govern the sale of business inventory
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University, Daytona Beach, Florida, 32114. No part of this material may be reproduced, stored in a retrieval
system, or transmitted in any form, electronic, mechanical, photocopying, recording or otherwise without the
prior written consent of the University.
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