Lesson 4

Question 1

Request for Proposals (RFP)

Answer 1

RFPs are often used by potential tenants with large or specialized space requirements to seek expressions of interest from potential landlords who have space available that may suit their needs. Landlords may also use the RFP process to seek out potential tenants for space in specific properties.

Question 2

Term Sheet

Answer 2

Document that outlines the key terms and conditions of a business agreement. The tenant or landlord may propose using a term sheet to guide negotiations as a prior step to a formal offer to lease document. The benefit of a non-binding term sheet is that the key elements of a subsequent offer to lease will be negotiated without prejudice (i.e. non-binding), allowing both parties flexibility in exploring creative options to meet their mutual interests

Question 2

Offer to Lease

Answer 2

The bridge from negotiations to a formal lease agreement. In contrast to the term sheet, an offer to lease is typically a binding agreement by the parties to execute a lease agreement, subject to a series of conditions. It will contain, at a minimum, the following elements: parties to the lease, property identification, terms of the deal, commencement/expiry dates, and rent.

Question 3

Rent Roll

Answer 3

Financial summary of the current provisions for lease rent for all leases for the property. At minimum, a rent roll will typically include the tenant unit number, lease commencement and expiry date, current monthly and annual contract rent, rentable area, and additional rent.

Question 4

Lease Abstract

Answer 4

Detailed summary of a specific lease agreement providing the essential information critical to both valuation and lease administration. Includes all key elements of the lease, as well as all lease modifications. Acts as a “road map” to the lease document, outlining all important clauses and their location within the lease.

Question 5

Landlord’s Goals in Lease Negotiations

Answer 5

The landlords seeks to secure tenants with a good covenant, to maximize rent, and transfer as much risk (all potential costs) as possible to the tenant.

The landlord will also wish to: restrict provisions for renewal, ensure annual escalation of property taxes and CAM expense; download variable and fixed costs for vacant space; limit sub-leases and assignments and secure any excess rent; limit tenant’s early termination; allow for landlord’s early termination; provide explicit control of use of the premises; limit assessment appeals

Question 6

Tenant’s Goals in Lease Negotiations

Answer 6

The tenant seeks to minimize total costs of occupancy, transfer risk to landlord (achieve certainty over all potential costs), retain maximum flexibility on use and control of the space.

The tenant will also wish to limit escalations in rent, limit escalations in operating expenses, maximize inducements and incentives, maximize flexibility of lease term, maximize flexibility of use of premises, maximize options for expansion space