SAMPLE FORM
The following Form 14-1, taken from page 373 of Shopping Center DealMaker's Handbook®, illustrates how each form or "deal-making document" covers each deal point unique to the given transaction type. Form 14-1 is a letter of intent to enter into a ground lease with an oil company for development of a service station on a street corner in a shopping center. Each form is preceded by an overview discussing the unique aspects of the particular transaction type. Note the italicized comments, alternative language inserts and explanatory notes. Just thumb-tab to the Form you need, then edit the electronic version and print. Can you sense the power these forms give you?
Chapter 14 covers "Pad or Outparcel Ground Leases" and this "form 14-1" means it is the first form in Cha;pter 14. For example, form 14-2 is a ground lease of a proposed bank pad in a shopping center. A one-page "Contents in Brief" shows graphically the topic of each chapter with a thumb-tab guide to each chapter. Each "form" in the book is highlighted with a black outline with the form number. The digital files are all listed by sequential form number so you can get to the form you need in both the book and the digital forms in seconds. Every form in the book is preceded by a succinct overview of using the particular form and issues of concern. The book's powerful Index was prepared by Mathew Bender legal pushlisher's top indexer and went through many edits. You can quickly find virtually any dealpoint you want and select from an array of optional clauses to be pasted into your document. Further,, each dealpoint in a form has a bold, underlined first sentence describing the topic. One former ICSC president shared with me that he uses these bold headings as a checklist to make sure he covers all the issues in a deal.
Each Form is a powerful "thinking tool": All you have to do is edit and print. For example, this form illustrates an unusual rent escalation formula for the option periods. However, you can quickly edit the form to provide for fixed increases. The key is that all deal points for a particular type of transaction are in front of you so YOU have the opportunity to change paragraphs, add optional/alternative clauses found elsewhere in the book, and add your own clauses. Put it on your letterhead and you're quickly done. The forms give you a competitive advantage in the tough world of deal-making.
Form 14-1 was previously published as the lead article in The Practical Real Estate Lawyer, published by the American Law Institute-American Bar Association.
Developer Letter of Intent to Major Oil Company for Ground Lease of Corner Service Station Pad to Be Developed Concurrent with Shopping Center; Includes (i) Allocation of On- and Off-Site Costs and Development Fees and (ii) REA Restrictions
[Date]
[Name and address of real estate representative for major oil company (“Oil Company”)
____________________________________________
____________________________________________
____________________________________________]
Ref: __[Oil Company]__ Ground Lease
_________ Shopping Center
__[city]__, __[state]__
Dear _________:
Thank you for your draft ground lease on your company’s form dated _________, 202__ (the “lease draft”). Due to the complexity of this transaction, I am outlining the basic terms of our proposed transaction in this letter. If this outline is acceptable to you, our attorney will modify the lease draft accordingly. Would you please sign and return a signed copy of this letter confirming your agreement with the terms as outlined herein, understanding, however, that neither __[name of developer]__ (“Landlord”) nor __[name of oil company]__ (“Tenant”) will be bound in any manner unless or until a final ground lease and any required additional final documentation has been signed by the parties.
1. Site. Assuming the parties consummate present negotiations, the _________ square foot corner parcel (the “site”) identified as __[describe]__ on the attached site plan dated _________, 202__, (Exhibit “A”) will be leased to Tenant. The site plan conforms with Tenant’s proposed preliminary layout __[with the exception that...]__ [describe any differences between the preliminary layout and the layout actually intended]. A __[parcel]__ OR __[tract]__ map will be processed to create the site as a separate legal parcel.
2. Use. Construction and operation of a __[name of Tenant] __ retail service station engaged in the retail sale of gasoline and related petroleum products. Tenant shall also have the right, subject to governmental approval __[and the terms of the REA] __, to sell snack food items incidental to the primary use of a service station. [Optional:] __[The sale of alcoholic beverages of any kind from the site is specifically prohibited] __. [Alternative last sentence:] __[The sale of beer and wine from the site shall be permitted so long as all required local, state and federal permits are obtained and maintained in force by Tenant] __.
Optional: Continuous operations and recapture right:
__. Continuous Operations and Recapture Right. Tenant will be obligated to continuously operate the business consistent with the preceding use clause. If Tenant fails to continuously operate such business for a period of __[e.g., 6] __ consecutive months of the lease term, except during any period constituting force majeure (excluding Tenant’s financial condition), Landlord shall have the right but not the obligation to recapture the premises.
3. Initial and Option Term. An unimproved NNN ground lease with a __[e.g., 5] __ -year fixed term and __[e.g., five, 5] __ -year options.
4. Fixed Term Rent. Rent during the __[e.g., 5] __ -year fixed term shall be __[e.g., $71,928] __ per year. The initial fixed term rent was negotiated on the basis of __[e.g., 10] __ % return on the agreed land value of the site.
5. Option Period Rent. Rent during each of the __[e.g., 5] __ -year option periods shall be payable as follows:
Option Rent or
Period Escalation Formula
1 $ __[e.g., 87,756] __
2 The greater of $ __[e.g., 107,064] __ or __[e.g.,10] __ %
of appraised fair market value (“FMV”)
3 $ __[e.g, 130,608] __ or __[e.g., 1.22] __ times Option
Period #2 rent if FMV is used in Option Period #2
4 The greater of $ __[e.g., 159,336] __ or __[e.g., 10] __ %
FMV
5 $ __[194,388] __ or __[e.g., 1.22] __ times Option
Period #4 rent if FMV used in Option Period #4
Note: Absolute rent figures of an actual transaction are shown in Paragraphs 4 and 5 to illustrate an overall rent structure and rent escalation formulation. In this example, Option Periods “2” and “4” provide for adjustments to fair market value (if the fair market value exceeds specified increased minimum rent levels). A comparison of absolute rent figures will demonstrate that the rental increase in each option period exceeds the rent payable in each prior period by not less than 22% (rounded).
6. Initial “Feasibility” Option Payment. In consideration of an initial $ __[nominal amount] __ option payment, Tenant will have a __[e.g., 90] __ -day period in which to conduct a study of the site and to sign an agreed lease form, which period can be extended __[e.g., 30] __ days upon timely payment of an additional $_______ advance option payment. If such $__[insert additional advance amount]__ is timely paid, it will be credited against improvements to the site reimbursable to Landlord under Paragraph __[11]__, below.
7. Tenant’s Lease Execution and Deposit. At the end of the above __[e.g., 90]__ -day option period (extendible to __[e.g., 120]__ days, at Tenant’s option, as above), Tenant must (i) give notice that Tenant has elected not to sign the lease or (ii) return the signed lease to Landlord accompanied by a $__[substantial amount]__ check payable to Landlord (the “deposit”). The entire deposit will be applicable to fixed term rent if approvals are obtained and fixed rent is payable.)
8. “Preliminary Term” Rent. The “preliminary term” __[(as defined in Tenant’s lease draft)]__ will commence upon Tenant’s execution and delivery of the final, agreed lease form and the deposit to Landlord. The lease shall provide that preliminary term rent is $________ per month for the first __[e.g., three]__ months of the preliminary term, $________ per month for the next __[e.g., six]__ months and $________ per month thereafter until commencement of the fixed term.
9. “Fixed Term.” The preliminary term shall end and the “fixed term” shall commence (and payment of fixed term rent shall commence) __[e.g., 4]__ months after Tenant’s permits are received or when Tenant opens for business, whichever first occurs, but in no event later than __[e.g., 18]__ months after the commencement of the preliminary term. If Tenant is unable to obtain all required entitlements on or before the scheduled commencement of the fixed term, Tenant may elect to terminate the lease and __[all option, deposit and rent payments to date thereof shall remain the property of Landlord]__ OR __[, ____ % of the deposit will be returned to Tenant and all other sums paid Landlord by Tenant may be retained by Landlord]__.
10. Tenant Diligence. The lease will require Tenant’s diligence at all times, including obtaining necessary internal management approvals for the site during the option period, preparing and processing plans, permits and licenses for required approvals.
11. Improvement Costs. Tenant will pay all costs and expenses attributable to improvement of the site, including on- and off-site improvements, development fees, bonds and permits __[, with the exception that]__ __[e.g., (a) Landlord will rough grade the site at Landlord’s expense concurrent with the rough grading of the shopping center and (b) Landlord will provide the utility work described in Paragraph __[13]__, below]__.
11.1 Improvements Inside the Building Envelope. Tenant, at Tenant’s expense, will construct the __[e.g., building, service pumps and all other improvements]__ located within the “building envelope” shown on Exhibit “__[B]__”.
11.2 On-site Improvements Outside the Building Envelope. Improvements outside the building envelope but within the site will be constructed by Landlord’s contractor and paid for by Tenant. Tenant shall pay for such on-site improvements at Landlord’s cost. Where such costs are not precisely known, Tenant shall pay a reasonable allocation of the prorata cost of each specific applicable on-site improvement relative to the total square footage of like on-site work for the entire project. For example, Tenant shall be charged for paving, curb and gutter, parking lot lighting, landscaping, and the like, based upon rationally and objectively applied linear or square footage apportionment. In other words, Tenant will pay the same per square foot cost for paving that Landlord’s contractor charges Landlord for like work.
11.3 Off-Site Improvement Costs. Tenant shall pay Tenant’s prorata share of all off-site improvements. Off-site improvements will be constructed by Landlord __[e.g., and the County of __________]__. Tenant will pay or reimburse Landlord that portion of total off-site improvement costs which the site’s square footage (________ square feet) bears to the entire shopping center site (________ square feet), or ____ %.
12. Governmental Development Fees. Similarly, net applicable __[e.g., county]__ development fees __[(gross fees less credits, if any)]__ will be payable by Tenant in the same manner as off-site costs, i.e., Tenant will pay __[same % as in previous paragraph]____ % of the total development fees payable with respect to the total shopping center development. Tenant, however, will independently pay for all of its own plan check, inspection, building permit and other typical governmental processing fees. [Add any other details regarding government fees, assessments or processing, for example:] __[The County represents that it will pay for certain ________ Boulevard and ________ Road off-sites out of the development fees]__.
Optional: Often there are uncertainties in the governmental fee structure applicable to the site, for example:
12.__ Adjustment to Cap On Governmental Development Fees. The __[e.g., County of __________]__ is presently unable to enter into a development agreement with Landlord as a result of pending changes in the development fee structure applicable to the subject shopping center project and the site. Notwithstanding such uncertainty, however, the parties understand that substantial scheduled increases in applicable __[county]__ fees will be payable if building permits for the entire shopping center, including the site, are issued in 20__[e.g., the next year]__ instead of 20__[e.g., insert the present year]__. The parties believe that all required entitlements for the shopping center and the site will be issued in 20__[e.g., insert the present year]__.
Provided full entitlements for the shopping center and the site are issued by __[e.g., a date within present year]____, Tenant’s __[e.g., insert same % as in Paragraph 12, above]__ % portion of __[e.g., county]__ development fees shall not exceed $________. If a building permit for the site is not issued until 20__[the next year]__, Tenant will pay __[e.g., insert same % as in Paragraph 12, above]__ % of the total shopping center development fees payable, but Tenant’s cap shall be raised to $__[increased absolute cap]__.
Optional: If the tenant demands a cap on governmental fees and such fees are subject to material increase, Landlord should consider the right to back out of the transaction in the event the transaction becomes uneconomic, for example:
12.__ Landlord’s Limited Right to Terminate Based Upon Unacceptable Fee Agreement. In the unlikely event that Landlord in good faith is unable to negotiate an acceptable project development fee and reimbursement agreement with the __[e.g., County of ________]________[such that the transaction becomes uneconomic from Landlord’s perspective]__, Landlord may elect to terminate the lease, provided Landlord refunds all moneys previously advanced to Landlord by Tenant pursuant to the lease __[, excluding the initial $________ option payment referenced in Paragraph __[6]__, which Landlord, in such event, may retain]__.
13. Utilities. Landlord’s engineers and general contractor will provide for the following utility planning and construction, suitable for Tenant’s use, at no additional cost to Tenant:
13.1 Electricity and Telephone. Sweeps of empty conduit to the site parcel line; and
13.2 Sewer and Water. Laterals provided to five feet inside the site parcel line.
Note: Add any specific additional utility improvements Landlord will provide.
14. Connection and Metering Charges. Notwithstanding Paragraphs __[13.1]__ and __[13.2]__, Tenant will pay all utility connection and metering costs and all costs to bring such utilities to Tenant’s improvements within the site.
Because it is assumed Tenant pays all real property taxes assessed against Tenant’s site, Tenant is excused from payment of the real property tax portion of CAM:
15. Property Taxes and CAM. Tenant will pay all real estate taxes levied against the site and __[e.g., same % as in Paragraph 11.2 or 12, above]__ % of all common area maintenance (“CAM”) charges. Such CAM charges include common area insurance, parking lot maintenance, sweeping, parking lot lighting, etc. Because Tenant will directly pay all real property taxes assessed against the site (which will become a separate parcel under the parcel map being processed by Landlord), Tenant’s CAM charges will not include an assessment for real property tax __[except]______[provide for any exception(s) such as property taxes relative to a particular common area parcel which benefits Tenant]__.
16. Reciprocal Easement Agreement. All parcel owners within the center will sign and Landlord will record a reciprocal easement agreement (“REA”) providing for continued ingress and egress, establishment of common and building areas, architectural harmony consistent with the center’s __[name]__ architectural theme __[e.g., (river rock and “clinker” brick bulkhead/column detail, eased detail on heavy beams, and pitched roof)]__, approval of signage plan, payment of common area expenses, and other matters.
Optional: An example of use restrictions (contained in CC & R’s or the REA) to insure visibility into center and provide for purchase and sale rights of Tenant and the center’s owner:
16.1 Use Controls and Rights of First Refusal. During the term of the proposed lease, the site shall be used only in accordance with the use clause above. To insure perpetual street visibility for owners and tenants to the rear of the site, future construction on the site shall be limited to one-story buildings not to exceed a total of __[e.g., 5000]__ square feet within an agreed, designated building area contiguous to the building setback line on the corner. The required parking count for any future building use on the site will be confined to the site. If Landlord elects to sell Tenant’s site in a sale separate from the sale of all or a portion of the remainder of the center, Tenant may exercise a right of first refusal to purchase the site. Prior to any subsequent resale of Tenant’s site, any subsequent owner of Tenant’s site shall be required to first offer the site to the then-existing owner of the shops parcel.
Optional: Set criteria in the REA so that any major tenant or others holding approval rights are held to specific, articulated standards.
16.2 Elevations and Future Building Use Controls. __[Major supermarket tenant and]__ Landlord shall have the right to approve Tenant’s proposed elevations. (The REA will also provide that upon termination of Tenant’s lease, __[e.g., names of specific anchor tenant(s)]__ will approve any future building use on the site so long as it meets the size and location criteria established in the REA __[, as generally described above,]__ and complies with the established architectural criteria.)
Landlord shall supply Tenant with a draft of the REA by ______, 202__.
17. Underground Tank Specifications, Environmental Monitoring and Insurance. No above ground tanks may be installed and the lease shall provide that all underground tanks and pressurized piping shall be made of state of the art materials and comply with all applicable federal, state and local laws and regulations. Underground tanks shall be __[e.g., double-walled fiberglass with fiberglass piping]__, all of which shall be installed subject to certified leak detection testing. Each underground tank and all pressurized piping shall continuously be served by leak detectors and shall be regularly monitored and tested by approved, independent third parties. A daily inventory control and reconciliation shall be made and Tenant’s inventory and environmental records shall be available for Landlord’s review at all times.
At the end of the term, prior to vacating, Tenant shall remove and dispose of all underground tanks and containers. Concurrent with such removal, Tenant shall fully test the site and fill and compact the resulting holes in compliance with all applicable laws and regulatory requirements. If a leak or contamination is detected, Tenant shall clean up the site and all other affected areas to the satisfaction of federal, state and local authorities. Tenant shall provide insurance in coverages and amounts satisfactory to Landlord. Required insurance coverage shall contain specific wording to cover hazardous spill clean-up efforts. The lease shall contain a provision indemnifying Landlord for any loss or cost resulting from any underground storage tank leak or discharge of hazardous materials.
Note: Be certain to keep up with rapidly changing technology. The second sentence (italicized insert) over time may no longer be state-of-the-art. Removal of underground tanks followed by soils testing after tank removal is to be preferred to insure that no hazardous materials exist below or around the tanks in an area that otherwise might remain undetected. Before using, review contents of this paragraph with appropriate consultants knowledgeable about the transaction under negotiation.
18. Contingencies. The lease will be contingent upon the following:
18.1 Map Recordation; Entitlements. Recordation of the __[parcel]__ OR __[tract]__ map for the site and issuance of all entitlements to construct all on- and off-site improvements and the first building phase of __[name]__ Shopping Center, including all proposed improvements to the site, within __ months following execution of the lease.
18.2 Financing. Landlord shall have until ________, 202__ in which to obtain a binding __[e.g., construction/permanent]__ loan to __[e.g. construct the shopping center in which the site is a part]__. If Landlord is unable to obtain financing in form satisfactory to Landlord by ______, 202__, Landlord shall have the right to terminate the proposed lease by giving written notice of termination to Tenant.
19. Miscellaneous.
19.1 Notice. Tenant will give Landlord __[e.g., 180]__ days notice of each election to exercise an option to extend the lease term.
Optional: An example to show Tenant that entitlement progress is being made. Such information is important for the Tenant’s planning.
19.2 Existing Approvals. Tenant is aware that Landlord has obtained __[e.g., County Development Review Committee]__ and __[e.g., Planning Commission]__ approvals for the attached tentative site plan, which includes Tenant’s proposed schematic layout. No further site planning approvals are required. Conceptual elevations have been approved by the __[jurisdictional agency]__. A mass grading permit has also been issued. Mass grading is scheduled to commence approximately ______, 202__.
Optional example:
19.3 Liquor. Tenant’s proposed sale of beer and wine will not be objected to by Landlord but shall be subject to approval by __[e.g., name of major supermarket tenant]______[e.g., and the County of ________]__. The County Planning Director has indicated that such sales incidental to retail gasoline sales will not be permitted in __[name of jurisdiction]__.
19.4 Lender Modifications. Tenant will agree to reasonable lease modifications required by Landlord’s lender provided that such changes do not modify the economic terms of the proposed transaction.
20. Non-binding Letter; Rights Contingent Upon Signed Lease. This letter constitutes merely an invitation to negotiate a lease on the general terms and conditions described above. Neither party shall be bound by this letter and no contract between the parties will exist unless or until the parties have signed a final lease agreement containing all essential terms of the proposed transaction. The parties acknowledge that they have not set forth herein nor agreed upon all essential terms of the lease. Landlord’s interest in entering into the contemplated ground lease is expressly conditioned upon Landlord’s receipt of a signed copy of this letter on or before __[date #1]__, 202__.
21. Time Limit. This proposal shall automatically expire as of 5:00 p.m. on __[date #1]__, 201__, unless Tenant’s acceptance is communicated in writing to Landlord before that time. If the parties do not execute a final ground lease on or before 5:00 p.m. on __[date #2]__, 202__, Landlord shall have the right to offer the site to other parties without any obligation to Tenant to hold the site off the market, even if the parties are engaged in good faith negotiations for the ground lease of the site on __[date #2]__, 202__.
If the foregoing outline meets with your approval, would you please so indicate on the space provided below and return a copy to me. We look forward to working with you in development of __[Name]__ Shopping Center.
Very truly yours,
[development company]
[name]
[capacity]
UNDERSTOOD AND AGREED:
This __ day of ____________, 202__.
[Major Oil Company]
By: ______________
Its: ______________
Exhibit “A”
[Attach copy of shopping center site plan
showing Tenant’s parcel (the “site”)]
Exhibit "B"
[Attach plan of “site” showing “building envelope” within which Tenant is responsible for the cost of all improvements. (In this example, Tenant reimburses Landlord for site improvements Landlord constructs within the “site” but located outside the “building envelope”.) The following “Service Station Parcel” plan taken from the book depicts the “site” and the “building envelope” referenced in the preceding example.]
Note: By their very shorthand nature, these forms cannot cover all the issues that may arise in an actual deal, and the forms do not cover each issue in detail. However, as this form illustrates, there are many unique issues in each transaction type and seeing and then editing the form to meet your own unique requirements results in far more professional, compressive proposals than just starting from scratch. The quicker all potential deal points are addressed and negotiated the sooner the parties can get the deal negotiated and finalized by the lawyers. Be sure to read the materials in the book as to how to use these forms. Do not use the Forms Disk without the book.