Tips for Negotiating a Lease

Negotiating a Letter of Intent (LOI) and Lease for a Commercial Property

A guide for Zero Latency VR partners preparing to secure a venue, ensuring favourable commercial lease terms and long-term operational success.

Introduction

Securing the right commercial lease is a pivotal step in launching a successful Zero Latency VR venue. A strong Letter of Intent (LOI) and lease agreement lays the foundation for profitability, operational freedom, and long-term growth.

Warning: A poorly negotiated lease can lead to inflated costs, limited flexibility, and unexpected risks.

Real Estate Review Process

Ideally, venue exploration begins during the prospect phase. Once a potential site is identified:

1. Operator or realtor submits the location address.
2. Zero Latency reviews and scores the site (100+ is ideal) and provides next-step recommendations via email or call.
3. If the location scores well, we issue an LOI template and recommend proceeding.
4. If the score is poor, we suggest higher-potential areas and flag increased digital marketing spend and more favourable lease terms if pursuing a weaker location.
5. Once an aligned location is confirmed, the operator submits an LOI for review. We return with detailed feedback and suggestions.
6. Even at the lease stage, all guidance is presented as recommendations for operator/legal review.

Key Elements of a Letter of Intent (LOI)

An LOI frames negotiations and ensures alignment before legal drafting. Core inclusions should cover:

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Territory Requirements

• Minimum population density: 700,000+
• Presence of nearby entertainment venues (e.g., cinemas, bowling, dining)
• Location reviewed and scored 100+ by ZL and Morrow Hill

Guarantees

• LOI should avoid personal guarantees longer than 4–5 years (max 7 years)
• Target lease structure: 3x3 or 5x5. Some rare cases may offer 12-month rolling renewal.
• Prefer all partners listed as leaseholders
• Request Black Swan clauses: rent pause during uncontrollable events (e.g., pandemics)

Location Quality

• 80%+ tenancy within the centre, with like-minded brands
• Target rent abatement: 180 days OR generous TI contribution
• Acceptable baseline: 90–120 days rent abatement plus some TI support

LL Delivery & Infrastructure

• Premises delivered in "broom clean" and operable condition
• HVAC: ideally in perfect condition, inspected by tenant, 50/50 cost share if repairs needed
• Signage rights (centre, street, parking lot) should be included with cost/limit clarity

Additional LOI Tips

• Engage a lease attorney with 10+ years’ experience—ideally at LOI stage
• Do not sign long-term guarantees (10+ years)
• Avoid landlords who reject legal review
• For standalone locations, ensure ample parking

Franchisor Lease Rider (Optional)

Operators may consider discussing lease rider inclusions with Morrow Hill based on learnings from Resolut RE, including:

• Minimum square footage tied to license type
• Rent cap: ≤ 20% of projected gross revenue
• No loud neighbouring tenants
• No existing building disrepair

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Finalising the Lease Agreement

Strongly recommended: Hire a commercial real estate attorney to review all terms. Landlords have legal representation. You should too.

• Don’t rely solely on your real estate agent—they often prioritise ongoing relationships with landlords.
• Ensure all LOI terms are carried into the final lease without discrepancies.
• Secure signed agreement from both parties on all negotiated items.

Conclusion

A well-negotiated LOI and lease set the stage for long-term success. Take the time to research, negotiate, and consult experts. Secure terms that support your venue’s financial health and operational flexibility.