Experience With A Potential Landlord Making Trying To Make A Non-Binding LOI Binding?
Market: CA

Type: Industrial Lease

Details: Off-Market Lease Without Brokers 

Potential Lease: 5Y @ $8k/month IG

Who Are We? Tenant

Went through a "non-binding", signed, LOI process without TIs (take as is) and no 'no shop'/exclusitivty clause. Part of the understanding is that the landlord is moving an existing tenant to a newly vacant space within the building that requires extensive TI's (not in our LOI). One LOI clause states that we'll include 3 years of financials for DD. Post LOI, during DD, LL wants more financial records and a personal guarantee as they feel that our financials are 'not strong enough'.  We (I've) declined and will not sign a PG for the property.

LL is now claiming the LOI is binding and will pursue legal action against us for backing out of the LOI.

We have an attorney that's looking at everything on Monday but thought I'd float it by this Reddit sub for opinions/first-hand experience with any similar issues.
[{"id": "gqraivg", "text": "Non-binding LOIs are simply an understanding of pertinent terms before spending time and money on drafting a lengthy PSA. The LL is just trying to turn on the heat, sounds like they were a previous owner-user of the space turned landlord? Seems like they need better guidance. If you can\u2019t come to any agreements, then the deal is dead and that\u2019s it. \n\nWhat are they going to sue you for anyways?\n\nThe terms of the LOI change during PSA as things come up, it\u2019s not a big deal. Maybe tell them your attorney wants his attorney\u2019s contact info... that way he can show an attorney and have them explain it.", "replies": [{"id": "gqrgv9n", "text": "Personally introduced to the owner (wealthy Biotech investor) through a mutual friend to find out this son \"handles his real estate portfolio now\" - so now I deal with his son which isn't great. \n\nHaving to put $50k into TI's to move the existing tenant is where the problem lies. At this point, I'm not looking to be a tenant even if the PG is waived due to the poor experience with the owner's son.", "replies": [{"id": "gqrium0", "text": "1) who\u2019s putting in the $50k of TI to move the existing tenant? Typically relocation fees are exclude from TI costs, how are they intertwined in this situation? Personally, I\u2019d assume the son prematurely made arrangements with the tenant they are moving.\n\nWhen I was a broker, we represented a tenant. The landlord rep was another broker in my office. They went to bat for us, our LOI was accepted, the landlord notified the existing tenant that they were going to terminate the lease, and then our client (national corporate tenant) backed out. Fuck, the other broker was pissed, and the landlord was furious they just told their tenant they are not renewing their lease and etc etc (few years ago so I forgot the exact terms, but the landlord lost money by paying off the tenant to vacate or triggered an early termination clause). Likely the son just learned a hard lesson about juggling deals. It happens.", "replies": [{"id": "gqrl9x8", "text": "No idea. That's what the owner's son said in an email commenting on my LOI. Don't know the details of how they structured their deal.", "replies": [{"id": "gqroot3", "text": "Yea sounds like they are pissed because they shot themselves in the foot somehow. Don\u2019t lose any sleep over it. Hope you find the right space.", "replies": [], "depth": 5}], "depth": 4}], "depth": 3}, {"id": "gqt50rp", "text": "Just walk. If its a non binding loi without hard money, he can sue and will lose", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "gqrcn1o", "text": "If it is binding, then it is binding without the personal guarantee, unless the LOI spelled out conditions under which the Landlord would require a personal guarantee.\n\nIf you want the space without the personal guarantee, the \"You'll sue me? No, I'll sue you!\" approach might work.", "replies": [{"id": "gqrh7g7", "text": "LOI is non-binding.\n\n3 years of financials were in the LOI, 5 years of financials plus the PG was NOT.\n\nJust looking to make sure I can walk away even if the PG is waived without any issue as the experience leaves a lot to be desired when considering this is a 5Y term.", "replies": [{"id": "gqsk9kv", "text": "From what you\u2019ve described, you never made it to any sort of contract.  Non-binding LOI is just the format to present your offer.  You have no obligation to stick around if you\u2019re not happy with the terms.  The LL would just be wasting their money if they actually tried to sue you on this because they aren\u2019t going to get far.  I agree with others in this comment thread-  the owner\u2019s son messed up and made promises prematurely to the existing tenant putting themselves in a bind.  It sounds like you should be able to exit without any issue.  Never a bad a idea to have your lawyer go over the documentation to confirm, though.", "replies": [], "depth": 3}, {"id": "gqsvy26", "text": "Commenter\u2019s point is that they are asserting new terms on you while trying to simultaneously say the old terms are binding. Their position is inconsistent - by demanding new terms they already acknowledged the LOI was non-binding. Not legal advice of course.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "gqrcr79", "text": "Time to get broker representation...", "replies": [{"id": "gqu0ln1", "text": "Are you a broker?  Why not say what you'd do?", "replies": [{"id": "gqu61jq", "text": "As a broker, I\u2019d talk some sense into ownership. They don\u2019t have grounds to sue on, but a mediating broker should be able to save the deal better than pressing ownership. I deal with the issue of including a personal guarantee often and in my experience having a broker helps explore every venue of success before declaring a deal dead.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "gqrctlk", "text": "He's just not going to get too far.", "replies": [], "depth": 1}, {"id": "gqrdpxw", "text": "LOIs are usually nonbinding unless they explicitly state in writing that they are binding. Read the LOI. It should be clear either way. Here is the funny thing: If the LOI is binding as the landlord says, how can the landlord ask for something above and beyond the original agreement (eg: a personal guaranty)? He can\u2019t. The landlord is contradicting himself by saying the LOI is binding AND he wants to change the terms. In all likelihood, the LOI is non-binding, as that is the intention of LOIs, to state initial terms and perform due diligence before the final binding agreement is executed.", "replies": [{"id": "gqreccy", "text": "A LL enforcing legal action for a nonbinding LOI is just flat stupid and won\u2019t go anywhere in court. A waste of time and legal fees. Sounds like he is making empty threats as a negotiating tactic in bad faith.", "replies": [{"id": "gqri0m1", "text": "LOI is non-binding. \n\nMutual introduction to the owner to find out during the negotiation process his son, who has no experience in the CRE industry, is now managing his portfolio.\n\nMore or less looking to confirm that I can exit even if the PG is dropped without issue.", "replies": [{"id": "gqtj1l5", "text": "Nonbinding means unenforceable. Nonbinding LOI isn\u2019t a legal contract. Even if the LL drops the PG requirement, it is still unenforceable. Until you sign a real lease agreement, the landlord has no legal recourse against you.", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}, {"id": "gqtip9d", "text": "Non-binding means unenforceable, with or without PG. Until you sign a real lease agreement, the landlord has no legal recourse against you. A nonbinding LOI isn\u2019t a legal contract.", "replies": [], "depth": 2}], "depth": 1}, {"id": "gqrekuh", "text": "If the LL is gonna be a dick like that, I say fuck it. Look elsewhere if you can", "replies": [], "depth": 1}, {"id": "gqrfei6", "text": "\u201cOff-Market Lease Without Brokers\u201d", "replies": [], "depth": 1}, {"id": "gqrlqpy", "text": "LOL, an LOI is worth nothing, he can try whatever he wants, no lawyer would listen to him.", "replies": [], "depth": 1}, {"id": "gqs1hlj", "text": "Meh. LL is an asshole who wants all of the cake.   As presented, the Tenant's lawyer should be able to scare him off for a couple grand in fees.  \n\nThat said, if the LOI isn't VERY clear that it is a non-binding document there might be elements in it that dictate a semblance of contract.  It won't win, but could be argued.\n\nAlways use a broker, you can throw us under the bus for shit like this.  I don't know a broker who could bungle such an easy deal, but if I did, they'd have partners, managing directors, state guidance, E&amp;O insurance, and any other backstops to keep this from getting litigious.\n\nBut yay, you saved a couple points on your deal.  What could possibly go wrong.", "replies": [{"id": "gqu0wcn", "text": "TBH I'd just tell my client this seems ridiculous then tell them they should involve their lawyer if needed.  This deal seems done and a waste of time IMO, but I'd surely not be a sacrificial lamb.  \n\nI am a professional who provides a professional service, and my services expand past \"well if shit gets fucked up I have E&amp;O\".\n\nThis question has already entered a litigation situation, you shouldn't be backstopping this as a broker, you should be telling your client to involve their lawyer.\n\n--edit-- LOI's even with non binding language have some occasional odd results legally.  I personally am not comfortable not involving a lawyer in these types of disputes", "replies": [], "depth": 2}], "depth": 1}, {"id": "gqsbzjf", "text": "I\u2019m not providing legal advice. This happened to me on a very large industrial lease. You need to come out strog and discredit them. My $1,200 attorney used this case - Rennick v. O.P.T.I.O.N. Care (1996) 77 F.3d 309 and wrote a nasty letter.", "replies": [], "depth": 1}, {"id": "gqsl5nq", "text": "Sometimes a quick note saying that you will sue for legal costs will be enough to get them to back off.", "replies": [], "depth": 1}, {"id": "gqsyp7a", "text": "Let him waste money on an attorney. Non-binding is non-binding. Your LOI likely even has the typical non-binding disclaimer. This is a battle of the wits with an unarmed person. He likely is very aware of the facts but is just being a bully.", "replies": [], "depth": 1}, {"id": "gr30ay6", "text": "You did not sign a lease, you don't owe them shit. \n\nSounds like a hot head, inexperienced son who is trying to scare you into getting into his property.  I hope your lawyer tells them to kick rocks.  Just think what it would be like dealing with this guy for the next 5 years!!???\n\nPlease update us on what happens!", "replies": [], "depth": 1}]