Module 6.1 Forms

The Importance of Developing a Term Sheet.

A Term Sheets is normally an unenforceable expressions of intent, but a useful tool in negotiating a favorable
property sales agreement or lease. A Term Sheet put emphasis on key elements of the sales agreement or lease.
Once the landlord submit the sales agreement or lease offer in writing, compare all of the offers you receive. In
negotiating term sheets, it is important to set limits. If you need expansion options or renewal options, be sure your
prospective landlord or property owner addresses your concern in its term sheet. Although not binding the Term
Sheet request may result in the owner retracting the offer. The Term Sheet is however a useful negotiating tool
because it clarifies the deal. 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 the space can be adversely affected the long term
prospects of closing if the owner gains a reputation for retracting or renegotiating term sheets.

Time investment in negotiate 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 of 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.

FORM 1

ISSUES YOU OWNER

DESIRED OUTCOME:

What’s the want?

Need to learn more, Why?

What’s do parties value?

KEY INTERESTS:

What do the parties want?

What alternatives are available if no
deal is reached?

WHAT ARE THE WALKAWAY
ALTERNATIVES:

Why?

What happens will they do if we do
not reach a deal?

BARGAINING CHIPS:

What do parties have that other
party values?

POSSIBLE SOLUTIONS:

What solutions could work for both
parties?

AGREEMENT:

What could the parties agree to?

Term Sheet

FORM 2

Identify the advantages
and disadvantages of
buying the Property

Advantages:

Disadvantages:

Advantages:

Disadvantages:

Purchase less risky than
Leasing because?
High purchase costs?
Is buying a property the
best option for you?
Outright Sale – buying

property in full. Ownership
is transferred immediately.
Payment is expected right
away

Identify the advantages
and disadvantages of
Leasing the Property

Advantages:

Disadvantages:

Advantages:

Disadvantages:

Reduced startup costs?
Immediate cash flow?
Added inventory cost?

Identify the advantages
and disadvantages of
Leasing the Property
under the various Leasing
Terms offered
(Term Lease, N, NN,
NNN)

Advantages:

Disadvantages:

Advantages:

Disadvantages:

Existing problems?
Which deal does owner
feel good about?
Is Gradual Sale possible
through leasing?
Are there flexible option
transferring property,
which benefits individuals
who cannot afford to
purchase outright, but are
able to finance a long-
term payment plan?
Lease Agreement –
requires 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

Consider period and costs
required before
Restaurant generates a
cash flow.
Transitioning starts before
the deal is complete, what
effect on new business?

Key Objectives:

Property Owner: Restaurant owners: Considerations:

Key Objectives and Considerations in the Real Estate Purchase or Lease Agreement

Table 1

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 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

Benefits of a Term Sheet Agreed to by Landlord and Tenant

Table 2

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 may have
been promised by the seller. 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: This lists the assets that will be used for security as a promise for payment of 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, make sure that you have the owner’s concurrence. If you are

negotiating a new lease whit the owner, make sure both parties are in agreement about the terms of the
new lease.

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 financial aspects of the transaction.

Everything listed on the settlement should have been negotiated prior to the closing

Bulk Sale Laws: Make sure that you comply with sale laws, which govern the sale of business inventory

Purchase Lease Agreement Issues

NEGOTIATION
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The Negotiation Canvas was created by Pablo Restrepo and Stephanie Wolcott, founders of Negotiation by Design.
Learn more at negotiationbydesign.com

THE NEGOTIATION CANVAS
Learning Version: New to the Negotiation Canvas? Start here!

THEIR DESIRED
OUTCOME

MY
WALKAWAY

ALTERNATIVE AGREEMENT

POSSIBLE
SOLUTIONS

MY
BARGAINING

CHIPS

THEIR
BARGAINING

CHIPS

MY KEY
INTERESTS

THEIR
WALKAWAY

ALTERNATIVE

THEIR KEY
INTERESTS

MY DESIRED
OUTCOME

NEGOTIATION CANVAS

This work is licensed under the Creative Commons Attribution-NoDerivates 4.0 International License.
To view a copy please visit: https://creativecommons.org/licenses/by-nd/4.0/

The Negotiation Canvas was created by Pablo Restrepo and Stephanie Wolcott, founders of Negotiation by Design.

Learn more at negotiationbydesign.com

1) MY DESIRED OUTCOME
What do I want? learn more

Why?
3) MY KEY INTERESTS

What will I do if we do not reach a deal?
5) MY WALKAWAY ALTERNATIVE

Why?
4) THEIR KEY INTERESTS

What do they want?
2) THEIR DESIRED OUTCOME

What do I have that they value?
7) MY BARGAINING CHIPS

What do they have that I value?
8) THEIR BARGAINING CHIPS

6) THEIR WALKAWAY ALTERNATIVE
What will they do if we do not reach a deal?

9) POSSIBLE SOLUTIONS
What solutions could work for both of us?

10) AGREEMENT
What did we agree to?

learn more

learn more

learn more learn more learn more

learn morelearn more

learn more

learn more

PS 2 PS 3PS 1

Learn more about the
canvas watching our
introductory video.

NEGOTIATION
by

Title: Date: Version:

THE NEGOTIATION CANVAS

Desired Outcomes: Steps 1-2 Go

Key Interests: Steps 3-4 Go

Walkaway Alternatives: Steps 5-6 Go

Bargaining Chips: Steps 7-8 Go

Possible Solutions: Step 9 Go

Agreement: Step 10 Go

Negotiation Canvas ElementsThe Negotiation Canvas is a one-page easy-to-use tool that helps
you reach better deals on all your negotiations. Pablo Restrepo
and Stephanie Wolcott created the Negotiation Canvas to
provide you with the most efficient and effective way to prepare and
conduct a negotiation. No time to prepare? This tool makes it simple
and fast.

Completing the canvas will help you to clarify what you want,
understand your counterpart, identify and capture more value and
improve your confidence in every negotiation.

The Negotiation Canvas is built as an editable PDF to make it easy
to fill out and save your work. You will notice a video icon in the
header of the canvas, watch this video for a quick overview using
the popular orange example. Select the ‘learn more’ option in each
field for a short description on how to fill out that field. Then return
back to the Canvas using the ‘To Canvas’ buttons in the lower left
corner.

TO CANVAS

Let’s get started!
Watch our introductory video.

NEGOTIATION
by

TO CANVAS

DESIRED OUTCOMES: Steps 1-2
What do you want?

1) MY DESIRED OUTCOME

2) THEIR DESIRED OUTCOME

– I want the orange.

– She wants the orange.

The Desired Outcome is the beginning position of each side of
the negotiation. Begin the canvas by writing down what you
want from the negotiation and if you can, write down what you
think your counterpart wants.

Typically, people approach negotiation with a preconceived
outcome in mind. They want a certain price, a certain place, a
certain time, etc.

It is important to identify your Desired Outcome in the beginning,
but as we will see, this initial position is only a starting point. You
might find later on that you can create even better solutions that
are good for both parties.

1 2

NEGOTIATION
by

ORANGE EXAMPLE

TO CANVAS

KEY INTERESTS: Steps 3-4
Why do you want what you want?

ORANGE EXAMPLE

3 4

Key Interests are the motivations behind each parties’
Desired Outcome. Asking ‘Why?’ will uncover Key Interests.
Why?, is the magical question in negotiation.

Why do we want what we want?
Why do we want our Desired Outcome?
Why do they want what they want?
Why do they want their Desired Outcome?

Try to ask yourself ‘Why?’ at least five times. Write down as
many interests as you have related to the negotiation. Do the
same with your counterpart. You can ask them why in person or
if that is not possible, make your best guess based on the
information you have.

Identifying interests will allow you to expand the range of
possible solutions that meet both parties’ needs and can
create more value for each party.

3 4

3) MY KEY INTERESTS

4) THEIR KEY INTERESTS

– Peel
– Orange cake
– Hungry for sweets

– Pulp
– Orange juice
– Thirsty for orange juice

NEGOTIATION
by

TO CANVAS

WALKAWAY ALTERNATIVES: Steps 5-6
What will you do if an agreement cannot be reached?

ORANGE EXAMPLE

Walkaway Alternatives are the options you have if you do not
reach an agreement. Identifying your Walkaway Alternatives
helps you to determine when to stay in the negotiation and when
to walk away.

There are three questions to answer in this section:
1. What will you do if you do not reach an agreement?
2. What are the consequences (both good and bad)?
3. Is there a way to improve your walkaway alternative?

The more you can improve your Walkaway
Alternative, the more power you will have to
negotiate.

Answer the same questions for your counterpart. Only this time,
think of ways to weaken their alternative. Remember, you must do
this legitimately and with care. Your reputation is at stake and
future negotiations with this party need to be considered.

5 6

5-6) WALKAWAY ALTERNATIVES

– Yield and lose the orange, setting up a bad
precedent.

– Fight, risk losing the orange, get punished
by mom, set a difficult relationship for
future negotiations.

In this case, both girls have the same
Walkaway Alternative:

NEGOTIATION
by

TO CANVAS

BARGAINING CHIPS: Steps 7-8
What can each party offer to the other?

ORANGE EXAMPLE

Bargaining Chips are the items you can offer to the other party to
get more of what you want. This step helps you to bring more
value to the table for both parties.

Looking at the other party’s desired outcome and interests,
think of all the things you can offer them to meet their interests.
You will notice each field has stars in it. When you list the
bargaining chips, list them in order of priority. If you know
something is very important to your counterpart, put that issue in
the three-star category. If an issue is not that important, put it in
the one-star category.

Moving to the box on the right, what can your counterpart offer
you that you value? Make sure to prioritize these issues
as well.

We prioritize chips because substantial value can be created if
we can offer the other party something that they value highly but
costs us little, for something we value highly and costs them little.

7 8

7) MY BARGAINING CHIPS

Pulp

8) THEIR BARGAINING CHIPS

Peel Money Chocolate

Money Glass of water

NEGOTIATION
by

TO CANVAS

POSSIBLE SOLUTIONS: Step 9
What solutions could work for both parties?

ORANGE EXAMPLE

Possible Solutions are proposals for an agreement that meet both
parties interests. These are the proposals that you will present to
your counterpart.

Review the previous steps to help you create solutions. Pay
special attention to the Key Interests and Bargaining Chips. Are
there other options for meeting both parties’ interests? What
Bargaining Chips can you exchange to create more value for
both parties?

Try to identify at least three solutions. Three forces you to
be creative and might lead to a solution you would not have
thought of otherwise. Three also shows flexibility and helps to
build trust with your counterpart.

Offering three Possible Solutions helps you find out more about
your counterpart’s interests, priorities and preferences.
You can ask which option they prefer and why. This is especially
helpful when negotiating with people from less direct cultures.
Even if you do not reach an agreement after this step, you will
have more information to revise your proposals and try again.

9

9) POSSIBLE SOLUTIONS

PS1 PS2 PS3

Water x
Orange

Money x
Orange

Pulp x
Peel

NEGOTIATION
by

AGREEMENT: Step 10
What did we agree to?

ORANGE EXAMPLE
10) AGREEMENT

Optimal agreement: Emma got 100%
of the peel and Sara got 100% of the
pulp.

Congratulations! You’ve done it! Once an agreement is made,
write down the important details. You will want a record of what
is agreed to so that you can review past agreements and assess
both success and progress.

Make sure to include all relevant information, such as:

– all Bargaining Chips agreed to
– roles and responsibilities for both parties
– timelines
– measurement and quality
– indemnities, contingencies and termination clauses
– confidentiality requirements
– process for settling disputes
– terms of payment

Remember, an agreement is only successful if it is:

– Better than your Walkaway Alternative
– Acceptable for both parties
– Implementable

10

TO CANVAS NEGOTIATION
by

1. undefined:
2. SOLUTIONS:
3. undefined_2:
4. Title:
5. Date:
6. Version:
7. Chocolate:
8. PS3 Pulp x Peel:
9. Text33:
10. Text34:
11. Text35:
12. Text36:
13. Text37:
14. Text38:
15. Text39:
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M A N A G E M E N T R E P O R T

BATNA Basics: Boost Your
Power at the Bargaining Table

www.pon.harvard.edu
Negotiation Management Report #10

$50 (US)

About Negotiation
Negotiation Editorial Board
Board members are leading negotiation
faculty, researchers, and consultants
affiliated with the Program on
Negotiation at Harvard Law School.

Max H. Bazerman
Harvard Business School

Iris Bohnet
Kennedy School of Government,
Harvard University

Robert C. Bordone
Harvard Law School

John S. Hammond
John S. Hammond & Associates

Deborah M. Kolb
Simmons School of Management

David Lax
Lax Sebenius, LLC

Robert Mnookin
Harvard Law School

Bruce Patton
Vantage Partners, LLC

Jeswald Salacuse
The Fletcher School of Law and Diplomacy,
Tufts University

James Sebenius
Harvard Business School

Guhan Subramanian
Harvard Law School and
Harvard Business School

Lawrence Susskind
Massachusetts Institute of Technology

Michael Wheeler
Harvard Business School

Negotiation Editorial Staff
Academic Editor

Guhan Subramanian
Joseph Flom Professor of Law and
Business, Harvard Law School

Douglas Weaver Professor of
Business Law, Harvard Business
School

Editor

Katherine Shonk

Art Director

Heather Derocher

Published by
Program on Negotiation
Harvard Law School

Managing Director
Susan Hackley

Assistant Director

James Kerwin

Copyright © 2012 by Harvard University.
This publication may not be reproduced in
part or whole without the express written per-
mission of the Program on Negotiation. You
may not forward this document electronically.

Dealing with Difficult PeoPle
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thirty years of groundbreaking research, compressed into three
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Day 1: Discover a framework for thinking about negotiation success.

Day 2: Examine and develop effective techniques for addressing a variety of
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Day 3: Put it all together and emerge well equipped to negotiate more skillfully,
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to register online or to download the free Program guide go to
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three-Day seminars

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Negotiation is published by the Program on Negotiation at Harvard Law School, an
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P R O G R A M O N N E G O T I A T I O N

1. Assess your BATNA using a four-step process.

Adapted from “Accept or Reject? Sometimes the Hardest Part of Negotiation Is Knowing When to Walk
Away,” by Deepak Malhotra (professor, Harvard Business School), first published in the Negotiation

newsletter, August 2004.

It was a classic case of a business partnership gone awry. After building a profit-able construction company together over several decades, Larry Stevenson and
Jim Shapiro recognized that their differences had become irreconcilable. Steven-
son wanted to buy out Shapiro, who was willing to sell for the right price. After
months of haggling and legal maneuvering, Stevenson made his final offer: $8.5
million for Shapiro’s shares in the company.

The company is worth about $20 million, Shapiro thought to himself. I own
49% of the shares. Heck, I helped build this company. I’m not going to accept
anything less than my fair share—$10 million. I’d rather fight in court than accept
$8.5 million. Shapiro rejected the offer, and each party prepared for a trial.

Shapiro’s rationale for rejecting Stevenson’s offer seemed reasonable enough.
Furthermore, Shapiro’s lawyers assured him, a court ruling very likely would be
in his favor.

Yet Shapiro made the wrong choice. He could have figured this out if he had
assessed his BATNA—his best alternative to a negotiated agreement. A negotia-
tor’s BATNA is the course of action he will pursue if the current negotiation
results in an impasse. An evaluation of your best alternative to a deal is critical if
you are to establish the threshold at which you will reject an offer.

Effective negotiators determine their BATNAs before talks begin. When you
fail to do so, you’re liable to make a costly mistake—rejecting a deal you should

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P R O G R A M O N N E G O T I A T I O N

have accepted or accepting one you’d have been wise to reject. In negotiation, it’s
important to have high aspirations and to fight hard for a good outcome. But it’s
just as critical to establish a walkaway point that is firmly grounded in reality.

Assessing your BATNA. To determine your BATNA in a given negotiation,
follow these four steps:

List your alternatives. Think about all the alternatives available to you if the
current negotiation ends in an impasse. What are your no-deal options?

Evaluate your alternatives. Examine each option and calculate the value of
pursuing each one.

Establish your BATNA. Choose a course of action that would have the high-
est expected value for you. This is your BATNA—the course you should pursue if
the current negotiation fails.

Calculate your reservation value. Now that you know your BATNA, calculate
your reservation value—the lowest-valued deal you are willing to accept. If the
value of the deal proposed to you is lower than your reservation value, you’ll be
better off rejecting the offer and pursuing your BATNA. If the final offer is higher
than your reservation value, you should accept it.

To assess his BATNA, Shapiro first should have obtained the following infor-
mation from his lawyers: estimated litigation costs, $500,000; his likelihood
of winning in court, approximately 70%; and the fact that if he won, he would
receive $10 million for his shares, whereas if he lost, he likely would receive only
$3 million.

Next, Shapiro should have used this formula to determine the actual value of
his BATNA:

(0.7 x $10MM) Value if he wins in court

+ (0.3 x $3MM) Value if he loses in court

– $500,000 Cost of litigation

$7.4MM

Shapiro should then have determined his reservation value for the negotia-
tion with Stevenson: What is the least he would accept? It’s worth noting that,
after the trial was well under way, Shapiro came to believe that he should not

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P R O G R A M O N N E G O T I A T I O N

have rejected Stevenson’s offer. “I still think the offer should have been higher,”
he said, “but if I could go back, I’d accept it. Righteous indignation is worth
something, but it’s not worth $1.1 million.”

2. Take your BATNA to the next level.

Adapted from “Taking BATNA to the Next Level” by Guhan Subramanian (professor, Harvard Business
School and Harvard Law School), first published in the Negotiation newsletter, January 2007.

If your current negotiation reaches an impasse, what’s your best outside option? Most seasoned negotiators understand the value of evaluating their BATNA, or
best alternative to a negotiated agreement, a concept that Roger Fisher, William
Ury, and Bruce Patton introduced in their seminal book, Getting to Yes: Negoti-
ating Agreement Without Giving In (Penguin, 1991, second edition). Even those
who don’t know the term probably think through their BATNA instinctively as
they prepare for a negotiation. An awareness of your BATNA—particularly if it’s
a strong one—can give you the confidence you need to walk away from a subpar
agreement.

Although BATNA is a commonsense concept in the negotiation world,
achieving “best practice” in this arena is not easy. Here are three strategies to
help you take the BATNA concept to the next level and gain a critical advantage
in upcoming deals.

1. Translate your BATNA to the current deal. Here’s a classic illustration of the
BATNA concept: while haggling over a rug in a bazaar, you’re aware that you can
purchase an identical rug at a nearby stall for $100.Assuming that you want only
one rug, you won’t pay more than $100 in the negotiation at hand. Such clear-cut
BATNAs tend to exist more in theory than in reality. In truth, your best alterna-
tive to agreement is rarely, if ever, apples-to-apples comparable with the deal at
hand.

The implication? When negotiating, take time out for an explicit translation
process to ensure that you aren’t giving up a good deal in hand for a BATNA in
the bush. Recently, for example, as the renewal deadline for his homeowner’s
insurance policy approached, Larry decided to do a “market check” to compare

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P R O G R A M O N N E G O T I A T I O N

prices. His existing insurer—let’s call it Acme—had been raising its rates by 7%
to 10% annually for the past three years, and Larry wasn’t sure he was getting the
best deal. He then found a carrier that offered a policy for 30% less than Acme’s
renewal rate.

Delighted, Larry came very close to switching to the new insurer. But after
doing some digging (and receiving some self-interested guidance from Acme),
Larry identified important coverages and term definitions buried deep in the
legalese of the two policies. After going through a translation process to make
the prices comparable, Larry realized that Acme, his current insurer, was offering
him a better deal. The lesson: Rather than assuming that the deal on the table
matches your BATNA point by point, translate your BATNA to fully understand
what it means for the current negotiation.

2. Assess their BATNA with care. It may seem an obvious step, but even
the most sophisticated negotiators often fail to think through the other party’s
BATNA as carefully and objectively as they think through their own. Although
you can’t assess someone else’s BATNA as precisely as you can your own, asking
“What will he do without a deal?” provides valuable insight.

Consider the case of a Mississippi farmer in the early 1990s. The state legisla-
ture had just legalized riverboat gambling, and the farmer owned land along the
Mississippi River that was very attractive for the development of hotels, restau-
rants, and other businesses. Sure enough, an entrepreneur approached the farmer
about buying his land. Before meeting to negotiate a purchase price, the farmer
hired a professor of agriculture to estimate the land’s value. After conducting soil
tests and estimating cash flows, the professor concluded that the land was worth
approximately $3 million.

As the negotiation began, the farmer kept quiet and let the entrepreneur
frame the discussion. His opening offer: $7 million. Though ecstatic, the farmer
kept his composure and made a counteroffer of $9.5 million. Eventually they
reached a deal of $8.5 million.

You might view this tale as a success story for the farmer; after all, he got $8.5
million when he was only expecting $3 million. But what if the farmer had con-
sidered the entrepreneur’s perspective, perhaps retaining an expert in the gaming
industry to assess the land? He might have learned just how profitable casinos

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P R O G R A M O N N E G O T I A T I O N

can be and that the benefit to the entrepreneur of securing the optimal location
rather than a second-best BATNA was worth much more than $8.5 million.

3. Think through two-level BATNAs. In most business negotiations, you face
two counterparts: the individual across the table and the organization he repre-
sents. This means you’re facing two BATNAs as well. Sophisticated deal makers
think through both BATNAs—the organization’s and the individual’s.

In one real-world case, a vacation resort was seeking to have certain equip-
ment installed on its property. The equipment manufacturer sent Frank, the
CEO’s newly hired lieutenant, to negotiate this major contract. The resulting deal
was extremely successful for both sides.

A few years later, the manufacturer held its annual meeting of top managers
at the resort to show off its installations and celebrate the deal. The two organiza-
tions held a panel discussion to reflect on the dynamics of their negotiation. At
one point, the moderator asked Frank to reveal his BATNA. He responded with
a textbook analysis: “Our BATNA was to look around for some other major
contract in which to powerfully demonstrate our capability.” When pressed, he
continued, “Well, my BATNA, as a new hire, was probably to look around for
another job if I didn’t get the deal.”

Most meaningful negotiations occur between organizations, not individuals—
yet individuals, not organizations, negotiate deals. Thus, it’s crucial to consider
the incentives of the individual across the table: How is she compensated? How
long has she worked for the company? What are her long-term aspirations? Only
by examining both pieces of the BATNA will you gain a complete picture of the
other side’s walk-away alternatives.

3. Track BATNAs in multiparty negotiations.

Adapted from “How to Cope When the Table Gets Crowded,” first published in the Negotiation
newsletter, August 2011.

Negotiations between just two sides can be tough enough to manage. Add more parties to the mix, and things get a lot more complicated. Yet multi-
party talks are common: think of department heads dividing up scarce resources,

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P R O G R A M O N N E G O T I A T I O N

family members debating the future of a business, or a group of consumers
launching a class-action lawsuit.

One of the issues that makes multi party negotiations more complex than
two-party talks, according to Massachusetts Institute of Technology profes-
sor Lawrence Susskind and Harvard Law School professor Robert Mnookin, is
the fluctuating nature of each party’s best alternative to a negotiated agreement
(BATNA). By preparing for this complication, you will be well positioned to
thrive in your next round of multiparty negotiations.

As in a two-party negotiation, you should enter multiparty talks with a solid
idea of your BATNA—that is, what you will do if a deal fails to materialize.
Knowledge of your BATNA can help you stand firm in the face of offers that fall
short of your goals.

Suppose that Mark, an unemployed marketing professional, is preparing to
meet with his three siblings to discuss the future of their marginally profitable
family business. Mark’s preference is to dissolve the business and use his share
of the assets to start a consulting firm. However, he knows that one or two of his
siblings would prefer to keep the business running as is or sell it. If the negotia-
tion doesn’t work out as he would like, Mark decides that his BATNA is to move
to a city across the country where a colleague has offered him a job.

You should also attempt to analyze the BATNAs of the other parties at the
table. Roughly calculating the minimum you can offer someone to secure a
commitment will help you immensely. Mark, for instance, expects that his sis-
ter Leah, who has been involved in the business, will demand a large share of
the pie in exchange for agreeing to dissolve it. He estimates that she will ask for
50% of the assets but be willing to settle for about 40% and accept a position
with a client.

In negotiations among a large number of parties, determining each party’s
BATNA can be a daunting, even impossible, undertaking. At the very least, try
to foresee how parties may align and estimate the BATNA of each possible
coalition.

Once discussions begin, parties’ BATNAs will begin to fluctuate, according to
Susskind and Mnookin. For instance, imagine that Mark persuades his sister Jac-
lyn and brother Tom that the business should be dissolved. At this point, because

6 To subscribe to Negotiation, call +1 800-391-8629, write to [email protected], or visit www.pon.harvard.edu.

P R O G R A M O N N E G O T I A T I O N

Leah is outnumbered, her BATNA becomes a virtual nonissue. Yet to preserve
their relationship with her and each other, her siblings become focused on divid-
ing up the assets in a way that satisfies them all. A payoff matrix—a spreadsheet
that lists the names of the parties in rows, the issues to be discussed in columns,
and the parties’ priorities on those issues in the boxes that are formed—will help
you keep track of shifting BATNAs in addition to parties’ preferences.

4. Anticipate hidden hazards of BATNA research.

Adapted from “Dear Negotiation Coach: Hidden Hazards of BATNA Development,” by Francesca Gino
(professor, Harvard Business School), first published in the Negotiation newsletter, May 2012.

Question: I was recently put in charge of negotiations with a supplier involved in
one of our company’s products. Given what I’ve learned in school and in negotia-
tion books, I did my homework: I started exploring options with other suppliers
to gain power and reduce risk in case the current negotiations with my preferred
vendor go sour. I invested quite a bit of time (and money!) creating those options,
but in the end I was not interested in pursuing them, and I let them go. Now I
can’t help but wonder: Was it a mistake to do so much research?

Professor Francesca Gino: Negotiators often spend time and energy
pursuing alternatives to the current deal to gain more power at the bargaining
table. In classic negotiation texts and research, you’ll find the same advice: bar-
gainers would be wise to invest resources in strengthening their best alternative
to a negotiated agreement (BATNA), or their fallback alternative, in the event that
the parties fail to reach an agreement.

Investing in outside alternatives enhances power by giving you other oppor-
tunities if the current negotiation cannot or will not provide the outcome you
desire. Thus, outside alternatives often entail sunk costs, or irrevocable invest-
ments that keep open the possibility of pursuing other specific courses of action
in the future. In a situation such as yours, investments in outside alternatives
may enhance your leverage in the negotiation.

So far, so good, right? Well, there’s more to the story. In addition to helping

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P R O G R A M O N N E G O T I A T I O N

you enhance your power, these investments in strengthening your BATNA can
have other, potentially unintended consequences. Your realization that invest-
ments you made and discarded represent irrecoverable costs may affect your
behavior in the current negotiation in ways you don’t expect.

Specifically, research I conducted with my Harvard Business School colleague
Deepak Malhotra shows that the extent to which decision makers invest directly
in outside options influences how entitled they feel in the current negotiation.
When you decided to forgo options that you invested time and money in creat-
ing, you may feel as though you wasted resources. This perceived loss creates a
desire for a counterbalancing gain. Thus, it is likely to trigger a sense of entitle-
ment: the feeling that you deserve a favorable outcome in the current negotiation.
Our research shows that the costlier a negotiator’s investment in developing a
strong BATNA is, the stronger those feelings of entitlement will be.

We found that this sense of entitlement causes the negotiator to have high
aspirations in the current relationship, and these aspirations fuel opportunistic
behavior.

Your sunk costs—and not simply the leverage provided by the outside options
you created—may lead you to exploit your counterpart in ways that could dam-
age your relationship going forward. So, for instance, you may find yourself lying
or misrepresenting information to your counterpart in an attempt to improve
your outcomes. You may feel entitled to use aggressive strategies to reach a better
deal for yourself. Without your realizing it, the foregone alternatives are influenc-
ing your behavior.

Since you likely are interested in maintaining a good relationship with the
supplier in your current negotiation, you should consider the effect that the
forgone options in which you invested might have on your expectations and
behaviors as you negotiate. Namely, your prior investments may compromise
your ethical standards. By remaining vigilant about negotiating in good faith and
reciprocating goodwill, you should be able to emerge from the shadow cast by
sunk costs.

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C O N T I N U E Y O U R N E G O T I A T I O N L E A R N I N G

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Intensive Negotiations for Lawyers and Executives

REAL ESTATE SALE CASE STUDY

Background

SALES INFORMATION

Property Location:

1424-1450 N FEDERAL HWY,

BOCA RATON, FL 33432

Price $5,990,000

Sale Type Investment

Cap Rate 7.01%

Sale Conditions Lease Option

Property Type Retail

Property Sub-type Restaurant

Less

 General Retail
Freestanding

 General Retail
Storefront
Retail/Office

 Office Medical

Building Class C

Lot Size 1.36 AC

Gross Leasable Area 7,615 SF

No. Stories 1

Year Built 1970

Tenancy Single

Parking Ratio 10/1,000 SF

Zoning Description B4

APN / Parcel ID 06-43-47-20-15-001-

0011

Date Created 5/29/2019

ID#: 16181065
Last

Updated: 6/18/2019

DESCRIPTION

Total 7615 Sq. Feet 6,000 Square foot Under Air, with a 1,615 square foot Outdoor
Covered Patio and deck for outside dining.

HIGHLIGHTS

 Local 24-Hour always open 30 year old diner chain currently in three locations

 Walking distance to Downtown and Mizner Park and the Museum. Additionally, the IPIC
Theater is just within half mile

 Property can seat 259 combined inside and outside, 93 Parking spaces and a covered
patio seating with a full bar and wine case set up

 Located on the FAU (Florida Atlantic University) corridor on Federal Hwy just north of
Glades Road with a B-4 Zoning

 Current tenant in building is relocating by August 31st, 2019 meaning this is a wonderful
owner/user OR investment opportunity

 Strategically positioned along heavily trafficked North Federal Highway with a Vehicle
Per Day count of over 34,000 cars

SALE NOTES

Free-Standing Restaurant Building, For SALE at $5,995,000 OR NNN Lease for $35,000

monthly, plus $4,200 in property taxes monthly Current Tenant Relocating by July 2019 or

August 2019. The property is offered for Sale or Lease By the Owner. Half A Mile North of

Mizner Park, Boca Downtown Museum, and IPIC Theater. Free Standing Luxury Building

recently renovated in 2013, In and Out. The current tenant operates 7 Days a Week, 24 Hours.

Tenant scheduled to vacate in July or August of this year, per request. Exterior covered Patio

and partially uncovered with Fire torches and Water Fountain. Full Bar and Wine Cabinet

Display area. Dining room Kitchen with Hood, separate Chef’s Kitchen with Hood and Main Line

Kitchen with On Demand Hood.

Brokers Representation of Property owners position

1) The Owners position: What do they want? Why?

The Seller would like to capitalize on his most profitable real estate holdings. Selling the

property at maximum return is the Owner’s ultimate goal, and she realizes that the age

of the building is eventually going to present problems in any future sale, even though

the building was recently completely renovated. The building owners’ interest is to sell,

preferably within the next two months, before or on the date of the current lease

terminates. If not, the Owner’s carrying cost increases since the building may go vacant

until she identifies a new leaseholder. A sale solves all of the Owner’s issues because

the price includes the Amortization of the building renovation costs in the asking price,

including a six-month lease recovery premium in the event the building was to remain

vacant until a sale. The Broker has stated that that the Owner would consider a lease

arrangement either a straight term or a Triple Net lease. There is also the option for any

variation such as a Net or Net-Net Lease with terms such as taxes, utilities,

Amortization of the renovation costs, and rent-plus percentage based on Gross income

from the Restaurant.

The property owner believes that the property fits well within Sally’s plan to establish a

new Restaurant. Great location, floor setup, lots of parking. The current tenant has had

an exceptional long-term reputation in the area, and the customer base should help

establish and carry over to the new Restaurant.

The though is that If the purchase price is too top-heavy, maybe they will consider the

NNN Lease options. There may be some room for negotiation on the purchase price,

but that depends on Sally’s costs model. There may be a slight margin based on the

carryover of the tenant or discounting the lease price if Sally assumes the final lease

period any holdover pass the lease period. Also, the cleanout costs are high, and

maybe if there was an assumption of that responsibility, there could be adjustments

made.

An assumption probably would make sense if Sally wants to get in early to renovate to

the floor plan and set up the kitchen and dining floor and start ordering and stocking

foodstuff.

The Owner believes that his walk-away alternative is that he will not go over a 20%

discount on all pricing terms. He is willing to carry the property until a buyer comes

along within, at least the end of the current tenant lease expires.

The Owner will discount the price of the sale by as much 30% net thirty-days if offered a

cash buyout and not have to wait for financing to take place.

The Owner realizes that the best solutions for both parties would be to reach a

reasonable price reduction with incentives to close early and turn lease period revenue

over to the buyer.

FINANCIAL SUMMARY (PRO FORMA – 2019)

Gross Rental Income

Annual $420,000

Annual Per SF 55.15

Other Income

Annual –

Annual Per SF –

Vacancy Loss

Annual –

Annual Per SF –

Effective Gross Income

Annual $420,000

Effective Gross Income

Annual Per SF 55.15

Net Operating Income

Annual –

Annual Per SF –

DEMOGRAPHICS

[1 Mile /]

HOUSEHOLD INCOME

$0K – $35K 32% $35K – $75K 34.4% $75K – $100K 10.2% $100K+23.4%

Income Thousand

$0K – $35K 1,775

$35K – $75K 1,910

$75K – $100K 564

$100K+ 1,299

$96,376

Average

AGE DISTRIBUTION

0 – 1920.1%20 – 2913.6%30 – 3914.8%40 – 4912.4%50 – 6420.8%65+18.4%

Age Year

0 – 19 2,869

20 – 29 1,934

30 – 39 2,113

40 – 49 1,763

50 – 64 2,962

65+ 2,618

41.4

Average

TRADE AREAS

1 mi 3 mi 5 mi

[15 Min Drive /]

Total Population

1 Mile 14,259

3 Mile 74,783

5 Mile 177,827

2010 Population

1 Mile 9,942

3 Mile 57,482

5 Mile 153,525

2024 Population

1 Mile 15,710

3 Mile 81,307

5 Mile 190,006

Employees

1 Mile 15,760

3 Mile 84,516

5 Mile 171,639

Total Businesses

1 Mile 2,191

3 Mile 8,493

5 Mile 15,527

Average Household Income

1 Mile $96,376

3 Mile $110,391

5 Mile $98,696

Median Household Income

1 Mile $59,231

3 Mile $74,611

5 Mile $65,969

Total Consumer Spending

1 Mile $163.57M

3 Mile $936.46M

5 Mile $2.2B

Median Age

1 Mile 41.2

3 Mile 47.1

5 Mile 48.7

Households

1 Mile 6,325

3 Mile 32,447

5 Mile 81,325

Percent College Degree or Above

1 Mile 25%

3 Mile 27%

5 Mile 26%

Average Housing Unit Value

1 Mile $498,302

3 Mile $547,651

5 Mile $460,971

MAJOR TENANT INFORMATION

FLASHBACK DINER

SF Occupied 7,615

Lease End Date July 2019

AMENITIES

 Signage
 Monument Signage

TRAFFIC

Collection Street: N Federal Hwy

Cross Street NE 15th Ter, SW

Traffic Vol 34,622

Year 2018

Distance 0.14 mi

Collection Street: NE 5th Ave

Cross Street NE 16th St, N

Traffic Vol 6,578

Year 2018

Distance 0.18 mi

Collection Street: Glades Rd

Cross Street N Federal Hwy, E

Traffic Vol 22,699

Year 2018

Distance 0.24 mi

Collection Street: Glades Rd

Cross Street N Federal Hwy, E

Traffic Vol 22,744

Year 2018

Distance 0.28 mi

Collection Street: NE 20th St

Cross Street NE 4th Way, NE

Traffic Vol 15,308

Year 2018

Distance 0.28 mi

PUBLIC TRANSPORTATION

COMMUTER RAIL

Boca Raton Commuter Rail (Tri-County

Commuter)

Drive 9 min

Distance 4.1 mi

Deerfield Beach Commuter Rail (Tri-County

Commuter)

Drive 13 min

Distance 5.5 mi

AIRPORT

Palm Beach International Airport

Drive 37 min

Distance 25.7 mi

Fort Lauderdale–Hollywood International

Airport

Drive 38 min

Distance 26.7 mi

WALK SCORE ®

85

Very Walkable

TRANSIT SCORE ®