Lease Purchase with Option to Buy Commercial - Letter of Intent
I need assistance with the terms of this LOI. The owner has a building that my client will have to bring up to par for their use. The will have to spend 160k in order to operate. For that reason, they only want to do the deal with the option to buy. They are not able to buy the property now, but will in 1 year. They will need 8 months minimum build out time to even open the door. The owner is asking for a price that the building will be worth once my client repairs it and says they don't want a lease purchase. Any helpful terms, clauses, or sample LOI would be helpful
If the owner doesn't want to sell then they do not want to sell. If they do sell they want a premium price. If this building is in a great location then the owner likely has multiple types of tenants looking at the space.
If the area is marginal and not many tenants looking at the space then you might have more leverage. Sometimes when tenants sign a lease they put in a (ROFR) right of first refusal. This means that in the future if the seller ever wants to sell the property the tenant has a certain amount of time specified in the lease to match the written offer and terms from another buyer that came in and the seller has agreed to.
If the tenant does not want to agree to that price and terms then the seller can accept the other offer.
Sometimes a tenant wants a ROFR just in case the seller sells cheap later on but does not want to match the offer if a 1031 buyer paying the seller a low cap rate. In that case they usually want to keep renting and take a tax accounting deduction.
Is this building a single tenant with your client or going to have multiple tenants in it?
No legal advice given.
It is a free standing building. It has been vacant for over 5 years and in horrible condition, roof even falling in but in a great location. They maintain they will sell now or rent. My client won't move forward with just a lease, so I wanted to see if we could meet in the middle.
Your buyer might want to look at bringing in an angel investor or a joint venture partner for opening their business to buy today.
The building might have way more than expected 160,000 to fix things and do build outs.
Might be easier to demo the building and scrap to the foundation and build new again. Sometimes contractors charge more to fix walls of old stuff then build new as everything is off level and you have to constantly make adjustments.
Wow good advice. An angel investor is someone who has the capital? My client has been in business for 10 years but cash as a down payment is an issue.
@Juel McGhee What are the number like? You say they want a purchase price of what it's worth after rehab. If that's the case it seems like it would be hard to make the deal work. Can you give us list price, rehab cost (and how sure you are of that number) and what your client is willing to pay in rent monthly?
Also square feet and age of building would help. Traffic count and frontage on road? What suburb or general area would help too. Are we talking Cobb county or next to the airport?
They want 1.6. Not sure what is is worth after rehab but rehab is 160k. I am unsure it will be worth that amount but the area is minutes away from a new major development. sq footage is about 2550, age 45 year old building. Unsure of traffic count, Fulton county near Glenwood park.
That price is very rich for a 2550 sq ft vacant old building. How much land is it sitting on? .5,1 acre,2 acres? How much is use able? What about an SBA loan?
What type of business is this? Restaurant,etc.