Letter of Intent Content

5 Replies

Hi all,

We are in negotiations on a commercial property and I have concerns about the following two sections we had written into our letter of intent:

- Certificate of Occupancy: Shall be applied for by Purchaser with the Seller responsible for any existing code violations.

-Seller counter: The sellers wants to cap this at a certain dollar amount: $500-1000.

-My thoughts: they already went through cert. and therefor there shouldn't be any/many. They should be responsible for the new cert. and knowledgeable of what code violations there may be

- Other: Seller agrees to refrain from negotiating with any other prospective purchaser(s) or entering into an agreement to sell the Property for a period beginning with the execution of the Letter of Intent through the expiration of the Due Diligence Period so long as Purchaser is proceeding with its Due Diligence and/or is negotiating the Contract.

- Seller counter: seller will continue to market and accept backup offers. 

- My thoughts: hard to police this, but if they accept back up offers then this could drastically affect our negotiation during our due diligence period.

Thank you in advance for your comments.

What exactly are you trying to do with the purchase? The CO is more for a tenant wanting to go into the space but you mention buying the property. Are you trying to purchase and have your business occupy 50% of the space with an SBA loan?

If the seller is wanting to cap code violations they must know the building is in serious disrepair. As a seller I would not agree to ANY with language as it is unlimiting in nature.

LOI is typically non-binding so until you get to signed PSA and put up earnest money (skin in the game) then a seller will usually not give you an exclusive.

In LOI we try to give a reasonable time frame where we have an exclusive like 10 days. Sometimes sellers will not go for it.

In PSA I have  a list of items seller must provide and UNTIL ALL items are provided the due diligence period does not start. This makes the seller show all documents upfront (good,bad,ugly) to see if it still make sense to proceed. If this is not in there the seller can give the docs with no issues upfront and then as the buyer gets heavily involved with attorney fees and lender report costs etc. then drop it on them right before due diligence expires with limited time to review.

  

No legal advice given.

Correct, we would be occupying 50% of the space w/an SBA loan.

I’m not sure if this answers your question, but here is something to think about:

As a landlord, in my leases, the tenant is always responsible for obtaining and doing what is necessary, as per their use, to obtain a CO.

Regarding the code violations or issues; that is something that would come up during your due diligence. If there was such an issue, you would renegotiate the price to accommodate for the initial investment you will have to make upon purchase due to the seller’s lack of proper construction or maintenance. As a landlord, I warrant that the structure, plumbing, and electrical are in good working condition upon commencement date, plus anything we agreed to as the Landlord’s Work.

Let’s say for example that there is now a requirement for buildings or units of a certain size to have a sprinkler system, but due to the subject property’s age, there is none. It may not be fair to require the seller to install a sprinkler system because of the amount of improvements you want to make, which may trigger a requirement to bring the building up to code just for you to obtain your CO. That type of cost is normally incurred by the tenant or buyer.

Also, if it’s under contract, presumably you would work to agree to terms to put it under contract as soon as you agree to an LOI. You would the have exclusive rights to purchase, according to the agreed terms such as due diligence period, price, etc.

Any back up offers would be if you can’t or don’t close based on the agreed time frame in the contract. For example, if you have 60 days for due diligence plus 30 days to close, the seller wouldn’t want to keep the property off the market for 90 days. They would want to keep showing the property and getting offers until you closed your contract. Bottom line, agree to terms and get it under contract ASAP, as long as it works for you.

@Zachary Webster It sounds like you’re trying to pin down a Purchase Agreement. It doesn’t sound like you wrote an LOI.

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