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How to write a letter of intent for a rental commercial property

Buying or leasing rental commercial real estate starts with a letter of intent, or LOI, to the owner or management of the building.

The LOI is a non-binding document that sets forth your intentions for the property and begins the negotiating process. It's a way to spell out what you plan to pay to lease the space or buy the building. It specifies details including price, inspections, improvements, who will pay for what and the dates involved. If the LOI meets the approval of the owner or management, it could lead to a lease agreement or sales contract.

Address your letter to the landlord. Begin by stating the names of all of the companies that intend to occupy of the space, if there are more than one.

Briefly explain your type of business and how you will use the space. Some retail or professional buildings have one type of tenant, so you should be sure that your company fits the commercial profile of the occupants.

Outline the term of the agreement, giving specific dates for the commencement and termination of the lease.

Detail the amount of space needed and the unit desired. Add the price per square foot that you are willing to pay. Make sure that your offer allows you to negotiate a higher amount, if necessary.

Add a clause for lease escalations, such as 10 per cent per year. Include other costs that you will pay, such as your share of the property taxes and hazard insurance premiums. State whether you intend to cover a portion of the common area maintenance expenses. Specify whether there will be annual caps to your offer, just in case there are increases in the cost to the landlord.

Discuss your desire to have the first right to refusal of your space upon lease renewal, and whether you would like a right for each party to terminate the agreement during the term specified.

State who should be responsible for paying to improve the space into making it usable for your business needs. Indicate which party will pay for utilities, signage and other requirements that you will need to be able to fully operate in the unit.

Write the property address and name, if applicable, at the top of the letter. Begin the letter with your name or that of your investment company.

State the amount that you are willing to pay for the building. Do not give your highest price; you want to negotiate with the seller. Write down the amount that you intend to use for a good-faith deposit.

Specify the down payment and loan amounts. Add the financing details of the interest rate and term of the loan.

Detail the inspections that you will require and the amount of time that you have to complete them before continuing with a purchase of the property.

Make a list of all of the due diligence documents that you want to see, as well as the deadline for receipt. Include items such as the operating statements and property income taxes for the last two years, the rent roll and all current leases, a list of tenant payment histories, vendor contract and any other report required to make a determination about the investment qualities of the property.

Give the seller your required closing date. Include enough time to perform your due diligence and be approved for the loan.