Best Practices on LOI with Deferred Maintenance

[Kim Hopkins]

Hello! 

We have a commercial retail building in the 5 to 6 million range that we're looking to make an LOI on out of state.

typically we do not see the property ahead of time before getting in contract, Just online due diligence, so to speak.

In this case, we happen to have boots on the ground and had someone go by the property. There are some deferred maintenance items like a leaking HVAC against the back wall, some shingles in need of replacing, and a dent in one of the walls. It's nothing we would pull out of the deal for, but certainly something we would eventually want to evaluate and ask the seller to either repair or credit.

We try to pride ourselves on not retreading but at the same time we want to tie up this deal and it doesn't really make sense to get repair people over there to assess costs while there are other interested buyers and before we've made an LOI.

What are your best practices here? Do you put something into the LOI indicating you're aware of these items or do you tie up the deal and evaluate these as soon as you're in contract, and ask for a credit or repair at that time?

Thanks!

Kim

[Chris Seveney]

Quote from @Kim Hopkins:

Hello! 

We have a commercial retail building in the 5 to 6 million range that we're looking to make an LOI on out of state.

typically we do not see the property ahead of time before getting in contract, Just online due diligence, so to speak.

In this case, we happen to have boots on the ground and had someone go by the property. There are some deferred maintenance items like a leaking HVAC against the back wall, some shingles in need of replacing, and a dent in one of the walls. It's nothing we would pull out of the deal for, but certainly something we would eventually want to evaluate and ask the seller to either repair or credit.

We try to pride ourselves on not retreading but at the same time we want to tie up this deal and it doesn't really make sense to get repair people over there to assess costs while there are other interested buyers and before we've made an LOI.

What are your best practices here? Do you put something into the LOI indicating you're aware of these items or do you tie up the deal and evaluate these as soon as you're in contract, and ask for a credit or repair at that time?

Thanks!

Kim

 I do not put that into the deal yet because I do not know the extent, if you thought it was a $10k issue and it turns out to be $100k issue then I as a seller would argue that you were aware of it.

Do a complete building / engineering study on the asset to determine all the deferred maintenance and life each aspect has remaining and adjust from there if an adjustment has to be made.