Essential LOI Components: Property Details and Deal Structure
A commercial property Letter of Intent (LOI) in Michigan serves as your roadmap for negotiations, whether you're pursuing a purchase or lease. The strongest LOIs start with crystal-clear identification of what you're buying or leasing and how the deal will work.
Begin every LOI with complete property identification. Include the full street address, suite or unit number, building name, and any parcel identification numbers. For multi-tenant buildings, specify square footage and common area factors. This prevents confusion when the property has multiple available spaces or complex addressing.
State your deal type explicitly in the opening paragraph. Write "This Letter of Intent outlines terms for the purchase of the above property" or "This Letter of Intent outlines terms for the lease of the above premises." Purchase and lease LOIs follow different structures, and clarity here prevents wasted time on incompatible negotiations.
Define your intended use immediately after the property description. Michigan zoning laws vary significantly between municipalities, so specify whether you need the space for office, retail, warehouse, or mixed use. This helps sellers evaluate whether your intended use aligns with current zoning and lease restrictions.
Include key dates in your opening section. Set your LOI expiration date (typically 3-7 business days for competitive deals), proposed closing or lease commencement date, and any critical timing dependencies. Michigan's commercial market moves quickly in major metros like Detroit and Grand Rapids, so realistic timelines keep negotiations on track.
Economics Section: Rent, Purchase Price, and Payment Terms
The economics section determines whether your deal pencils out for both parties. Structure this section to address the biggest financial questions first, then work through payment mechanics and escalations.
For purchase deals, lead with your offer price and earnest money deposit. Michigan commercial transactions typically require 1-3% earnest money, held in escrow by the title company or attorney. Specify whether your price includes personal property, fixtures, or tenant security deposits, since these items often create closing disputes.
For lease deals, start with base rent per square foot and clarify your rent type immediately. Write "Base rent of $18.00 per square foot NNN" or "Gross rent of $22.00 per square foot including all operating expenses except utilities." Michigan commercial leases commonly use Modified Gross structures, where tenants pay base rent plus specific expense categories like taxes or insurance.
Address tenant improvements and delivery condition in your economics section. Specify whether you need vanilla shell, existing condition, or turnkey delivery. Include your requested TI allowance per square foot and whether unused allowances convert to rent credits or cash. Small multifamily due diligence principles apply to commercial properties, where delivery condition directly impacts your total occupancy costs.
Structure rent escalations clearly if you're negotiating a multi-year lease. Common Michigan commercial escalations include fixed annual increases (2-3%), CPI adjustments capped at 3-4%, or expense pass-throughs tied to actual building costs. Avoid vague language like "market adjustments" without defining the comparison methodology.
Include free rent and concessions in this section rather than burying them in lease terms. Write "Tenant receives 3 months free rent during months 4-6 of the lease term" rather than "free rent to be negotiated." Specific concession timing helps both parties plan cash flow and prevents later disagreements.
Due Diligence and Contingency Language
Your contingency section protects your ability to exit the deal if the property doesn't meet your investment criteria. Michigan commercial transactions typically allow 30-45 days for due diligence on purchases and 10-15 days for lease document review.
Start with your inspection contingency for purchase deals. Include structural, mechanical, environmental, and zoning reviews in your inspection scope. Michigan's industrial history means environmental assessments are particularly important for properties with prior manufacturing use. Specify whether you need Phase I environmental reports and who pays for additional testing if contamination is discovered.
Address financing contingencies with specific loan terms rather than generic "subject to financing" language. Write "Contingent upon buyer obtaining 75% LTV commercial mortgage at interest rates not exceeding 7.5% with 25-year amortization." This helps sellers evaluate the likelihood of your financing approval and prevents disputes over what constitutes reasonable loan terms.
Include title and survey contingencies for purchase transactions. Michigan commercial properties often have easements, deed restrictions, or boundary issues that affect value. Specify whether you need an ALTA survey and what title exceptions you'll accept. Common acceptable exceptions include utility easements and CC&Rs, while you might reject easements that limit your intended use.
For lease deals, make your LOI contingent on acceptable lease documentation and landlord financial statements. Michigan commercial leases can be complex, especially in older buildings with grandfathered systems or shared utilities. Request the right to review the standard lease form, building rules, and any management agreements that affect your tenancy.
Add contingencies for any permits or approvals your use requires. If you need liquor licenses, special use permits, or health department approvals, make the deal contingent on obtaining these approvals within a specified timeframe. How to qualify serious multifamily buyers includes similar verification steps that help ensure deal completion.
Binding vs. Nonbinding Provisions in Michigan
Michigan commercial LOIs walk a careful line between creating deal momentum and avoiding premature legal obligations. Structure your LOI to be generally nonbinding while making specific provisions enforceable where necessary.
Open your LOI with clear nonbinding language: "This Letter of Intent is nonbinding and creates no legal obligations except as specifically stated below. Either party may withdraw from negotiations at any time prior to execution of a definitive purchase agreement or lease."
Make confidentiality provisions binding and enforceable. Write "The parties agree that all financial and property information exchanged during negotiations shall remain confidential and may not be disclosed to third parties without written consent." Michigan courts enforce confidentiality clauses in LOIs, so this protection survives even if the deal fails.
Consider making exclusivity provisions binding for competitive situations. Include language like "Seller agrees not to negotiate with other parties for 30 days from the date of this LOI, provided buyer proceeds diligently with due diligence." Exclusivity periods typically run 15-45 days and give you time to complete inspections without competing against other offers.
Address earnest money or security deposits as binding obligations once paid. Write "Upon acceptance of this LOI, buyer will deposit $25,000 in earnest money with ABC Title Company within 3 business days." This creates enforceable payment obligations while keeping the overall deal structure nonbinding.
Avoid making business terms binding in your LOI. Don't write "Buyer agrees to purchase the property for $1.2 million" as a binding commitment. Instead, use "The parties will negotiate a purchase agreement with a purchase price of $1.2 million, subject to satisfactory completion of due diligence." This preserves your ability to negotiate final contract terms while establishing price expectations.
Common LOI Mistakes That Kill Commercial Deals
The most expensive LOI mistakes happen when parties assume terms that aren't explicitly stated. Michigan commercial deals fail most often due to unclear expense responsibilities, vague delivery conditions, and unrealistic timelines.
Avoid rent type confusion by specifying exactly what your quoted rent includes. Don't write "$20 per square foot" without clarifying whether this covers taxes, insurance, maintenance, utilities, or management fees. Michigan commercial properties have varying expense structures, and assumptions about "market standard" terms create closing problems. Write "Base rent of $20.00 per square foot plus tenant's proportionate share of taxes, insurance, and common area maintenance" for NNN leases.
Don't leave tenant improvement responsibilities undefined. Vague language like "space to be delivered in good condition" creates disputes over what improvements the landlord will complete versus tenant responsibilities. Specify delivery condition as "vanilla shell with HVAC, electrical, and plumbing stubbed to the premises" or "existing condition with all current improvements remaining."
Avoid unrealistic due diligence periods that force rushed decisions. Michigan commercial properties often have complex title issues, environmental concerns, or zoning complications that require adequate review time. Allow 30-45 days for purchase due diligence and 15-30 days for lease document review, depending on property complexity.
Don't ignore assignment and subletting rights in lease LOIs. Michigan commercial tenants often need flexibility to assign leases or sublet space as business needs change. Address these rights in your LOI rather than discovering restrictive language in the final lease. Converting small multifamily to condos vs selling whole demonstrates how exit flexibility affects property value.
Prevent closing cost disputes by allocating major expenses in your LOI. Specify who pays for title insurance, surveys, environmental reports, and legal fees. Michigan commercial transactions typically split some costs, but assumptions about "standard" allocations vary between markets and property types.
Avoid percentage rent clauses without clear calculation methods. If your retail lease includes percentage rent above a sales threshold, define exactly how sales are calculated, what deductions are allowed, and how often payments are due. Vague percentage rent terms create ongoing disputes throughout the lease term.
Michigan's commercial property market rewards investors who can structure clear, actionable LOIs that move deals forward efficiently. Whether you're acquiring your first commercial property or expanding an existing portfolio, educational resources and lead flow tools help connect you with serious opportunities beyond traditional brokerage channels.