Prior to opening your new restaurant you need to find the right location and negotiate a lease agreement. The first step of the negotiations is the offer to lease, typically referred to as the Letter of Intent (LOI).
What is a Letter of Intent?
A letter of intent ( LOI) is a document outlining the major deal terms to be incorporated into a restaurant lease agreement. Most Letters of Intent are non-binding and specify that only a mutually signed lease will bind either party.
The terms of a Letter of Intent vary greatly depending on the experience of the person crafting the Letter of Intent.
Chain restaurants and experienced restaurant real estate consultants typically have very detailed Letters of Intent covering the majority of key business issues.
- Term of lease
- Options Periods
- Minimum Rent/ Percentage Rent
- Additional Rent/NNN/CAM
- Permitted Use/Exclusive Use
- Rent Commencement Date
- Landlords Work/Delivery Condition
- Assignment Rights
Why use a Letter of Intent
As you can see the Letter of Intent can cover many issues. A properly crafted Letter of Intent can provide protections against issues beyond your control such as permitting delays, as well as provide an exit strategy for the future.
How to create a good Letter of Intent
Prior to starting your negotiations you should know the deal terms that are critical for your success. The more you know and plan for in advance, the better your chances of negotiating a strong lease.
A detailed Letter of Intent can save you thousands in legal fees during lease review by negotiating key business issues up front. You do not want to invest countless hours and money to discover later that certain issues in the lease cannot be resolved.
An experienced real estate consultant specializing in restaurants or an experienced real estate attorney can help you determine what issues need to be covered specific to your goals and protect you from the many mine fields hidden in most restaurant lease agreements.
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Cheers!
Mark Chase
Restaurant Real Estate Advisors
Mark, great content as always.
Great post!