"Don't worry, it's non-binding."
I've heard that line about letters of intent more times than I can count. Technically, it's true. Practically, it's one of the most dangerous assumptions a restaurant franchisee can make.
The LOI sets the business terms the lease will be built on: rent, TI allowance, delivery condition, timelines, and contingencies. Once both sides sign, those terms become the starting point, and the landlord's attorney will hold you to them. Trying to win back a better TI allowance or a longer free-rent period at lease stage is an uphill fight.
After 30 years and more than 800 new restaurant openings, I've learned that the deal is usually won or lost before the lease is ever drafted. Here are the five questions I make sure every client can answer before they sign an LOI.
1. Does this site actually work for my restaurant?
A great trade area doesn't help if your prototype can't fit in the box. Before you sign, confirm the basics:
- Size and layout. Can you get the seat count, kitchen line, and back-of-house your brand requires? Odd column grids and narrow frontages can cost you seats.
- Zoning and use. Is a full-service restaurant permitted by right, or will you need a special use permit or variance?
- Parking. Does the site meet the city's parking ratio for restaurant use, and is that parking shared with tenants that peak when you do?
- Signage and visibility. What will the landlord and the city actually allow on the building and the pylon?
- Exclusives and restrictions. Does another tenant hold an exclusive that limits your menu, hours, or breakfast service?
If any of these are unknowns, they belong in the LOI as conditions, not assumptions.
2. What exactly am I getting when the landlord hands over the keys?
"As-is" and "vanilla shell" mean very different things to different landlords. The delivery condition is where most budget surprises are born, so it needs to be spelled out in detail:
- Utilities. Electrical service size, gas capacity, water line size, and sewer. A restaurant needs far more than a retail tenant.
- HVAC. Tonnage, age, and condition of the existing units, and who replaces them if they're undersized or failing.
- Grease interceptor. Is there one, is it sized for your volume, and who pays if the city requires a new one?
- Fire protection. Sprinkler coverage and whether the system can support a hood suppression tie-in.
- Structure and roof. Can the roof carry your rooftop units and hood fans, and who handles the penetrations?
In a second-generation restaurant space, don't assume the existing equipment and systems are usable. Get them inspected, and tie the landlord's responsibilities to what's actually found.
3. Is the TI allowance enough, and how will I actually get paid?
A big TI number looks great on paper. What matters is whether it covers the real gap between the delivered space and an open restaurant, and whether you can collect it on a schedule that works for your cash flow.
- Amount. Is the allowance based on a real construction estimate for this space, or just a per-square-foot figure from the broker?
- Timing. Is it paid in progress draws during construction, or as a lump sum after you open? A lump sum means you're financing the entire build.
- Conditions. What paperwork does the landlord require: lien waivers, certificates of occupancy, final invoices, as-built drawings? Know the list now, not when you're waiting on a check.
- What it can pay for. Does it cover soft costs like design, permits, and project management, or only hard construction?
I've seen franchisees leave serious money on the table simply because the draw conditions were vague and the deadline to submit passed.
4. What will this really cost, and how long will it take?
Rent usually starts on a fixed date or a set number of days after delivery, whether your restaurant is open or not. That makes the schedule just as important as the budget.
- Realistic budget. Combine the delivery condition, your prototype requirements, and local construction costs into an estimate before you sign, not after.
- Permitting time. Some cities issue restaurant permits in weeks; others take months. Your free-rent period needs to reflect where you're actually building.
- Rent commencement. Tie it to your opening or to a realistic period after permits are issued, not just to the date the landlord hands over the space.
- Long-lead items. Equipment, electrical gear, and rooftop units can push your opening if they aren't ordered early.
If the numbers don't work with a realistic budget and schedule, the time to find out is now, while you can still negotiate or walk away.
5. What are my exits if something goes wrong?
Every deal looks good on the day you sign. Protect yourself for the days when it doesn't.
- Due diligence period. Enough time to inspect the building, survey existing conditions, and price the work before your obligations kick in.
- Permit contingency. The right to terminate if you can't get permits, zoning approval, or signage approval within a reasonable time.
- Franchisor approval. Most brands must approve the site. Make sure the lease is contingent on it.
- Landlord delivery dates. What happens if the landlord is late delivering the space? Look for rent abatement or a termination right after an outside date.
- Financing. If you're relying on a lender, consider a financing contingency.
The best LOIs don't just describe the deal. They describe what happens when the deal doesn't go according to plan.
Bring development in before you sign
Most franchisees bring in their construction team after the lease is signed. By then, the most important decisions have already been made, and the budget is whatever the LOI left you with.
At Next Stage Development, we act as an extension of your team, your fractional Chief Development Officer, from site evaluation through opening day. We review LOIs and leases through a construction lens, so the terms you sign match the restaurant you need to build.
If you have an LOI on your desk, let's talk before you sign it.