Restaurant Letter of Intent (LOI): Every Term to Negotiate Before Due Diligence

General educational information, not legal, tax, or financial advice. A letter of intent can create binding legal obligations even when it is labeled "non-binding." Have a qualified attorney review any LOI before you sign it.

A buyer finds the perfect restaurant, agrees on a price over the phone, and tells the broker "send me whatever to get started." Two weeks into due diligence he finds out the seller is still showing the place to two other buyers, the walk-in cooler and the POS are leased (not owned), and the landlord won't approve the lease transfer without a year of the buyer's tax returns and a fresh personal guarantee. None of it was in writing. He has no exclusivity, no leverage, and a seller who now has competing offers.

Every one of those problems is solved in the letter of intent. The LOI is where the real deal is made — price is the easy part; the terms around price are what decide whether you close, what you actually own when you do, and who holds the leverage for the next 60 days. Skip it or rush it and you negotiate the whole deal twice, from a weaker position. This guide walks every term worth fighting for. If you're earlier in the process, start with how to buy a restaurant; when the LOI is signed, your next stop is the due-diligence checklist.

TL;DR

• The LOI frames the entire deal. It sets price, structure, what's included, your exclusivity window, and the conditions you can walk on — before you spend money on lawyers and accountants.
• "Non-binding" is a trap word. Confidentiality, exclusivity (the no-shop), and how the deposit is handled are typically binding even in a "non-binding" LOI. Know which clauses bite.
• Exclusivity is the single most valuable thing you negotiate. No no-shop period means the seller can shop your offer to beat it. Get 30–60 days.
• Asset vs. equity changes everything. It decides whether old debts, the lease, and the licenses come with the business or stay behind. Most restaurant deals are asset purchases for a reason.
• Contingencies are your exits. Financing, landlord consent to the lease, liquor-license transfer, and books-verify-to-the-tax-returns are the four that save restaurant deals.

What a letter of intent actually is

An LOI (also called a term sheet or memorandum of understanding) is a short document — usually two to five pages — that lays out the key terms of a deal before anyone drafts the long-form purchase agreement. It does three jobs: it proves both sides are serious, it locks the major terms so you aren't re-negotiating price in week six, and it triggers the exclusivity and confidentiality that let you safely open the books.

It is not the purchase agreement. The definitive agreement — with full representations, warranties, and indemnities — comes after due diligence. The LOI is the handshake, in writing, with teeth where it counts.

Binding vs. non-binding — the part everyone gets wrong

Most LOIs say the terms are "non-binding" so that neither side is locked into buying or selling until the real contract is signed. Good — you want that freedom while you investigate. But a well-drafted LOI makes a handful of clauses expressly binding anyway:

• Confidentiality — you're about to see the seller's financials; they're about to tell staff and vendors nothing. Both sides want this enforceable now.
• Exclusivity / no-shop — binding, or it's worthless.
• Deposit handling — who holds the earnest money, in whose escrow, and exactly what gets it refunded.
• Governing law and expenses — usually each side pays its own costs.

The danger runs the other way too: sloppy wording or acting like the deal is done can make an LOI more binding than you intended. Courts look at what the document says and how the parties behaved. This is exactly why you let an attorney read it — a single sentence ("this LOI is binding only as to Sections X and Y; all other terms are non-binding") does a lot of work.

Every term to negotiate in a restaurant LOI

1. Purchase price — and what the number includes

State the price, and immediately state what it covers. "$650,000" means nothing until you say whether that includes inventory, the transferable liquor license, prepaid deposits, and the seller's assistance. Pin down: is inventory in the price or counted and paid for separately at close? Are gift-card and catering-deposit liabilities credited to you? Is the price "cash-free, debt-free"?

2. What you're buying: asset purchase vs. equity purchase

In an asset purchase, you buy the stuff — equipment, lease, license, name, goodwill — and the seller's old liabilities generally stay with the seller's entity. In an equity (stock/membership-interest) purchase, you buy the company itself, and everything inside it comes along: the lease, the licenses, and the debts, lawsuits, and unpaid taxes. Most small-restaurant deals are asset purchases precisely to leave liabilities behind. If a buy-in or equity deal is on the table, read what a stake actually gets you first — the risk profile is completely different.

3. What's included — and what's carved out

List it. The most expensive LOI surprises come from assuming. Spell out:

• FF&E (furniture, fixtures, equipment) — and whether any of it is leased (POS, ice machine, walk-in, dishwasher are commonly rented). A leased asset isn't the seller's to sell.
• The liquor license — is it transferable, and who drives the transfer? (See does a liquor license transfer.)
• The lease — assignment vs. a brand-new lease.
• The name, social accounts, website, recipes, and phone number — surprisingly often forgotten, and surprisingly often the goodwill you're paying for.
• Who owns the hood and exhaust system — the landlord, the seller, or a leasing company? It changes the deal. (Why that matters.)
• Carve-outs — the seller's personal art on the walls, a specific piece of equipment they're keeping.

4. Earnest money (the deposit)

How much, who holds it (a neutral escrow or the broker's trust account — never the seller directly), and exactly what makes it refundable. Tie the refund to your contingencies: if financing falls through or the landlord won't consent, your deposit comes back. Typical restaurant deposits run a few percent of the price; the number matters less than the refund conditions.

5. Exclusivity — the "no-shop"

This is the term most buyers forget and most regret. An exclusivity (or "no-shop") clause bars the seller from marketing to or negotiating with other buyers for a set window — usually 30 to 60 days. Without it, your clean offer becomes the seller's stalking horse to pull a higher one. You're about to spend real money on lawyers, a lease review, and an accountant; exclusivity is what protects that spend. Make it binding and long enough to actually finish due diligence.

6. Due-diligence period and access

Define how long you have to investigate (commonly 30–60 days) and what the seller must give you: three years of P&Ls and tax returns, POS sales reports, the lease and any amendments, vendor and equipment-lease contracts, the liquor license, payroll records, and the equipment list. Spell out access to inspect during off-hours. The clock on this period should start when the seller actually delivers the documents — not the day you sign.

7. Contingencies — your exits

Contingencies are conditions that must be met or you can walk (with your deposit). For restaurants, the four that matter most:

• Financing — if you're using an SBA loan or seller financing, make approval a condition.
• Lease assignment / landlord consent — the deal is dead if the landlord won't approve you; make their written consent a contingency, on terms you can live with.
• License transfer — liquor and health permits clearing.
• Financials verifying — the books tie out to the tax returns and bank deposits. If reported sales don't match reality, you walk or re-price.

8. Seller transition and training

A restaurant is relationships and recipes — with vendors, staff, and regulars. Negotiate how long the seller stays to train and transition (two to four weeks is common; longer for a complex kitchen or a chef-driven concept), whether they're paid for it, and whether key staff are introduced and asked to stay. Put it in the LOI so it isn't an afterthought at closing.

9. Non-compete

You don't want the seller opening the same concept two blocks away six months later. Set the scope now: how many miles, how many years, and what exactly is restricted. Sale-of-business non-competes are far more enforceable than employee ones, but the terms still have to be reasonable.

10. Price allocation

In an asset deal, the price gets allocated across categories — equipment, goodwill, the non-compete, inventory — and that allocation drives both sides' taxes. Buyers and sellers often want it split differently. Flag it in the LOI even if you finalize it later; surprises here sour deals at the closing table.

11. Working capital and prorations

Who owns the cash in the drawer and the receivables? Who's responsible for outstanding gift cards and prepaid events? Rent, utilities, and payroll get prorated to the closing date. And plan your own runway — you'll need operating cash after you buy. (Our affordability calculator helps you size it.)

12. Confidentiality

Binding from day one. A leaked sale spooks staff, vendors, and regulars and can hurt the very business you're buying. For sensitive deals, sellers often require a signed confidentiality agreement before they release anything — see selling a restaurant confidentially for the seller's side.

13. Timeline to close

Target a closing date — commonly 45 to 90 days out — with room for financing and license transfers, which are the usual sources of delay.

14. The binding/non-binding clause itself

The sentence that says which parts bind. Get it right, and get it reviewed.

What a restaurant LOI looks like (plain skeleton)

You don't need a 20-page document. A clean LOI runs roughly:

• Parties and the business — buyer, seller, the restaurant and location.
• Structure — asset or equity purchase.
• Price and what it includes — plus how inventory is handled.
• Deposit — amount, escrow holder, refund conditions.
• Included and excluded assets.
• Due-diligence period and document list.
• Contingencies — financing, lease, license, financials.
• Exclusivity (no-shop) — the window.
• Transition/training and non-compete.
• Target closing date.
• Which sections are binding — confidentiality, exclusivity, deposit, expenses, governing law.
• Signatures.

Use it as a conversation framework, then let an attorney turn it into the real document.

Five mistakes that cost buyers the deal (or the leverage)

• No exclusivity. You do the work; the seller shops your number. Never open the books without a no-shop.
• Vague "includes everything." Leased equipment, the liquor license, and the hood system are the three things "everything" quietly doesn't include.
• Weak or missing contingencies. No landlord-consent or financing contingency means a dead deal can still cost you your deposit.
• Treating "non-binding" as "no obligations." Confidentiality and exclusivity bind. Acting like the deal is closed can bind the rest.
• Signing before an attorney reads it. The LOI frames the whole deal — a cheap review here saves an expensive fight later.

Where the LOI sits in the buying journey

The path is: find the right restaurant and do your homework (how to buy a restaurant) → sign the LOI → open the books (due-diligence checklist) → negotiate the definitive purchase agreement → clear financing and license transfers → close. Get the LOI right and every step after it is easier, because the hard terms are already settled and you're the only buyer at the table.

Start with the right restaurant

A great LOI can't fix a bad business. Browse restaurants for sale on ListingLedge — a marketplace built only for hospitality, where you deal directly with the seller and there's no buyer commission — and when you find one worth pursuing, come back to this checklist before you sign anything.