Letter of Intent for a Franchise Coffee Shop Site

Before you sign a lease for a coffee shop location, most landlords and tenants first exchange a letter of intent, commonly called an LOI. It puts the outline of the deal on paper, the space, the proposed rent, the term, and the major concessions, before either side pays a lawyer to draft the actual lease. For a franchisee, the LOI stage is also where several franchise-specific requirements first need to show up, because a coffee franchise lease is not the same negotiation as an independent cafe’s.

This guide covers what an LOI generally is and is not, the lease terms it typically references, and the handful of clauses that exist specifically because you are signing as a franchisee rather than an independent operator. It does not include dollar figures for tenant-improvement allowances, free rent, or percentage rent. The figures circulating online for coffee and QSR leases trace back to aggregator blog posts rather than a verifiable brokerage report, so none could be confirmed as current or accurate, and a stale number would be worse than no number at all. What follows explains what to negotiate and what each term does instead. Territory and site-related disclosures in the FDD itself are covered separately in Item 12.

What an LOI is, and what actually binds you

No statute governs the form of a letter of intent. What exists instead is commercial-real-estate practice, and the practice that recurs across sources on the topic is a split structure: the core business terms, rent, lease term, and the tenant-improvement allowance, are generally drafted as non-binding, a statement of what the parties intend to negotiate into a lease rather than a commitment either side can be sued over if the deal falls apart. Layered on top of that, specific clauses are commonly made expressly binding regardless of whether the lease ever gets signed: a confidentiality obligation, an exclusivity or no-shop period during which the landlord agrees not to negotiate with other tenants for the space, and a governing-law clause.

The practical point sources on this topic converge on is that the document itself needs to say, section by section, which parts are binding and which are not. An LOI that is silent on this leaves both sides guessing, and that ambiguity is exactly what a well-drafted LOI is supposed to prevent.

The lease terms an LOI typically references

An LOI will usually point toward, without necessarily spelling out in full, a set of lease concepts that are worth understanding before you see them in a document. None of the definitions below carry a dollar figure, because none could be verified for this guide; they describe what each term does.

• TI allowance. A landlord’s contribution toward your buildout costs, usually expressed as dollars per square foot in the lease itself, negotiated as part of the deal rather than fixed by any external standard.
• Percentage rent and the natural breakpoint. Percentage rent adds a share of your sales on top of base rent once you cross a sales threshold. The natural breakpoint is a formula: minimum annual base rent divided by the percentage rate. Above that sales level, the percentage rate applies to the overage.
• Kickout clause. A performance-triggered early-termination right, commonly tied to your gross sales falling below a set threshold after a defined period of operation.
• Co-tenancy clause. A rent reduction, delayed opening right, or termination right that activates if a named anchor tenant, or a minimum occupancy level in the shopping center, is not open and operating.
• Exclusive-use clause. A restriction on the landlord’s ability to lease other space in the same center to a business that competes with yours.
• Personal guarantee. Individual liability standing behind a corporate tenant entity, commonly negotiated down to a “good guy guaranty,” which limits your personal liability to the period you actually occupy the space.
• CAM. Additional rent covering your pro-rata share of the center’s common-area operating costs.

Why there are no dollar figures on this page

You will find plenty of pages quoting a tenant-improvement allowance per square foot, or a percentage-rent rate for quick-service food, as though those were settled numbers. We went looking for a source we could actually load and stand behind, and did not find one: the figures in circulation trace back to aggregator posts rather than to a brokerage report we could open and read.

What we can report is directional and comes from CBRE’s 2026 US retail outlook, which says the market “will place greater emphasis on deal structure, with concessions and tenant-improvement allowances playing a larger role in many cases”. That is worth knowing going into an LOI, because it says the negotiable part of the deal is where the value sits. It does not tell you what your allowance should be, and neither will anyone who has not seen your space, your market and your covenant strength.

So this page gives you the mechanics instead of numbers. Mechanics stay true; a quarterly figure does not.

What changes when the tenant is a franchisee

A franchise lease carries obligations that an independent cafe’s lease does not, because a third party, your franchisor, has an interest in the site staying operational under its brand standards for the life of the agreement. Commercial-real-estate and franchise-industry commentary describes these as recurring practice, not universal legal requirements, so confirm the specifics in your own franchise agreement.

Franchisor site approval before signing. Franchise agreements commonly require the franchisor to approve a specific site before you commit to it. Signing an LOI or a lease before that approval is finalized can put you in the position of having negotiated a deal your franchisor then rejects.

Collateral assignment of the lease, or a franchise lease rider. This is the one point the International Franchise Association’s own page on franchise lease issues confirms directly: the franchisee assigns its lease rights to the franchisor as security, so the franchisor can step into the tenant’s position if the franchisee defaults. Landlord consent is typically needed at lease signing for this right to be enforceable later, so it is not something to leave for a later amendment. Franchisors often prefer a standalone rider attached to the lease that controls over any conflicting lease language, along with an obligation for the landlord to notify the franchisor of tenant defaults.

A lease term coterminous with the franchise agreement. Practice commentary frames the risk here plainly: a lease term shorter than your franchise agreement term can leave you unable to operate, and therefore in breach of the franchise agreement, if the lease is not renewed. Matching the lease term, including renewal options, to the franchise agreement term is the way this risk is typically managed.

Relocation rights, as something to negotiate for, not something to expect. A right to relocate your franchise to a new site if the original location does not work out is not a standard feature of coffee-shop or QSR leases. Where it comes up in practice commentary, it is described as something franchisees should ask for and negotiate into the deal, not as a normal term you should assume is already there.

Why this matters before you sign the LOI, not after

The franchise-specific items above are far cheaper to raise while an LOI is still being negotiated than after a lease is drafted and a landlord believes the deal is settled. Franchisor site approval, the collateral assignment or lease rider, and the coterminous term are the kind of clauses that a landlord’s standard lease form will not include on its own, and asking for them late in the process is a harder negotiation than asking for them at the LOI stage.

Questions to ask your commercial real estate attorney or broker, and your franchise attorney

This is a two-professional problem. A commercial real estate attorney or broker reads the lease mechanics; a franchise attorney reads how those mechanics interact with your franchise agreement.

• Which sections of this LOI are intended to be binding, and does the document say so explicitly?
• Has the franchisor approved this specific site, and is that approval a condition of the LOI, or does it happen later in the process?
• Will the lease include a collateral assignment to the franchisor or a standalone franchise rider, and has the landlord agreed to sign it at lease execution?
• Is the lease term coterminous with your franchise agreement term, including renewal options, and what happens if one renews and the other does not?
• If you want a relocation right, is it in this LOI, and if not, is it worth negotiating for before you move to a full lease draft?