What is a Letter of Intent in Franchise Agreement?

Letter of Intent:

Letter of Intent plays a vital and integral role in the franchise agreement and helps 

Franchisees understand with good clarity of their obligations. Prior to the execution of the franchise agreement, there are two important documents that hold good.

1. Term Sheet: very brief points on the deals among the parties in bullet format

2. Letter of Intent: Mentions the complete terms of the Franchise agreement in a letter/agreement format.

In the franchise industry when a prospective buyer decides to take over/buy either a unit/body of units/or interests into area developer, this letter of Intent is used as a confirmation among the parties’ terms of transactions, and helps the attorney to draft the final agreement.

Key features of Letter of Intent:

1. Before any loan approvement, some banks or lending institutions may require a Letter of Intent.

2. Crucial in International franchise expansions.

3. Often drafted in one language and then translated as per requirements in international franchise business deals.

4. Not a binding document, hence discontinuation between either party may occur irrespective of time and reason until both parties execute the final franchise agreement.

Letter of Intent for Single and Multiple Unit is different.

Letter of Intent (Single unit) should consist of:

1. Exclusive territory scope

2. Site selection and the time schedule of the construction process.

3. Opening date estimation

4. Resources and their training and development ideas.

5. Address of the unit.

6. Business model (kiosk, take away, dine-in, etc).

Letter of Intent (multiple-unit) should consist of:

1. Scope of the business in the territory

2. Agreement regarding no sale of the franchise in a specific time period.

3. Information on the owners and prospects.

4. Personal information for guarantee

5. Payment and fee structures and its payment mode, time period.

6. Training of the staffs recruited

 

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