If you are getting close to reaching a deal for a franchise, you may encounter what is known as a letter of intent, or its cousin the memorandum of understanding. If you are presented with such a document, there is typically nothing to fear. Letters of intent lay out the basic framework for the transaction, but they are typically not binding.
Letters of intent describe basic terms of the franchise deal, such as who the parties are, the territory for the franchise, any development schedule, the price to be paid for the franchise, royalty rates and other pertinent pieces of information. Letters of intent are useful because they can be presented to landlords, banks and other third parties who may want to see the basic terms of an anticipated deal and who are looking to verify that a deal is nearing its final stages. Letters of intent are usually not binding because the parties anticipate reducing the terms to a more formal writing later, along with the other terms of the deal. In the franchise context, this means entering into a formal franchise agreement with many more details and terms. Given this reality, a letter of intent is nothing more than an “agreement to agree” on something later. Under the law, agreements to agree are generally unenforceable.
That being said, it is always advisable to have an attorney do a quick review to make sure the letter of intent does not cross the line into a binding document. The parties may not intend for the document to be binding, but sloppy drafting could end up causing headaches down the road.
If you have any questions about this topic or any other franchise law issue, please contact Brian Loffredo at
ABOUT BRIAN LOFFREDO
Brian is a commercial litigator with more than seventeen years of experience representing clients in the franchise industry. Brian routinely assists clients during the licensing and franchise/FDD review process, as well as with the resolution of franchise-related disputes, including those involving terminations, territorial disputes, fraud, disclosure/relationship law violations and breaches of contract.
In addition, Brian represents and counsels clients in the construction industry on matters involving litigation, construction defects, licensing and compliance, collections, mechanic’s liens, payment bond and Miller Act claims, contract drafting, and compliance with home improvement laws and other construction industry laws.
Brian also has extensive experience representing financial institutions with workouts, collections and residential / commercial foreclosures.
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