That’s where this guide comes in. This is not legal advice as I’m not an attorney, but it is a common-sense guide to basic phrases you should know. They aren’t just jargon – they are your toolkit for navigating the restaurant buying process with confidence. Whether you’re a first-timer or a seasoned buyer, understanding them can save you time, money, and a whole lot of stress. Let’s dive in and decode the terms that matter most when you’re signing on the dotted line.

1. APA – Asset Purchase Agreement

The Asset Purchase Agreement (APA) is the beating heart of your restaurant deal. This spells out all the deal terms including - exactly what you’re buying. Is all the equipment owned by the seller and transferring to you – the oven, the tables, that quirky neon sign? If it’s not spelled out specifically on an equipment list that should be part of the agreement, it’s not including. Unlike buying a company outright which occurs under a stock sale, the APA focuses on specific assets, leaving the seller’s liabilities behind.

Why does this matter? Because restaurants are asset-heavy businesses with hidden risks. A solid APA ensures you’re not inheriting the seller’s unpaid vendor bills or a pending health code lawsuit. It lists the purchase price, the assets included (more on that later), warranties from the seller (e.g., “the fridge works”), and conditions for closing, like lease approval.

Picture this: You’re buying a $300,000 diner. The APA says you get the equipment and inventory but not the $50,000 tax lien the seller forgot to mention. Without that clarity, you’d be on the hook. Work with an attorney to tweak the APA—add clauses like “seller pays off debts pre-closing”—and you’ve got a shield against surprises. It’s your deal’s blueprint; build it right.

2. LOI – Letter of Intent

Before the APA comes the Letter of Intent (LOI), essentially, a starting offer. These are usually non-binding (except for confidentiality or exclusivity clauses), meaning you can walk away if things sour. Think of it as a handshake with details: price, timeline, and key contingencies like securing a loan.

For restaurant buyers, the LOI is your foot in the door but may indicate you’re not quite as serious as someone who moves forward with an asset purchase agreement. Say you’re eyeing a bustling sandwich shop listed at $250,000. Your LOI might offer $225,000, contingent on reviewing the books and lease, with a 60-day exclusivity period so the seller doesn’t shop around. It’s not the final word, but it locks in the framework while you dig deeper.

Here’s the catch: a vague LOI can backfire. If you don’t specify contingencies—like “subject to liquor license transfer”—you might lose leverage later. Keep it clear, flexible, and restaurant-focused. Ask about equipment condition or staff retention upfront. A Certified Restaurant Broker may frequently recommend you skip this step and go straight to an offer with defined terms. This can protect you while you perform complete due diligence and lock in the deal.

Want a deep dive into why a Letter of Intent might backfire? Read this article: What’s an LOI for Buying a Restaurant.

3. Escrow

Escrow is sometimes called “consideration” and it tells the seller that you are serious enough to put money up front into the deal. It’s also remains your money as it’s held by a neutral third party, an escrow agent or attorney, until the deal terms are met or a termination is executed between the parties. You’re not handing cash straight to the seller, and they’re not handing over the keys until everything’s squared away.

In restaurant deals, escrow is important. Imagine putting $20,000 down on a pizza joint. The closing attorney holds the escrow until closing day when the lease assignment is in place, the ovens pass inspection, and your liquor license is issued. If the deal flops—say, the landlord balks—you get it back. That’s based on standard contingencies baked into the contract. The escrow plays a dual role. It provides peace of mind for the restaurant buyer and proof of commitment for the seller.

Details matter here. The escrow agreement should list triggers for release—like a signed APA or clear title—and a timeline. Restaurants often involve big-ticket items (wood-fired ovens, brewery equipment anyone?), so confirm what’s covered. Double-check with your broker or attorney—delays in escrow can derail closing day.

4. Due Diligence

Due diligence is one of the most important elements of buying a restaurant. It’s your detective phase—the window (usually 15-30 days) to investigate the restaurant before you’re locked in. It’s about verifying what the seller’s selling: Are the financials legit? Is the lease solid? Any skeletons in the walk in cooler?

For a restaurant, this goes beyond the basics. You’ll pore over profit and loss statements (P&Ls) for three years—does that $600,000 revenue hold up? Tax returns confirm earnings, while sales reports show if Friday nights really pack ’em in. But don’t stop there. Check the lease—short terms or rent hikes can tank value. Dig into permits, health inspections, and that liquor license renewal date. Even online reviews and social media comments can hint at reputation risks.

Example: A buyer once skipped due diligence on a bistro, only to find a $10,000 HVAC repair bill post-sale. Set a firm deadline, make a checklist, and enlist a broker or accountant. This isn’t optional—it’s your chance to dodge a lemon.

Want a due diligence checklist for buying a restaurant? Grab one at this link.

5. Special Stipulations

Special stipulations are critical custom tweaks to any standard language that are added to the APA to fit your deal. They’re like special orders at the counter—standard contracts don’t always cut it. These clauses address unique needs, making the agreement work for both sides.

In restaurant deals, stipulations get creative. Maybe the seller agrees to stay beyond a standard training period and consult for the next 60 days to teach you their secret sauce. Perhaps you negotiate a remodel contingency where the seller manages the franchise required upgrade because his brother is a general contractor. Maybe you will operate under his alcohol license with a management agreement for a limited period of time. These stipulations are critical. They must be specific. They must be measurable and they must be time bound. A stipulation that says, Larry agrees that Moe can operate under his liquor license doesn’t cut it. A stipulation that says Larry and Moe agree that Larry may operate under a management agreement, allow use of the liquor license for a period of no more than 60 days from closing meets the standard. Above all, if there is any question about what will happen post-closing, cover it in a stipulation. If it isn’t in writing, it won’t happen. Write it in.

Here’s a real case: A buyer of a $400,000 grill insisted the seller stay on as a consultant for 60 days. It smoothed the transition and kept regulars happy. Brainstorm with your team—what’s your deal-breaker? Stipulations seal the gaps.

The Schedule of Assets is your physical inventory list that is always attached to the APA as a schedule. It details every item you’re buying. It’s not just “the restaurant”; it’s the walk-in cooler, the 20 barstools, the POS system, even the spice rack. Clarity here prevents post-sale fights over who owns what.

Restaurants live or die by their gear, so this matters. A $200,000 pizza restaurant might have five deck pizza oven. It must live on the equipment list, and it must be in working condition. Walk through with the seller, snap photos, and note conditions. A buyer once thought they’d scored a deal, only to find half the ovens were busted and unlisted. You should also make sure the seller owns the equipment. Check the lease to be sure the landlord isn’t the actual owner.

Pro tip: Cross-check condition and ownership during your due diligence period with an inspection. This list of assets is what generates the revenue. Nail it down.

7. Payment Terms

Payment terms define how you’ll pay—cash upfront, installments, seller financing—and when. It’s the financial heartbeat of the deal, balancing your budget with the seller’s payout. Get it wrong, and you’re strapped before opening day.

Options vary. A $150,000 café might mean $50,000 down and a bank loan. Or the seller finances $75,000 at 6% over five years, tied to profit goals. Key details: down payment size, interest rate, repayment schedule. Restaurants often see seller financing—sellers stay invested in your success.

Example: A buyer paid $100,000 cash for a diner but negotiated a $50,000 seller note at 5%, payable over three years. It eased cash flow while the place ramped up. Align terms with your projections—over committing can sink new owners. A Certified Restaurant Broker can offer suggestions on deal teams and every single deal can be different.

8. Confidentiality

Confidentiality means keeping the deal quiet. This starts with the confidentiality agreement you sign before gaining access to the business and continues during the deal period covered by either an LOI or APA. It protects the seller’s business so that staff don’t quit and customers don’t flee. Buyers who violate confidentiality damage their own best interest in the long term so don’t do it.

Imagine word leaks that the local favorite you’re acquiring is for sale. The cook leaves, regulars panic, and sales drop mid-negotiation. A confidentiality agreement sets the scope (deal terms, financials), duration (until closing), and penalties for blabbing. Sign it early—before due diligence—and limit who knows. One buyer bragged at a bar and lost key staff before closing. Keep it tight.

9. Governing Law

Governing law picks the state rules that control your contract. If a dispute happens, say, over that Schedule of Assets—it’s the legal playbook. Usually, it’s the restaurant’s state, but it’s not automatic.

Why care? Laws differ. California’s lease rules aren’t Texas’s, and liquor license fights hinge on local regs. A $300,000 brewery deal might snag on state-specific tax liens if the wrong law applies. Specify jurisdiction too—where lawsuits land. Match it to the restaurant’s location and check with an attorney. It’s a small line with big stakes.

10. Lending Contingency

A lending contingency lets you bail if financing flops. You’re not locked in—and your escrow is safe—if the bank says no. It’s your escape hatch. Remember that contingencies can be extended with mutual consent of the parties so stay on top of the timing.

Restaurants are often deals with SBA financing. For a $400,000 deal, you might put $40,000 down, contingent on a $360,000 loan. The APA will list the deadline for providing proof of lending. Skip that application phase or fail to prepare and the burden falls on you. One buyer lost $25,000 when their contingency lapsed and he had done nothing to apply. Line up funding early; this clause buys time, not miracles.

Bonus Term: Time is of the Essence –

"Time is of the essence" is a legal phrase used in contracts to mean that timing is critical and deadlines must be strictly met. If a party fails to perform their obligations within the specified time, they may be in breach of contract—even if the delay is minor.

These ten phrases—APA to Lending Contingency—are your crash course in buying a restaurant. They’re not just words; they’re the guardrails keeping your deal on track. Master them, and you’ll negotiate sharper, sign smarter, and close stronger. Still, don’t go it alone—an attorney drafts the fine print, and a Certified Restaurant Broker ties it to the restaurant world. Buying your dream spot? Contact We Sell Restaurants—they’ll guide you from LOI to keys in hand.