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Leases from the Franchisee’s Perspective

The site selection process for franchisees can be a tedious endeavor. You must find a location with the correct square footage, layout, accessibility, and demographics in the area that you and the franchisor have agreed you will establish the franchise. Once you have found a suitable location, you might be tempted to sign the lease without having an attorney review it and negotiating terms, not wanting to risk going through the search process yet again. This is a dire mistake and could negatively affect the success of your franchised business going forward.

Commercial Leasing – General Comments

You may assume that terms in commercial leases are take-it-or-leave-it. To the contrary, most commercial landlords are open to negotiating lease terms and even expect such negotiations. Remember that the terms you bind yourself to in the beginning of the lease will follow you for the entire term of the lease, including any options to extend the lease.

If it’s not in writing, it’s not enforceable. One thing your attorney can do for you is make sure that everything that is agreed to in the Letter of Intent (LOI) and through conversations with the landlord is incorporated into the lease itself.

Commercial Leasing – Franchisees

There may be a representative from the franchisor assigned to assist you in locating a site and signing a lease. Remember that it is their job to help you find a good location and open your franchised business as quickly as possible. You should take your time (within the deadlines in your Franchise Agreement) in finding a site with terms and conditions acceptable to you.

Most franchisors require that you and the landlord sign a Lease Addendum to the Commercial Lease, which the franchisor provides. Your franchise attorney will assist you in ensuring that these requested terms from the franchisor are incorporated into the Commercial Lease and agreed to by the landlord.

As an owner of a franchised business, there are certain issues that you should be aware of in negotiating a commercial lease that would not apply to a non-franchised business. These may include the following efforts:

· Sign approval. Making sure that the signs the franchisor requires you to have will be approved by the landlord.

· Build-out. Making sure that the landlord will approve the franchisor’s requirements for building out and equipping the leased space.

· Purposes clause. Making sure that the provision regarding permitted uses of the premises encompasses the current products or services sold by the franchisee as well as products and services that may be required by the franchisor in the future.

· Exclusivity clause. Making sure no one is able to open a similar business in the same shopping center or in a nearby shopping center owned by the same landlord.

· Assignability. Making sure you are able to assign the lease to another franchisee of the franchisor if you decide to sell the business.

· Term. Making sure that the term of the lease coincides with the term of the franchise agreement. For example, you don’t want a 10 year term on your lease if your franchise term is 5 years.

· Shopping Center Advertising. Since your advertising will be subject to approval by the franchisor, you may not want to commit to cooperative advertising by all tenants in a shopping center.

Note that not all of these efforts concerning the commercial lease may be achieved. There is always compromise on each side when it comes to lease negotiations.

Carter & Tani is familiar with the issues facing franchisees in connection with their lease negotiations. We can assist you in negotiating the changes to the lease necessary to have a lease and location that will be acceptable to the franchisor and will permit you to operate your business in compliance with your franchise agreement.