A multitude of factors need thorough consideration before choosing to become a franchisee. Depending on what type of franchise opportunity you wish to pursue, one of those details may involve negotiating a lease agreement for your store. Because three parties have needs and risks, this can become quite a tangled process. What potential difficulties might you expect as you scout the perfect site for your franchised business?
Length of Lease
Because lease negotiations can take a substantial amount of time, you may find that the lease agreement might extend past your franchise contract or fall short of it. This could become a huge problem since you would be liable for the remainder of the lease even if your franchise ends months or years prior to the lease. Conversely, if your franchise contract extends beyond the lease and the landlord decides to raise your rent to an unreasonable level on a new lease, you may not have the means to find a new location, negotiate another lease and accomplish a build-out between the time you receive your landlord’s notice and the end of your lease.
Many franchisors’ sales tactics include offering hands-on help with finding and developing locations for franchisees. In reality, it’s possible you could find they fall short on delivering that promise. If your business is in the retail or restaurant industry, you most likely will have specific contractual obligations to fulfill that landlords may balk at. Finding the right location and the right lease agreement that will permit your customized use of the space or building could become a snarled mess depriving you of your ability to launch your business within your planned time frame.
Parties to the Lease
If the franchisor is a party to your lease, this is something that should work to your benefit. If the franchisor wishes to reduce the risk of your franchise failing after a great deal of money went into cultivating a location, they can insist on lease riders that allow them to take over the lease and assign it to a new owner. Many landlords would much prefer to hold you liable for the entire lease, so winning this in negotiations might require playing a little real estate hardball. Your franchisor may be all too happy to let you work that out alone.
Once you’ve found a perfect location and have all the parties singing from the same score, you need to make sure the rest of the details fall in line, too. For instance, you need to know how the rent is broken down, what the monthly amount will really be after the base, common area maintenance, utility obligations, whether the landlord demands a percentage of your gross and many more nitty gritty items that always seem to cost you extra. You want to walk that fine line between your desire for the least amount of outlay possible against the landlord’s desire for the highest amount possible, knowing either one of you could walk away at any time.
Need Help Negotiating?
Negotiating a lease for your franchise can seem like a giant square dance. All the pieces must fall together eventually for a mutually beneficial agreement. If your franchisor turns out to have little desire to help, you could do yourself a big favor by consulting an attorney experienced in franchise law to work with you.
If you are looking to buy a business, start a business, franchise your business, or protect your ideas and brand, our law firm is the best possible choice. Please contact us today!