Negotiating a franchise lease can be much trickier than just a simple commercial lease because there is a third party in the mix. Your lease is not only a contract between you and the landlord, but it is contingent on your franchise arrangement with the franchisor. A commercial lease can be hundreds of pages long, and there is a lot to work out before you ever get to signing a lease as a franchisee.
Here are a few of the terms you will want to know:
- Length of term – Ideally, the length of the lease should run for the same terms as the franchise agreement, but you will have to ask the landlord for this in the lease.
- Permitted use – As a tenant, you want maximum flexibility in how you operate in the space, but the landlord may have some exclusive rights granted to other tenants. This part of the lease may need to be negotiated carefully so that the franchisee does not have to breach agreements with the franchisor or the landlord.
- Construction: signage and décor – The franchisor usually has specific construction and décor which are part of their brand. If the landlord has approval rights over the construction, these two things may come in conflict with each other.
- Assignment clauses – If the franchisee wants to sell the business, the franchisor might want to keep the franchise in the same location. A lease may need to be negotiated to allow the franchisee to be released from liability when the future owner agrees to take on the lease assignment.
When you are franchising, a lease negotiation becomes much more complex than just a contract between you and the landlord. You also have obligations to the franchisor, and this makes it a little more difficult to ensure that the lease will meet your current and future needs.