Signing a franchise contract is often an excellent opportunity for an entrepreneur. They do not have to develop their own business plan or establish a competitive brand. Instead, they can buy into an existing company that has loyal customers and an established way of doing business.
A franchise can be lucrative despite the costs involved in the startup process. However, those operating franchises are subject to more restrictions and requirements than those building their own companies from the ground up without a franchisor’s oversight. For example, when seeking a space in which to operate, an entrepreneur usually has the option of selecting any facility in the right area that could potentially meet their needs. Franchisees have to be very careful to avoid unintentionally violating the terms of their franchise agreement.
How could a lease violate a franchise contract?
The idea that renting space in which to operate a franchise business could violate the franchise agreement may seem strange at first. Franchisors generally don’t demand that all franchisees purchase the facilities in which they operate.
However, attempting to operate in the wrong location could cause numerous complications for the franchisee. Generally speaking, most franchise business opportunities have very strict parameters. For example, the franchise agreement likely only persists for a set amount of time. Additionally, the franchisee has to abide by the restrictions implemented by the franchisor.
Territory restrictions can create complications when seeking to lease commercial properties. Looking at a cheaper retail space one block away from a previously proposed location could be enough to violate the boundaries of the allocated franchise territory.
The franchisee could be at risk of losing their franchise rights. They might also face litigation because they infringed on another franchisee’s territory. They could also be responsible for lease payments on a space they cannot use because of franchise territory restrictions.
In scenarios involving an expanding successful franchise operation or a first franchise location opened by a new franchisee, vetting the appropriateness of the location is important. Reviewing contract terms with a franchisor can be as important as evaluating lease language when looking for a space for a franchise business. Franchisees frequently need assistance establishing their facilities and growing if their investments prove successful.
