Aspiring entrepreneurs often choose franchise opportunities over starting their own businesses from scratch. There are many benefits to partnering with a franchisor. Franchisees can receive training and marketing support. They can tap into the demand for an existing brand.
However, there are numerous challenges associated with franchise arrangements. The franchisee often needs to secure a commercial lease so that they have space in which to operate the franchise business. Commercial leases, like franchise agreements, tend to be very complex contracts. Those looking to secure rented commercial property for a franchise may need to consider the three matters below while negotiating lease terms.
Securing franchisor assignment clauses
Franchise agreements often last for a specific time frame with the option to renew the agreement afterwards. Commercial leases also tend to last for multiple years. If the franchisee defaults on their obligations or terminates their agreement before the reasons, the franchisor may intend to take control of the abandoned or failing franchise location. The lease may need to include terms that allow the franchisee to assign the lease to the franchisor.
Limiting nearby competition
Franchisees benefit from having control over a specific geographic area. Typically, franchisors limit how many franchises they approve in a specific area and may allocate a certain geographic area to a particular franchisee. While there may not be another business with the exact same brand in the same strip mall or office park, the landlord might intend to lease to a direct competitor. Negotiating terms that prevent landlords from leasing to a substantially similar business can help a franchisee ensure that their offerings are novel enough to generate foot traffic and customer demand.
Complying with franchisor requirements
Sometimes, franchisees sign build-to-suit leases as a way to ensure that existing facilities meet the requirements of the franchisor. The landlord can erect a building or finish a specific unit to the exact specifications of the tenant. Other times, they may have to make certain modifications to the facilities or acquire compliant equipment to meet the franchisor’s contractual standards. Franchisees may need help negotiating with their landlords to ensure they have the ability to make necessary modifications and reviewing the franchise agreement to know what they need to do with this space.
Negotiating commercial leases and franchise agreements at the same time can be very challenging even for experienced business owners. Obtaining appropriate support before signing any long-term agreement can help business owners start their operations in the best position possible. They’ll also have access to reliable support if they must take an issue to civil court.