Texas Real Estate Blog

Leasing To A Franchise?

May 2, 2011
2 Comments

Clearly, franchises (especially nationally recognized ones) can be a huge asset to any development due to their ability to generate traffic, visibility and, hopefully, juicy percentage rents. However, if you have ever had the opportunity to work on a lease or development agreement with a franchisee or franchisor of a national powerhouse, you quickly realize that there are numerous issues (other than leverage) which are unique to this type of business and, if addressed correctly, will prove to be a benefit to both the landlord and tenant over the long haul. I think the most complex issue I ever addressed  was the unfortunate demise of the franchisee. This gets really ugly especially when the franchise is a good one with a stellar reputation but failed primarily due to the incompetency of the franchisee. The last thing the franchisor wants is a very visible and public closing which could be a publicity nightmare. I represented the developer in that case and fortunately I was lucky enough to have astute parties involved so, while it took some time to get a new franchisee on board, both the developer and the franchisor absorbed some of the costs to resolve the matter. They both took a long-term approach to the viability of the project and it worked out well. This is not always the case, so both parties need to address, at the outset, as many contingencies as possible to assure a favorable outcome. This articleSP-#3389981-v1-Leasing_to_Franchisees discusses several issues of importance to franchisees, franchisors and landlords. Surprisingly, it’s a short list, but an important one.

Speaking of franchisees—Normally a franchisee is an entrepreneur recently AWOL from the corporate rat race to seek his/her fortune in the “easy money” of the franchise world.  However, those of us who swim with this energetic and creative crowd, know all too well of the many pitfalls which often trap the unwary small business owner. As such, I share this great piece which I found this morning while scanning the news wires for all of the fantastic dirt on slime ball Bin Laden’s demise http://www.businessinsider.com/five-legal-traps-every-entrepreneur-should-avoid-2011-5?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+businessinsider+%28Business+Insider%29&utm_content=Google+Reader This is just a few of the many, many issues that must be resolved by a founder of a business, but I love the practical, common sense approach.

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    Steve Watten


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