Location can play a major role in a franchisee’s success. Most franchisors require their brick-and-mortar franchisees to find the site for the franchise business. However, most franchisors also require that the franchisee obtain the franchisor’s consent to the lease agreement prior to execution by the franchisee. This is required in part so that the franchisor can ensure that the franchisee’s lease includes certain provisions.
An NY franchise attorney will know to address the franchisor’s provisions. But you also need a qualified NY real estate lawyer to represent you when negotiating the lease to ensure it meets your needs as a franchise business operator.
Let’s discuss how franchisees can benefit from working with a NY franchise attorney who also has commercial leasing experience.
The Franchisor’s Lease Rider
The franchisee must understand the interplay between the franchise agreement and the lease.
- The franchise agreement addresses the relationship between the franchisee and franchisor with respect to the franchisee’s rights to operate the franchise.
- The commercial lease addresses the relationship between the franchisee and the landlord with respect to the franchisee’s rights to operate the franchise at that particular location.
As indicated above, franchisors require franchisees to include certain provisions in their lease agreements, and those provisions are frequently identified in the franchise agreement. To simplify the process, franchisors sometimes provide with a form “lease rider” for use by the franchisee when negotiating and finalizing the lease. The lease rider will be included as an exhibit to the franchise agreement and can be found in the franchise disclosure document (“FDD”) that was provided to the franchisee before signing the franchise agreement. The franchisee should provide the landlord with a copy of the rider early in the lease negotiation process. The landlord may want to make changes to the franchisor’s lease rider, which can complicate negotiations of the lease with the landlord. Ultimately, the franchisee will have to ensure that the lease meets its needs and also complies with the franchisor’s requirements.
Critical Question: What Happens to the Location if the Franchise Closes?
What happens to the business location if the franchise business does not succeed?
Most franchisors include provisions in their form lease riders which serve to ensure that the franchisor has the right, though not the obligation, to assume the lease and the franchisee’s rights under the lease if the franchisee defaults on its obligations under the franchise agreement or lease. This will allow the franchisor to preserve any good will established at the franchise location and continue operating (or permit another franchisee to operate) there even if the franchisee is terminated. You might see an “Under New Management” sign in the front window as a result.
Of course, not all landlords will readily agree to this type of provision and the franchisee may face an uphill battle in securing the location. Though it is standard in franchising, it may be a deal breaker for the landlord, which is why a franchise lawyer’s involvement at the outset can prevent several headaches and further legal fees.
Why You Need a NY Franchise Lawyer with Commercial Leasing Experience
With multiple parties entering the dialogue, the last thing most people want is more lawyers. A NY franchise lawyer often wears several hats and will already be up to speed on the franchisor’s requirements from reviewing the franchise agreement. Real estate experience is extremely beneficial, as the franchise lawyer will also be able to help the franchisee with the lease negotiation process.
Most franchises need a location or base of operations, which is why commercial real estate and leasing is a service offered by experienced NY franchise lawyers. The franchise lawyer can reduce miscommunications by embedding their knowledge of the franchise agreement into the lease agreement.
Contact Lusthaus Law
Before you hire a franchise attorney, ask if they also provide leasing services to assist with lease negotiation and ensure compliance with the terms of the franchise agreement.
Lusthaus Law routinely represents clients acquiring commercial leases as well as franchises. Whether you are leasing new space or renegotiating the lease for an existing location, Lusthaus Law can help you realize the right agreement and terms for your needs and facilitate the closing so that you can schedule your move-in date. Contact us today.
