NY franchisees acquiring rights to develop brick and mortar franchises must have commercial leasing on their radar when signing their franchise agreement. How, where and when you lease space for your business can often impact overall profitability. Let’s discuss common commercial leasing challenges and how NY franchise lawyers with real estate law experience can help.
NY Franchises and Commercial Leasing
Leasing property for a franchise involves two different agreements – the franchise agreement and the commercial lease. The franchise agreement sets forth the franchisor’s rights and requirements with respect to the operation of the franchise. The commercial lease addresses the franchisee/tenant’s rights and obligations with respect to the real property on which the franchise business will be located. However, the franchise agreement will also include the franchisor’s requirements with respect to certain lease provisions, and the franchisee must ensure the lease addresses the franchisor’s lease provisions.
Knowledgeable franchise counsel will know what lease provisions to review, negotiate and/or add to ensure that the lease meets the franchisor’s requirements. This exemplifies why a NY franchise lawyer with commercial leasing experience should be consulted from the outset – because franchisors, franchisees, and landlords often have conflicting interests.
Synchronizing Franchise Agreements and Leases
Let’s explore a common scenario. A sandwich brand franchisee signs a franchise agreement for a term of 10 years. The franchisee then scouts locations for nine months before selecting a space. Once the location is approved by the franchisor, the franchisee will then negotiate and sign a lease for the real property which will likely provide for a term of 10 years.
However, the calendars do not align. The franchise agreement will expire before the lease. As a result, the franchisee could be obligated under the lease without having a right to operate the franchise.
Risks also emerge when exploring multi-unit expansion and development, and juggling the various agreements and deadlines can be challenging and exhausting.
Before entering into a franchise agreement, the sandwich franchisee should seek a NY attorney whose skills in commercial leasing and real estate matters complement their franchise experience as naturally as peanut butter and jelly.
The NY Franchisee’s Interests
In addition to helping franchisees negotiate traditional real estate provisions, the NY franchise lawyer can address various real estate issues pertinent to the franchise relationship, including:
- Exclusivity relationships.
- Collateral assignment and contingent options.
- Franchisor purchase options.
- Franchisor step-in rights; and
- Renewal rights
Learn how Lusthaus Law helped a NYC-based restaurant franchisee successfully expand into Westchester County by reviewing, negotiating and transferring leases.
The Franchisor’s Interests
Most credible franchisors will be involved when selecting a franchisee’s location. They want to ensure the location proposed by the franchisee meets the franchisor’s system standards. In addition, the franchisor will want to ensure that a franchisee’s lease includes the franchisor’s required lease provisions.
For example, many franchisors require franchisees to ensure that the lease will provide the franchisor with the right to assume possession of the business location if the franchise agreement is terminated. A NY franchise attorney with commercial leasing experience can review the franchisee’s proposed lease to ensure that the franchisor’s provisions are incorporated.
Additional Commercial Leasing Issues For Franchisees and Franchisors
Whether you are leasing new space, expanding 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 NY franchise’s move-in date.
Contact Lusthaus Law
Lusthaus Law’s website is a resource for New York franchisors and franchisees. We have published two downloadable and complimentary e-books and our Insights blog is regularly updated to reflect industry trends and recent achievements in client representation.
Contact us today to learn more about how Lusthaus Law P.C. can help you navigate a clear path for your franchise’s successful future.
