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Franchisee Tenants and the Art of Lease Negotiating

Royal Hawaiian Shopping Center, Waikiki
 Food court (left, middle tier), Royal Hawaiian Shopping Center, Waikiki

Franchisees need to be aware beforehand of how their franchise ownership will or may affect their lease and their relationship with their landlord—and negotiate accordingly. An attorney who specializes in real estate and corporate law points the way:

Whether you’re the biggest Dominos franchisee in the nation or an independent renting space for your first shop, successfully navigating competing interests and acquiring a basic understanding of the franchise-specific issues that add to complexity to lease negotiations is essential.

The specific issues that arise in these types of transactions include:

Use clause flexibility. From the franchisee’s perspective, the narrower the use clause, the less ability you have to change course in the future without changing your obligations under the lease. Franchise tenants should be thinking proactively about maximizing their flexibility by negotiating a broad use clause. Landlords generally favor narrow use clauses, perhaps in these instances including lease language requiring the tenant to maintain its franchise agreement in full force and effect (and including remedies in the lease that result from defaults by the tenant under the franchise agreement). A broader use clause is preferable – even if it potentially conflicts with your franchise agreement. — Todd Schafer, Chain Store Age

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