Franchise agreements typically require that commercial leases comply with specific franchise standards and requirements as a condition of the licensing of a franchise. Their requirements can conflict with the interests of the property owners and complicate negotiations.
Franchisees may not realize the nuances of a franchisor’s requirement for specific provisions in the lease. For example, the overriding priority of a franchisor is to protect its brand and usually includes the right to approve a franchisee’s location before opening the business. A franchise agreement typically gives the franchisor the right to intervene in property owner and franchisee disputes.
Conversely, a commercial property owner might expect the franchisor to indemnify the owner for any liability arising from franchise operations. The franchisor and property owner frequently require the franchisee (or the owner of the franchise in the case of a corporation or LLC) to guarantee the franchisee’s performance personally. Negotiation, agreement, and documentation of the resolved issues become necessary when the parties’ intent conflict.
Long, confusing boilerplate paragraphs appear in commercial real estate leases. A misunderstood or overlooked clause in the lease can become critical in a subsequent dispute. For that reason, no one should sign a contract without prior review by a licensed attorney in the State that governs the agreement.