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Chapter 4. Service Delivery System and R... > Leasing Issues and Potential Traps

Leasing Issues and Potential Traps

Eric H. Karp, a prominent franchisee attorney, recently published and presented a paper focusing on leasing issues for franchisees.[11] Adapted excerpts from that paper are included in the following text, which focus on issues within the context of franchisor and/or franchisee as lessee and a third party as lessor.

Common Traps to Avoid When Leasing

  • Relocation issues for franchises in shopping centers: It is not unusual for a lease to give a landlord, sometimes but not always near the beginning or end of the lease, the ability to force a tenant to relocate to another area within the same shopping center. This may run afoul of a franchise agreement, which is often granted only for a specific site. You may have to choose between violating your lease or your franchise agreement if the franchisor is unwilling to consent to the move.

  • Purposes clause: Many franchise agreements provide that the franchisor can make major changes in the nature and operation of the business, including the kinds of goods and/or services offered for sale. This right may run afoul with the purpose clause of the lease, which may restrict the occupant to a highly restrictive and well-defined purpose.

  • Alterations: Many leases allow landlords to make minor alterations to leased premises and to make even major renovations and changes to the shopping center itself. At the same time, franchise agreements often restrict the ability of a franchisee to make any changes, even cosmetic, to the franchised premises.

  • Use of trade name: Often, the lease restricts the tenant to the use of a specific trade name. If the franchisor changes the trade name, this can create a violation of the base lease. It can also create a problem if you leave the franchise system and go independent. If you change the name, you lose the lease.



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