You found the location. The traffic looks promising. The franchisor reviewed the site and gave its approval. Now the landlord wants a signature so construction can begin.
This is the point where many prospective franchisees breathe a sigh of relief. It is also the point where the real decisions begin.
A franchisor’s site approval and a franchisee’s decision to sign a lease answer different questions. The franchisor may be deciding whether the location fits its brand standards. You need to decide whether the business can afford the space, whether the lease gives you enough time to open, and what happens if you sell or the franchise fails.
Those answers are in the lease negotiations with the landlord.
Link to The rent is only the beginning The rent is only the beginning
A prospective franchisee may budget for base rent and still underestimate the cost of occupying the space. Taxes, insurance, maintenance charges, utilities, signage, HVAC repairs and required improvements can change the economics considerably.
Then there is the opening schedule. Rent may start before permits arrive, construction is finished or the franchisor authorizes opening. Every month you pay for an unopened location draws down the cash you expected to use to run the business.
Before signing, put the lease costs beside your startup budget and projections. Ask what happens if opening takes three months longer than planned. If that scenario puts the business in trouble before its first customer arrives, you need to know now.
Link to Your two agreements need to work together Your two agreements need to work together
The franchise agreement and lease usually come from different parties, for different purposes. Neither party is necessarily checking whether the agreements fit together for your benefit.
Suppose the franchise term ends before the lease does. Suppose the franchisor requires a remodel, but the lease limits alterations. Or suppose the franchise ends and the lease still requires years of rent. Depending on the documents, closing the business may end your right to use the brand without ending your duty to pay the landlord.
These are problems to address before you sign. Compare the term and renewal provisions, opening deadlines, permitted use, signage rights, assignment rules and default provisions in both agreements.
Link to Think about your exit while you still have choices Think about your exit while you still have choices
Nobody buys a franchise expecting to close it. But a sensible lease accounts for the possibility that you may need to sell the business, transfer the franchise or leave the location.
Can a qualified buyer take over the lease? Does the landlord have broad discretion to reject a transfer? If you sell, are you released from future obligations, or do you remain liable if the buyer later defaults? What does any personal guaranty cover?
An exit that works under the franchise agreement may fail if the lease blocks the transfer or leaves you responsible for years of rent.
Link to Ask one simple question Ask one simple question
Before signing, ask: If this location does not perform as expected, what will I still owe, and for how long?
The answer should include the franchise agreement, lease, loans, equipment contracts and any personal guaranties. It should also account for the cost of getting the location open in the first place.
A franchisor’s approval may be an important step in choosing a site. It is not a substitute for deciding whether the lease works for your business. Once you sign, the landlord will look to the lease for payment, no matter how confident everyone felt about the location on opening day.
ABOUT THE AUTHOR
Rush Nigut is a franchise attorney with more than 30 years of experience representing franchisees, franchise buyers, and business owners. He helps prospective franchisees evaluate Franchise Disclosure Documents (FDDs), negotiate franchise agreements, and protect their investment before they sign. His mission at Rush on Business is to help entrepreneurs make smarter franchise decisions through practical legal and business insights.