Dilemmas in Retail Franchises - Store Leases and the FDD

All too often, franchisees do quite well in their franchised businesses and then decide to go and do something else or sell the business. Still, they need to make sure that theirretail store leasing of their retail space and location runs concurrent to their franchise term in the FDD or Franchise Disclosure Documents. Why is this important you ask?

Because, there are several ways franchisors set up master leases. Small franchisors often do not set upretail store leasing, many are in such a cash flow poor situation from such rapid expansion that if a couple of franchisees go out of business, or fail they are left holding the bag and paying on those leases, as their failing franchisees file bankruptcy. Larger franchisors do not wish the risk of losing a great location, if the franchisee becomes insolvent.

Now then, what if have a small franchisor, and you make a deal for a 5-year lease, and your franchisor has you on a ten-year franchise agreement? If at the end of the five years, your commercial landlord for the shopping center might raise the lease rate, perhaps double or wish to charge extra for maintenance fees. You know you cannot afford that and still make enough profit to feed your family.

You also know that if you move, you must have your franchisor approve the new location, it must not interfere or encroach on other franchisee territories, and you cannot have any down time without violating your franchise agreement. Great, but what if it doesn't make sense to continue under such circumstances? Tough, the franchise agreement binds you and obligates you to all clauses, costs, royalties and stipulations. Please consider all this. retail store leasing.