In our final instalment of the trilogy of property guide features, we shine a spotlight on three European markets with various stages of franchising maturity, concept availability and premises opportunity: Germany, Spain, and the Czech Republic.
How do you create a successful relationship between a developer, franchisee, and franchisor during the establishment process?
Franchisors and franchisees are an important contributor to the development of shopping centers. Undoubtedly, they represent an interesting and necessary way to develop the commercial mix and increase the attractiveness of shopping centers. Franchise brands are appealing to shopping center owners as they are proven concepts locally and/or internationally with efficient ‘plug and play’ formats.
The leasing agreement and terms must allow sustainable growth for both the franchise brand and the franchisee, as well as mutual benefit from the increase in business volume and reputation of the shopping center owner. For this agreement to work and have a real effectiveness, shopping center owners, franchisors and franchisees must work in the same direction and with the same objectives to reach a mutual consensus. The key to success is to avoid blockages or obstacles that make the desired establishment impossible and sustainable growth challenging.
In Spain, the role of the developer is fundamental as they sometimes introduce franchisors to franchisees as they want the concept in their premises. They can even act as the intermediary between them when discussing opportunities to establish.
A number of the franchisors operating in Spain have in-house support and can guide franchisees through the establishment process, and there are also some excellent commercial agents who can provide services and necessary support to franchisees.
Teresa Verdugo Mata, director of operations, Nhood España
What are some of the key considerations when entering into a commercial lease in Germany as a franchisor or franchisee?
For the franchisor, the franchisee’s location is of great importance. In particular, the success of the franchisee stands and falls to a large extent with the right choice of location. At the end of the contract, the franchisor should optionally secure access to the location.
Therefore, lease entry options play an important role in franchise agreements. These must also be agreed with the landlord as a third party. In this way, the franchisor can effectively avoid the former franchisee competing with the franchisor at the introduced location after the end of the franchise agreement.
What are the benefits or disadvantages to consider if covenant is shared and the franchisor is the tenant subleasing to the franchisee?
The advantage is that after termination of the franchise agreement, the franchisor can operate the location itself as the main tenant or through a new franchisee. This requires that the franchisor has stipulated in the franchise agreement that it may buy the inventory or the franchise operation from the former franchisee.
A disadvantage is that the franchisor has the burden to operate a weak location after a premature termination or failure of its franchisee. A lease agreement in Germany will not automatically end in case the sublessee, the franchisee, fails to operate the franchise.
What commercial legal nuances do international franchisors need to be aware of in Germany?
Tenancy law in Germany is comprehensively regulated by law. There is also a great deal of case law on the interpretation of rental agreements. These requirements cannot be circumvented by a foreign choice of law. It is therefore imperative to ensure that the legal requirements are complied with when drafting the lease agreement.
Marco Hero, partner, Schiedermair
What advice would you give franchisees seeking a premises for their concept in the Czech Republic?
Know your place. The beauty of a franchise brand is it is a proven concept, but you should always consider why you are relevant locally and where you can be a part of your customers lives when it matters. This approach is just as relevant for franchisors establishing in new markets or franchisee starting their new business.
I would suggest the first step in premises search is to ensure you have a well prepared ‘landlord pack’ which contains information about the franchise brand story, why the concept is unique and successful, a profile of your customers, the benefits for the landlord from having the concept as a tenant, establishment plans for the future, construction and/or fit out requirements, and your establishment timing objective.
The next step is to research the types of retail destination your customers visit. Even if you are planning to use a commercial agent, it is a helpful exercise to have an understanding of the mix of tenants who could be your potential neighbours. Shoppers visit high streets, shopping centres, and retail parks for various needs and the premises in these locations vary significantly in rent levels, so visiting each type where your competitors are based can provide very valuable insights.
Once you have this perspective, you can understand the opportunity and real value you can bring to the landlord which can be very helpful in the negotiation process.
And finally, take the standpoint of shared success when having discussions with potential landlords. It benefits both parties if the commercial lease is based on creating a platform for a sustainable business and worth discussing terms for revenue share based on a reduced rental fee. After all, your successful business helps in creating their thriving retail destination.
Zbynek Cerny, CEO, Papilonia
Learn more at the event!
The Completely Retail Marketplace events facilitate brand entry or expansion in specific markets across Europe. You will be able to discover spaces available now and in the future to help you achieve expansion objectives.
Next events taking place:
- London: 27th September, 2022
- Nordics: May 2023 (TBC) For more information, visit crmarketplace.com
The author
Simon J. Mills is responsible for partnership and business development at The Completely Group
