There has been a significant change across various sectors of commerce in the way premises are utilized to meet employees needs and customer demands.
Whether it is running a business from an office with flexible working practices or transitioning to local hubs rather than one main HQ, through to a fast-casual or traditional restaurant being part of a food market in a retail destination and having a dark kitchen to serve customers in the connecting suburbs.
However, there are still several fundamentals to consider that can help you as a franchisor and franchisee when it comes to searching for premises and signing a lease, which will help ensure that you have made the right decisions for your business to grow successfully.
What are some key considerations when entering into a commercial lease in England as a franchisor or franchisee?
It is always important for both parties to ensure any lease entered into is aligned with the fundamental terms of the franchise agreement.
For a franchisor, this means, for example, including cross-default provisions allowing it to terminate the lease if the franchise agreement is terminated as well as excluding statutory security of tenure protection to ensure the franchisee vacates on franchise termination.
Where the franchisee is a new or small entity with no trading record, and the target premises are not owned by the franchisor, the landlord may require the franchisor to take a head lease and grant a sub-lease to the franchisee.
In such case, the franchisor should obtain sufficient security from the franchisee to cover any contingent liability arising through franchisee lease default. The franchisor should limit the permitted use to the franchise operations, and tightly control dealings with the premises.
For franchisees, they should ensure their lease is co-terminus with the franchise agreement – they may also wish to negotiate an option to extend the term if the franchise agreement is renewed. A franchisee will generally want more flexibility such as a tenant only break right, in case the business thrives (necessitating larger premises) or fails, leaving the tenant with payment obligations it cannot satisfy.
A franchisee should request a rent-free period at term commencement to cover the cost of any necessary repair works or to reflect a period for fitting-out the premises before trading can begin.
Stefanie Price, partner, real estate, London, Baker McKenzie
What did you learn from securing your first premises?
Looking for that first property can be tricky, before you start have an idea or framework of what you need and will work commercially. Vacant property doesn’t always mean great opportunity.
Walk and spend time where you are looking; get a feel for the area, the type of customer, competition, what people are spending, and don’t always assume that agents know the area any more than you do.
Once you are settled on your property, don’t sell your soul; know your limits and the model that will work for you. Don’t be afraid to be clear about what will work and always be ready to walk away.
So you have your location, and commercially it stacks. Before you sign, whilst the lease may be fairly black and white, ensure you are protected with some degree of flexibility.
Remember: this needs to work both ways. When it comes to renegotiation, be confident but be realistic. Know what will work for you to continue trading in the space and if you have maintained a good relationship with the landlord, it is likely that you will have a good idea what terms will be agreeable. At any stage, never overstretch your requirements or your commitments.
Sam Shutt, CEO, Extrawurst
What advice can you give during the process of negotiating heads of terms?
Hire a commercial agent. They are experts in the art of negotiation and a good one costs money but will save you thousands.
When you break down the agents’ fee into advertising and searching for a property, negotiation of the Heads of Terms and then ensuring the deal crosses the line – the time they put in and the costs associated with that are worth it.
To try to do that independently when you do not know the commercial retail market would be the single biggest mistake of your new business.
We have relationships with CBRE and Savills and there are many others in the U.K. – find a team that knows your sector and they will save you from overspending on a unit and should in the current tenant market help to negotiate a sensible and fair lease for you.
Elliot Walker, founder and CEO, The Massage Company Ltd.
Learn more at the event!
The Completely Retail Marketplace events facilitate brand entry or expansion in specific markets across Europe. It provides franchise brands and consultants a unique opportunity to meet with the key property landlords and brokers.
Next events taking place:
- U.K.: London on April 26 and September 27, 2022
- Nordics: Stockholm on June 8, 2022
For more information, visit crmarketplace.com
The author
Simon J. Mills is responsible for partnership and business development at The Completely Group
