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11/13/2012
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Protecting the Perfect Location:
Franchise Considerations in Leases and Other Real Estate Documents
Stacy Engles WipflerNovember 12, 2012
• Location• Location• Location
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© Husch Blackwell LLP
Landlord
Tenant/Franchisee
Franchisor
Lease
Franchise Agreement
Lease Rider/Assumption Agreement
Alignment of (Some) Interests
• Landlord/Franchisor both want:– Payment from Tenant– Control of the location– Continued operations– Maintenance of standards
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Lease Assumption Agreement:
FRANCHISOR OPTIONS IN EVENT OF A TENANT LEASE DEFAULT
• Option 1 – Abandon the location• Option 2 – Direct operation by
Franchisor• Option 3 – Franchisor assignment to
new franchisee
Lease Assumption Agreement
• Option 1: Right of entry– Removal of improvements and de-
identification of premises• Options 2 and 3 - Right to take over
the lease– Direct assumption of lease by Franchisor– Assignment to a third party
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Lease Assumption Agreement
• Pre-approval of assignees• Notice of Tenant default• Right (but not obligation) to cure
Tenant default• Notice of any lease amendments• Release of prior parties
• Use restrictions– Limitation of use to just one concept– Interplay with other use restrictions in
the Center• SNDA from Landlord’s lender• Landlord lien waiver from Landlord
and approval of franchisee lender
Other Lease Assumption Considerations
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Lease Assumption AgreementINTERPLAY WITH FRANCHISE AGREEMENT
• Right of Franchisor to assume/assign lease even if there isn’t a Tenant default
• Release of old franchisee and guarantors
• Expiration of lease and franchisee agreement
© Husch Blackwell LLP
Landlord
Tenant/Franchisee
Franchisor
Lease
Franchise Agreement
Lease Rider/Assumption Agreement
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Franchise AgreementReal Estate Requirements
• Ability for the Franchisor to assume or assign the lease– Form: Lease Rider or terms included in
lease• Site Plan/Lease Approval - Mission
Critical Requirements– Parking, Signage, Exclusive Use, Access– Others
HOW TO PROTECT MISSION CRITICAL CONCEPTS
Lease Provisions
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Exclusive Use
© Husch Blackwell LLP
Exclusivity. Landlord shall not use or allow any other person or
entity to use any portion of the Property for the sale of: (a)
whole or ground coffee beans, (b) espresso, espresso-based
drinks or coffee-based drinks, (c) tea or tea-based drinks, (d)
brewed coffee or (e) blended beverages including, without
limitation, those containing any of the following: coffee,
espresso, tea, milk, cream, juice and/or fruit
Starbucks’ Exclusive
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Restrictions against other uses
Signage
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Visibility
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Outlots - Access and Visibility
Parking
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Access
Co-Tenancy
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More Lease Provisions
• Radius Restrictions• Going Dark Restrictions/Continued
Operations• Drive-Thru Facilities
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